Short interest in Great Wall Motor highest since Dec 2011

Bloomberg

Short-sellers crowding into Great Wall Motor Co. are being vindicated — and they’re lining up for more. Shares in China’s largest SUV maker have retreated 18 percent from a February peak in Hong Kong as sales of its aging Haval H6 model fell and the company reported a quarterly profit decline. Now bears are doubling down: short interest in Great Wall rose to the highest since December 2011 this month, and was the most among more than 2,000 stocks listed in the city.
The automaker is banking on a rebound in sales with new models hitting the showrooms over the next two months and hopes that its WEY brand will gain traction with consumers. It’s projecting full-year vehicle sales will gain 16 percent to a record 1.25 million units. And Great Wall’s Hong Kong shares have a powerful ally in mainland investors, who’ve boosted their buying through the city’s exchange links to hold a 24 percent stake.
“Investors are very divided about the stock’s outlook,” said Castor Pang, head of research at Core-Pacific Yamaichi HK. “They have almost opposite views about Great Wall’s business strategy and the overall sales outlook in China’s auto market.”
Great Wall is sticking to its guns. Short sellers just “see on the surface,” General Manager Wang Fengying told Bloomberg in an interview. “We feel we are on the right path.” Short interest in Great Wall’s Hong Kong-listed shares stood at 16 percent of outstanding shares as of May 10, more than a 5-year high, and was at 14.5 percent as of May 18, data from IHS Markit Ltd. show.
Competition in China’s SUV market is intensifying. Geely Automobile Holdings Ltd. plans to sell its first SUV model under the upscale Lynk & Co. brand from the fourth quarter, while Guangzhou Automobile Group Co. plans to launch at least five new SUV models this year, according to its 2016 annual report.
Great Wall is being targeted by shorts because its revenue is most exposed to that segment of China’s auto market, making it vulnerable to price pressure, according to Caroline Maurer, Hong Kong-based head of Greater China equities at BNP Paribas Investment Partners.

SALES TARGET
Baoding, Hebei-based Great Wall has set a companywide sales target of 2 million units by 2020, almost double what it sold last year. That may be difficult to pull off, according to Sanford C Bernstein. Initial orders for the WEY brand totaled about 10,000 units, based on Bernstein’s recent channel checks with dealers.
“The sales target is just way too aggressive,” said Bernstein analyst Robin Zhu, who estimates Great Wall’s profit margin will fall to 6 percent in 2019 from this year’s estimated 9 percent. “Bears are skeptical about the new brand and are expecting further price cuts as more players are joining the SUV party in China.”