Cash Flow Statem ents (¥M)

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THIS REPORT WAS PREPARED BY “STUDENT’S NAME”, A MASTERS IN FINANCE STUDENT OF THE NOVA SCHOOL OF BUSINESS AND ECONOMICS, EXCLUSIVELY FOR ACADEMIC PURPOSES. THIS REPORT WAS SUPERVISED BY ROSÁRIO ANDRÉ WHO REVIEWED THE

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ASTERS IN

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INANCE

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QUITY

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ESEARCH

Appendix

1.Financial Statements of GWM

Balance Sheet (¥M) 2015 2016F 2017F 2018F 2019F 2020F 2021F 2022F CAGR

Vehicle business

Net fixed assets 28,535 33,448 37,162 40,242 41,535 41,750 41,758 41,679 6% Net w orking capital 13,173 12,391 13,529 15,037 16,242 17,070 17,466 17,789 4% Net non-operating capital -6,295 -6,883 -6,670 -7,046 -7,396 -7,576 -7,592 -7,605 3%

Total invested capital 35,511 38,956 44,021 48,232 50,381 51,245 51,632 51,863 6% Equity 37,826 41,369 46,434 50,645 52,794 53,658 54,045 54,276 5%

Financial debt 0 0 0 0 0 0 0 0

Excess cash -2,413 -2,413 -2,413 -2,413 -2,413 -2,413 -2,413 -2,413 0%

Total source of funds 35,413 38,956 44,021 48,232 50,381 51,245 51,632 51,863 6%

Financial business

Asset(as reported) 1,059 2,919 4,881 6,047 6,886 7,471 7,915 8,258 34% Liability(as reported) 498 2,249 3,891 4,512 4,853 4,834 4,762 4,475 37%

Net invested capital 560 670 990 1,534 2,033 2,637 3,153 3,783 31%

Group All capital invested 28,535 33,448 37,162 40,242 41,535 41,750 41,758 41,679 6%

Incom e statem ent(¥M) 2015 2016F 2017F 2018F 2019F 2020F 2021F 2022F CAGR

Sales revenue 75,955 80,943 89,560 94,568 99,685 102,288 102,725 102,948 4% Cost of sale 59,750 66,078 74,665 78,678 82,849 85,013 85,376 85,561 5% Gross Profit 16,204 17,979 18,174 19,176 20,207 20,734 20,823 20,868 4% Operating expense 6,872 8,853 10,837 10,925 10,602 10,898 9,920 9,935 5%

EBIT 9,332 9,125 7,337 8,252 9,605 9,837 10,903 10,933 2% Tax on operation 1,558 1,359 960 1,032 1,211 1,204 1,338 1,267 -3%

NOPAT 7,774 7,767 6,377 7,220 8,393 8,632 9,565 9,666 3%

Non-operating income after tax

279 349 440 458 428 415 379 379

4%

Revenue 79 584 1,708 3,023 4,132 5,230 6,253 7,639 92% Profit before tax 18 146 427 726 950 1,151 1,376 1,681 91% Tax on financial business 5 36 107 181 238 288 344 420 88%

Profit after tax 14 109 320 544 713 863 1,032 1,260 90%

Group Total net profit 8,066 8,225 7,138 8,222 9,534 9,910 10,975 11,305 5%

Key ratios 2015 2016F 2017F 2018F 2019F 2020F 2021F 2022F

Vehicle sale volume grow th% 15% 10% 9% 4% 4% 3% 0% 0%

Vehicle price grow th% 6% -3% 2% 2% 1% 0% 0% 0%

Revenue grow th% 21% 7% 11% 6% 5% 3% 0% 0%

Gross margin rate 25% 22% 20% 20% 20% 20% 20% 20%

EBIT margin rate 12% 11% 8% 9% 10% 10% 11% 11%

D/E ratio 0% 0% 0% 0% 0% 0% 0% 0%

Effective tax rate 17% 17% 17% 17% 17% 17% 17% 17%

Revenue grow th% 843% 643% 193% 77% 37% 27% 20% 22%

EBIT margin rate 23% 25% 25% 24% 23% 22% 22% 22%

Group

Adjusted EPS(RMB) 0.88 0.90 0.78 0.90 1.04 1.09 1.20 1.24

Payout ratio 40% 40% 40% 40% 40% 40% 40% 40%

DPS(RMB) 35% 36% 31% 36% 41% 43% 48% 49%

Source: Annual report and sale announcements

2.Forecasting Cash flow

Cash Flow Statem ents (¥M) 2015 2016F 2017F 2018F 2019F 2020F 2021F 2022F CAGR

NOPAT 7,774 7,767 6,377 7,220 8,393 8,632 9,565 9,666 3% Depn & Amortisation 1,970 2,216 2,598 2,886 3,126 3,226 3,243 3,243 7% CAPEX -5,142 -7,129 -6,312 -5,966 -4,419 -3,441 -3,251 -3,165 -7% Working Capital Change -2,854 782 -1,138 -1,508 -1,205 -828 -395 -323 -27%

