Overseas localization as key after 3Q26 miss
长城汽车(601633)
Maintain BUY. Great Wall's 3Q26 net profit missed our estimate by 36% asgross margin fell 1.0ppts QoQ. Great Wall has higher international exposurethan some of its peers, as its YTD overseas sales volume exceeded half oftotal deliveries. It has been expanding global footprint outside Russia in bothsales and production in a bid to mitigate trade risks.
3Q26 miss on GPM. Great Wall’s 3Q26 revenue fell 5.7% YoY toRMB57.8bn, trailing our forecast by 3.0%. GPM fell 1.1ppts YoY and1.0ppts QoQ to 17.3%, coming in 1.1ppts lower than our prior forecast.Management attributed it to launch-stage incentives and ramp-up costs fornewly introduced models in China, while reiterating a healthy overseasGPM. Combined SG&A and R&D ratio fell 1.0ppt QoQ to 10.9%, 0.2pptsbetter than our forecast. Net profit fell 40.7% YoY and 10.4% QoQ toRMB1,362mn, missing our estimate by 36%.
Overseas localization expansion to mitigate tariffs and supports longterm upside. Overseas markets accounted for about 52% of Great Wall’stotal wholesale volume in the first nine months this year, with locallyproduced vehicles comprising 35%-45% of total overseas deliveries.Management projects overseas capacity to reach 250,000-300,000 unitsin FY26E (including 220,000 units in full-process manufacturing facilitiesacross Russia, Brazil and Thailand), with further expansion targeted forFY27E. Its KD plant in Bulgaria provides strategic positioning to mitigateupcoming EU tariffs on Chinese hybrid vehicles. Management still seessubstantial overseas growth potential and expects locally producedvehicles to achieve superior profitability over CBUs (Complete Built Units)over time, potentially exceeding consensus expectations.
Earnings forecasts. We expect 4Q26E sales volume to rise 9.3% QoQ toabout 0.37mn units, supported by new models (the H10, new Lanshan andOra models). We expect year-end bonus accruals to drive down GPM by1.1ppts QoQ and increase the combined SG&A and R&D ratio by 2.7pptsQoQ in 4Q26E. We forecast 4Q26E net profit to rise 7.8% YoY toRMB1.3bn, assuming the receipt of RMB2.0bn in Russia’s recycling-feereimbursements. We cut both FY26-27E net profit forecasts by 30% toRMB5.3bn and RMB6.4bn, respectively, reflecting structural policyheadwinds (export VAT rebate reduction and battery consumption taxincrease) and uncertainties surrounding Russia’s recycling-fee refunds.
Valuation/Risks. We maintain our BUY rating and cut our H-share targetprice from HK$14.00 to HK$8.50, still based on 10x FY27E P/E. Our Ashare target price is adjusted to RMB18.20, based on a 150% A/Hpremium. Key risks to our rating and target prices include lower salesvolume and margins than we expect, as well as a sector de-rating.
