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Nikkei Markets

Great Wall's March sales outpace Geely's amid discounts

Rebates are likely to weigh on company's profit margins, analysts say

Auto sales including passenger and commercial vehicles fell 2.8% to 28 million units in 2018, according to data from the China Association of Automobile Manufacturers.   © Reuters

HONG KONG (Nikkei Markets) -- Great Wall Motor on Monday reported a bigger jump in March sales than rivals Geely Automobile Holdings and BYD, driven by suspected discounts on its sports utility vehicle models.

The rebates, an attempt to sidestep a broader slowdown in China's automobile market, will dilute the carmaker's profit margins, say analysts.

Great Wall's sales volume grew nearly 17% in March from a year earlier to 103,090 units, the company said in an exchange filing. Sales of its Haval family of SUVs rose about 18%, while those of the WEY brand continued to decline, sliding 27%. Helped by the F7 model that was introduced in November, Haval volumes have climbed 14% in the first quarter.

The discounts that Great Wall offered to help boost sales in January and February continued to expand in March, analysts at Jefferies wrote in a report last week, citing preliminary channel checks in smaller Chinese cities. Discounts on a version of the Haval H6, an SUV model that continues to be Great Wall's best-selling, increased to about 5,000 yuan ($744) per vehicle in March from 2,000 yuan per car in February, they said.

Jefferies had in the same report cut its earnings forecast for Great Wall by 5% for this year and 11% for the next, mainly because of lowered margin estimates.

Great Wall's improved sales this year follow a 1.6% decline it recorded in 2018 from the year before, amid what is seen as the result of an ageing product portfolio and intensified competition.

Analysts also remain wary of the company's heavy exposure to the SUV segment in a declining market. China's domestic automobile market last year contracted for the first time in more than two decades amid a Sino-American trade war and the government's withdrawal of certain tax incentives.

Auto sales including passenger and commercial vehicles fell 2.8% to 28 million units in 2018, according to data from the China Association of Automobile Manufacturers.

"We believe the new Haval F7 SUV has few distinctive features compared with Great Wall's existing SUV lineup, which could result in sales cannibalization across its product lineup," brokerage CIMB said in a report last month.

Some others are more optimistic about the performance of newer products such as the F7.

"I pay more attention to the F series, and the F7 is doing quite well," said Zhuang Dan, an analyst at RHB Research in Hong Kong.

Great Wall's March sales included more than 14,000 units of the F7.

Meanwhile, rival Geely, whose parent group also owns the Volvo and Proton brands, reported a 3% increase in March sales volume to 124,643 units. Exports saw a more than four-fold jump, the company said in a separate exchange filing. New energy vehicles accounted for 6.5% of Geely's overall sales in March.

Geely has been managing its inventories this year, RHB's Zhuang said.

BYD, on the other hand, posted an 8.5% increase in March sales to 46,825 units as new energy vehicle volumes more than doubled from a year earlier. Sales of its oil-fueled vehicles slumped more than 42% from a year earlier.

The Warren Buffett-backed company has been stepping up its presence in the new energy vehicle space as customers gradually veer toward environment-friendly vehicles.

Shares of Great Wall slipped 0.2% in Hong Kong on Monday, while those of Geely and BYD advanced 2.4% and 1.2%, respectively. The benchmark Hang Seng Index added 0.5%.

-- Benny Kung and Dhanya Thoppil

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