Operating cash flows 1,748 3,636 1,525 2,633 5,894 7,589 9,162 9,421 27% Non-operating income after

tax 279 349 440 458 428 415 379 379 4%

Depn & Amortisation -61 -61 -61 -61 -61 -61 -61 -61 0% Change in non-operating

invested capital 2,068 588 -213 376 350 179 16 14 -51%

Non-operating cash flows 2,280 876 166 773 717 533 334 331 -24%

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GREATWALL MOTOR (2333 HK) COMPANY REPORT

Operating income 14 109 320 544 713 863 1,032 1,260 91%

CAPEX -14 -109 -320 -544 -499 -604 -516 -630 73%

FCFF of financial business 0 0 0 0 214 259 516 630 17457%

Group Total FCFF _4,027 _4,512 _1,691 _3,406 _6,825 _8,381 _10,011 _10,383 _14%

Source: Annual report and sale announcements

3.SOP method to estimate market return

SOP is short for Sum-of-the-Parts method, the illustration of which could be seen in Miguel A. Ferreira a,b and Pedro Santa-Clara’s paper Forecasting stock market returns: The sum of the parts is more than the whole. They got a better forecast for stock market return in the sample of 1927-2007. In their claims, expected market return could be separately decomposed by three parts: the dividend–price ratio, the earnings growth, and the price–earnings growth. For the earnings growth rate, they use 20-year moving average while I use 10-year because I think10-year is

approximately the length of an economic cycle and better reflecting the latest

information. To be noticed, the selection of the term of EPS moving average makes a big difference to market return rate. Sensitivity analysis is made in this appendix.

4.Peering financial groups listed in HK

The sample of this group is selected from the HK-listed Chinese banks, containing big and small ones. Since all financial companies are managed by the Financial Administration Bureau under strict regulation, especially on capital adequacy. So I believe GWM’s financial company will follow this norm in the long-run. Namely, it would have similar cost of debt, risks exposure and capital structure.

Table-Frequency distribution of capital structure for the past 11 years

D/(D+E) ra3988 HK 1398 HK 1288 HK 939 HK 1988 HK 3328 HK 3968 HK 1088 HK 6818 HK 2066 HK 1963 HK 6138 HK Sum 0.1 0% 0% 0% 0% 0% 3% 0% 0% 0% 0% 0% 0% 3%

0.2 0% 0% 0% 0% 0% 0% 0% 71% 0% 0% 0% 0% 71%

0.3 13% 0% 0% 0% 0% 0% 5% 21% 0% 0% 0% 0% 40%

0.4 5% 18% 0% 31% 0% 0% 10% 8% 0% 0% 0% 0% 72%

0.5 10% 21% 16% 16% 0% 0% 20% 0% 0% 0% 0% 0% 84%

0.6 8% 9% 8% 37% 14% 9% 25% 0% 0% 0% 0% 0% 110%

0.7 18% 51% 76% 17% 7% 21% 5% 0% 0% 21% 0% 0% 216% 0.8 46% 0% 0% 0% 64% 43% 30% 0% 35% 79% 59% 100% 455%

0.9 0% 0% 0% 0% 14% 24% 5% 0% 65% 0% 41% 0% 149%

1 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% Source: bloomberg

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Table-Frequency distribution of Rd for the past 11 years

Rd

ranges 3988 HK 1398 HK 1288 HK 939 HK 1988 HK 3328 HK 3968 HK 1088 HK 6818 HK 2066 HK 1963 HK 6138 HK Sum 1.0% 0% 0% 0% 0% 0% 3% 0% 0% 0% 0% 0% 0% 3%

1.5% 0% 0% 0% 0% 0% 0% 0% 2% 0% 0% 0% 0% 2%

2.0% 7% 11% 11% 11% 6% 8% 4% 9% 13% 17% 12% 20% 128%

2.5% 23% 24% 12% 24% 8% 6% 5% 12% 29% 21% 15% 27% 208%

3.0% 39% 43% 32% 46% 43% 15% 30% 43% 12% 21% 29% 26% 380%

3.5% 13% 18% 45% 15% 44% 40% 41% 15% 46% 42% 45% 26% 390%

4.0% 8% 0% 0% 0% 0% 18% 5% 15% 0% 0% 0% 0% 47%

4.5% 5% 3% 0% 3% 0% 9% 10% 3% 0% 0% 0% 0% 34%

5.0% 3% 0% 0% 0% 0% 0% 5% 0% 0% 0% 0% 0% 8%

5.5% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% Source: bloomberg

In this table, the cost of debt is rather dispersed but mainly at the range of 2.5%~3.5%. The cost is measured by the interest expense to the interest -bearing debt of the banks. GWM’s financial company might not be able to fund with low-cost debt at the beginning so I select the upper range as the Rd of GWM’s financial company, say 3.5%.

