GWM's 1H 2017 Profit Down 49% on Substantial Inventory Destocking Cost, but Worst Is Likely Over

GWM's Potential Acquisition of Jeep Could Be a Long-Term Positive; FVE Maintained at HKD 12

GWM's Earnings Bottomed Out in First Half; FVE Raised to HKD 14 on Improving Product Mix

2017 Sales Volume Target May Be Overly Aggressive

Sales Tax Reimbursement May Compress Margin in 2017

Great Wall: Controlling Shareholder Pledged More than 12% of the Company's Share Capital!

Leading Independent Investment Research, Morningstar, Inc.

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Morningstar, Inc.

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Equity Bottom-Up

We walked away from no-moat-rated Great Wall Motors, or GWM’s, investor conference reassured about the company’s growth outlook in 2017 and beyond. In our view, the company’s “best bang for the bucks” product development philosophy will help sustain its current market share leadership despite the intensifying competition in the SUV segment, and the introduction of WEY luxury class SUVs. In-house production of core components (namely dual-clutch transmission) presents additional bottom line upside.We raise our fair value estimate to HKD 12 per share (from HKD 11) after rolling over our model. Our latest fair value implies 7.9 times forward price/earnings, 5.4 times enterprise value/adjusted EBITDA, and dividend yield of 4%. With 35% of implied upside and solid yield level, we consider the current market price undervalued.Analyst: John Hu

We walked away from no-moat-rated Great Wall Motors, or GWM’s, investor conference reassured about the company’s growth outlook in 2017 and beyond. In our view, the company’s “best bang for the bucks” product development philosophy will help sustain its current market share leadership despite the intensifying competition in the SUV segment, and the introduction of WEY luxury class SUVs. In-house production of core components (namely dual-clutch transmission) presents additional bottom line upside.We raise our fair value estimate to HKD 12 per share (from HKD 11) after rolling over our model. Our latest fair value implies 7.9 times forward price/earnings, 5.4 times enterprise value/adjusted EBITDA, and dividend yield of 4%. With 35% of implied upside and solid yield level, we consider the current market price undervalued.Analyst: John Hu

GWM's 2017 Outlook Remains Robust on Redesigned Haval H6 and WEY; FVE Raised to HKD 12