Great Wall Earnings: Competition Weighs On Vehicle Margin, Lifts Selling Costs

No-moat Great Wall Motor, or GWM, reported fourth-quarter net profit declining 44% quarter over quarter, in line with its preliminary announcement. The earnings decline was mostly due to gross margin contraction and a surge in selling expenses as industry competition put extra pressure to have price discounts and dealer rebates. We expect the elevated level of expenses to linger, given the company’s step-up in retail promotions. We reduce our fair value estimate to HKD 9.80 per share from HKD 10.30, which implies a 2024 forward price/earnings ratio of 11 times, compared with its 10-year historical average of 9 times. At the current price level, GWM’s H-shares remain fairly valued in 3-star territory.