5.Downard price evolution

of China’s PC in general

Annual Average Price(¥0000) 2012 2013 2014 2015 By 2016 Apr

All types Price 14.26 14.15 14.34 14.07 12.89

YoY% _-1% _1% _-2% _-8%

SUV Price 21.20 18.80 18.78 16.53 14.38

YoY% -11% 0% -12% -13%

Source: http://www.cpca1.org/news.asp?types=topics&anid=52

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6.Sale of top 10 auto groups in China in 2015

Source: Gasgoo

Apart from GWM and Geely, others are state-owned auto groups. In addition, Geely has a luxury subsidiary, Volvo, while GWM is the only one who doesn’t have

experience of establishing joint-ventures with foreign large auto groups.

7.GWM Product Lines Display

Source: Yiche.com

GWM has all types of SUV spanning from RMB 55k to 250k, covering smallest size SUV to full size SUV. The large figure in the product name represents the upper level of products segment. For each segment, GWM’s product’s price range spans longer than those of peers and the upper limit is beyond the peers. The 7-seat H7, luxury full-sized H8 and off-road SUV H9 find no comparable Chinese-brands opponents currently.

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Table-GWM’s respective product sale volume Sale volume

2013 2014 2015 2016Q1 Breakdown

of 2016Q1

YoY growth 2016Q1

Pick-up Wingle 136,132 121,602 100,739 27,702 12% -2%

SUV

H1 13,049 74,571 21,716 9% 9% H2 49,351 168,517 39,058 17% -6% H5 61,875 45,945 23,212 5,715 2% -8% H6 217,889 315,881 373,229 121,325 52% 38% H8 8,985 2,197 1%

H9 5,102 13,961 2,346 1% -65% M2 9,611 2,708 307

Shut Down -100% M4 128,054 87,409 36,270

Sedan C30 _C50 126,036 _65,611 52,463 _38,611 34,005 _20,081 10,092 _3,274 4% _1% _-46%-7%

Total 770,619 732,989 846,272 233,425 100% 6%

Source: Company annual report and monthly sale report

8.Price differences of the dual-listed stocks

GWM is one of the A+H dual-listed company in China. There are two main

characteristics of stock price of this type of listing. The first is synchronicity of stock price movements. The R2_{of GWM’s A}_{-Share and H-Share weekly prices from Sep}

2011 to May 2016 is 0.94. The inconsistent movements might be partly incurred by currency exchange rate changes. The second one might be more critical, which is the price differences. The H-Share price was below the A-Share price most of the time. If the H-Share price is converted to RMB at exchange rate of 100:80, the price gap will be more obvious. However, the voting right and benefit of each share holding are equal for the investors of H-Share and A-Share. If so, arbitrage might happen. This gap is mainly attributable to two causes. The primary one is government regulation of mainland China, which imposes limitation on the amount of investment in and from mainland China. Some institutional investors are exempted from this limitation, but they are supervised by government, that is another kind of regulation. The second explanation to the price gap is risk premium. The mainland investors have not way to freely invest abroad in the lower-risk assets. In this sense, much capital is enclosed in China, pushing up the price of capital market.

The graph below depicted the price premium of GWM A-Share over H-Share and the whole market premium index made by Hangseng (Hangseng A and H Share

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Source: Bloomberg Terminal

9.Brand Loyalty Analysis

Ranking Brand Emigrant Index Brand Loyalty Index Brand Immigrant Index 1 Chery 193.4 Ford 181.2 VW 116.1

