Geely Earnings: Gross Margin Remained Under Pressure, but Volume Target Raised

No-moat Geely posted first-quarter net profit of CNY 1.6 billion, doubling from the same period last year. Due to price competition, first-quarter gross margin contracted 0.5 percentage points from a year ago. With robust vehicle sales year to date, management raised full-year volume guidance to 2.0 million units from 1.9 million. We raise our fair value estimate to HKD 15.00 from HKD 14.20 as we marginally raise the volume forecast and lower operating expense ratios, partly offset by weaker gross margin assumptions. We see values at the current share price as investors underestimate longer-term earnings potential from higher new energy vehicle, or NEV, contribution.