Geely’s H2 Margin, Core Profit Missed; Shares Undervalued Given Positive NEV Progress

No-moat Geely posted 59% year-over-year net profit growth in the second half, which was helped by revaluation gain. Excluding the one-off item, core profit declined 16% compared with the same period last year. While revenue was largely in line, second-half gross margin also missed, with a 3-percentage-point decline from a year ago. We reduce our 2023-24 net profit forecasts by 12%-13% to reflect weaker margin and cut our fair value estimate to HKD 16.40 from HKD 20.00. However, we maintain our positive view on Geely as its new energy initiatives showed positive progress. Excluding estimated Zeekr valuation on 2 times forward price/sales ratio, our fair value implies a 2023 price/earnings ratio of 12.8 times for the remaining group, which is at 15% discount to the historical average of 15 times.