Its SUVs may be in huge demand but Great Wall Motor’s (02333.HK) sales appear to be hamstrung by a lack of capacity. Based on the company’s operations update, its production and marketing volumes between January and August were more or less flat compared with levels a year earlier.
Fortunately, the privately run carmaker has managed a timely move up the value ladder. By shifting more of the company’s sales focus from pickup trucks to higher-margin SUVs, the local label posted 74 percent year-on-year growth in its interim profit, outperforming its domestic peers.
But for sustained growth, the company needs to expand its production capacity — and soon. Against this backdrop, Great Wall Motor announced last week an additional 2.59 billion yuan (US$423 million) investment in its plant in Xushui, Hebei province, which is still under construction and is expected to start making cars by the end of this year.
The expansion of the Xushui plant will lift Great Wall Motor into the ranks of carmakers able to build more than one million vehicles a year. That compares with its capacity of fewer than 700,000 vehicles in 2012. It also takes Great Wall a step closer to its goal of being able to build 1.5 million cars by the end of 2015.
Great Wall Motor earned 4.09 billion yuan in the first half of this year. Assuming that profit margins don’t change, a doubling of capacity will bring about an annual profit of 16.36 billion yuan, taking the company’s market value — now at HK$169.1 billion (US$21.68 billion) — to eight times its forward earnings.
Don’t forget there is still ample room for the company to grow its business in China’s burgeoning SUV market. After achieving great success with its best-selling entry-level Haval H6, the carmaker is wasting no time to launch the mid-range Haval H8, a move that should help the company widen its margin.
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