Maintain BUY. We are of the view that the Tank brand, pick-up trucks and exports will continue to support Great Wall’s earnings in FY24E. Great Wall’s success in the off-road style SUVs has helped its PHEV sales volume and brought higher- than-expected margins, although it is difficult to extend it into BEVs in the short term. We project FY24E sales volume to increase 10% YoY to 1.35mn units and net profit to rise 13% YoY to RMB 7.9bn.
　　We expect 1Q24E GPM to be stable QoQ. We estimate that 4Q23 GPM without year-end bonus (about 21% on our estimates) should have been close to that in 3Q23. That gives us more confidence in 1Q24E GPM, as higher sales contribution from exports and minimal bonus effect in 1Q24 are likely to offset the 25% QoQ sales volume decline and rising discounts. We project Great Wall’s 1Q24E net profit to be about RMB1.6bn, implying a net profit per vehicle of RMB5,800, or 6% higher than that in 4Q23.
　　PHEV as key to electrification in FY24E, as the automaker has not found competitive BEV products. We project Great Wall’s total sales volume to rise 10% YoY to 1.35mn units, mainly driven by exports and the Tank brand, which are also key drivers for its earnings. We revise up FY24E GPM forecast by 0.4ppt to 18.6%, as its GPM for PHEVs was probably better than our prior expectation. We also revise up FY24E selling expense forecast by 9% to about 4.5% of total revenue, as the selling expense ratio of 4.8% in FY23 was the highest for at least 14 years due to higher-than-expected advertising expense and fees related to overseas expansion. Therefore, we cut our FY24E earnings forecast by 3% to RMB7.9bn.
　　Such resilient profitability has provided more room for its EV transition and Great Wall’s expertise in the off-road style SUVs also help support its Tank PHEVs. On the other hand, we project Great Wall’s BEV sales volume (under the Ora brand) to decline YoY in FY24E. We are of the view that Great Wall has not found suitable BEV products and such situation is not likely to be changed in FY24E.
　　Valuation/Key risks. We maintain our BUY rating and target price of HK$13.00, still based on 13x our revised FY24E P/E. Investors could keep an eye on the upcoming Beijing Auto Show in late Apr, as its new PHEV models’ debut could be a positive catalyst for share price. Key risks to our rating and target price include lower sales volume and margins, especially for NEVs, slower tech transformation than we expect, and sector de-rating.