Geely Earnings: Despite Profit Miss, Sequential Margin Improvement Signals Recovery Is in Sight

No-moat Geely posted 1% year-over-year net profit growth for the first half to CNY 1.6 billion, mainly dragged by surging selling and marketing expenses and equity loss from the Lynk & Co segment. Revenue was largely in line. Due to price competition, first-half gross margin contracted 0.2 percentage points from a year ago. We reduce our fair value estimate to HKD 14.50 from HKD 16.40 as we lower our 2023-25 net profit forecasts to reflect weaker margin and higher operating costs. However, we keep our positive view on Geely as its new energy initiatives continue to show positive progress. Excluding an estimated Zeekr valuation on 1.5 times forward price/sales ratio, our fair value implies a 2024 P/E ratio of 9.4 times for the remaining group—over 30% discount to the historical average of 15 times.