2 Kia 192.7 VW 165.6 Ford 96.8

3 Mazda 192.7 BMW 161.3 Hyundai 72.4

4 Honda 191.4 Benz 156.3 Toyota 56.8

5 Chevrolet 190.7 Hyundai 148.3 BMW 55.6

6 BYD 190.6 Changan 148 Changan 47.7

7 Nissan 189.8 GWM 143.3 Benz 44.7

8 Buick 189.3 Toyota 137.5 Buick 43.1

9 Geely 189.3 Geely 134 Mazda 39.8

10 Toyota 188.3 Buick 133.8 Chevrolet 25.5

11 Changan 186.3 Nissan 132 Honda 20.4

12 GWM 184.4 BYD 128.8 BYD 20.4

13 Hyundai 184.3 Chevrolet 128.3 Kia 14.6

14 Benz 180.2 Honda 125.5 Nissan 11.4

15 BMW 177.1 Mazda 119 GWM 0.4

16 VW 173.8 Kia 118.8 Geely 0.04

17 Ford 154.5 Chery 114.9 Chery 0.03

Source: Beijing CRED Consulting Co., Ltd(2015)

Emigrant index measures how many vehicle owners are betraying their current brand when making replacement purchaser choice. Chery should be alert as it is losing customers. Loyalty index is almost the reverse against emigrant index. It measure how many customers can be retained in replacement purchase process. GWM behaves well as many of its customers are willing to choose GWM’s products again. Immigrant index depicts how many customers come from other brands. GWM and other Chinese-brands do badly in this scale.

10.Data source of congested cities profile

Congestion index ranking:

Amap.com

Vehicle in use:

http://new s.xinhuanet.com/auto/2014-05/07/c_126471044.htm http://society.people.com.cn/n1/2016/0106/c136657-28019898.html http://hlj.people.com.cn/n/2015/0804/c220027-25837899.html

http://new s.bandao.cn/news_html/201310/20131010/news_20131010_2274795.shtml http://www.nbd.com.cn/articles/2015-09-07/944007.html

http://www.hubeiqiche.org/content/?2236.html

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http://fj.people.com.cn/n/2015/0729/c363314-25760756.html

Total length of road and population data:

http://www.zzstjj.gov.cn/tjww/tjgb/zzs/webinfo/2015/04/1427181435840071.htm http://www.whtj.gov.cn/details.aspx?id=2513

http://www.cdstats.chengdu.gov.cn/detail.asp?ID=85510&ClassID=020701 http://cstj.gov.cn/static/ndcss/20150323/28174.html

http://www.tjcn.org/tjgb/201503/28078.html http://www.tjcn.org/tjgb/201504/28238_2.html

http://tjj.fuzhou.gov.cn/tjjzwgk/tjxx/ndbg/201505/t20150505_893196.htm http://www.stats-tj.gov.cn/Item/25858.aspx

http://www.tjcn.org/tjgb/201504/28318_3.html http://www.cqtj.gov.cn/html/tjsj/tjgb/15/03/7345.html http://www.qdcaijing.com/2015/0329/126688_3.shtml

http://www.sztj.gov.cn/xxgk/tjsj/tjgb/201504/t20150424_2862885.htm http://www.stats-sh.gov.cn/sjfb/201502/277392.html

http://www.stats.dl.gov.cn/index.php?m=content&c=index&a=show&catid=52&id=10722 http://www.jinan.gov.cn/art/2015/6/16/art_179_129180.html

http://www.bjstats.gov.cn/tjsj/tjgb/ndgb/201511/t20151124_327764.html http://www.harbin.gov.cn/info/news/index/detail/393849.htm

http://www.chinatesting.com.cn/0hyzx/b/201411592.html http://www.jt.sh.cn/export/infopub/zxzfxx/2014-00005/ http://glj.qdjt.gov.cn/list.html?ID=1

http://w ww.tjsql.com/data.aspx?d=157590 http://www.tjsql.com/data.aspx?d=170646 http://www.tjsql.com/data.aspx?d=159325 http://www.tjsql.com/data.aspx?d=159010 http://www.tjsql.com/data.aspx?d=161932 http://www.tjsql.com/data.aspx?d=168128 http://www.tjsql.com/data.aspx?d=120072

11.Sensitivity analysis

I have made conservative assumptions on the forecasted cash flows. However, some inputs pertinent to discount rate and growth rate in the valuation model still have strong impact on the estimated share price. The figure below displays the share price sensitivity to five inputs. The span of each input in the chart indicates +/ -5% deviation from the best estimated price (HK$11.29).

Take Rd as an example, the best estimated price is based on 3.5% Rd. The upper (6%) and lower (2%) limit of Rd in this chart correspond to the -5% and +5% deviation from the best estimated price, respectively. The larger span means that price is less sensitive to that input.

Therefore, estimated share price is very sensitive to three inputs: the growth of financial company, the growth of vehicle business and market return. Now I assume no growth for both business. But if there is 1% perpetual growth for financial

business, the share price would increase by ca 5%. Also, if the market return is lower than 9.3% then the share price would go up by ca 5%.

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