Company Reports

No-moat Geely reported stronger-than-expected revenue and profit growth for the first half. Excluding one-off gains, the company’s net profit posted 1 time year-over-year growth. Despite fierce price competition in the domestic market, first-half gross margin improved 0.7 percentage points from a year ago. We keep our HKD 15 per share fair value estimate. Trading in 5-star territory, we see value at the current share price as investors underestimate longer-term earnings potential from Zeekr and Galaxy.

Geely Automobile is one of China’s largest automakers, selling about 1.7 million cars in 2023. Unlike state-owned automakers, which often team up with foreign brands to produce vehicles, Geely is dedicated to developing mass-market homegrown cars.

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.

Geely Automobile is one of China’s largest automakers, selling about 1.7 million cars in 2023. Unlike state-owned automakers, which often team up with foreign brands to produce vehicles, Geely is dedicated to developing mass-market homegrown cars.

Shares of Chinese electric vehicle manufacturers fell 4%-9% on June 12 in Hong Kong on news that the European Commission will provisionally apply additional tariffs of up to 25% on imported electric vehicles made in China starting next month, compared with the 10% standard import duties on EVs. The European Union launched an investigation in October 2023 into subsidies given to EV automakers in China. The EU accused Chinese automakers of unfairly benefiting from incentives and support from the Chinese government and such subsidies have raised overcapacity concerns. The commission alleged that subsidized car imports posed an economic threat to the healthy development of the EV industry in the EU.

No-moat Geely posted a stronger-than-expected gross margin for the second half last year with a 2-percentage-point gain from a year ago. While revenue was largely in line, the margin beat was impressive, considering last year’s fierce price competition. Dragged by higher selling and marketing expenses and Lynk & Co equity loss, net profit only rose 1% year over year for the second half. However, excluding the one-off gain in 2022, second-half core net profit was up 91% from the same period last year. Still, we reduce our fair value estimate marginally to HKD 14.20 as well as our 2024-25 net profit forecasts, with higher operating costs offsetting gross margin improvement.

Geely Automobile is one of China’s largest automakers, selling about 1.7 million cars in 2023. Unlike state-owned automakers, which often team up with foreign brands to produce vehicles, Geely is dedicated to developing mass-market homegrown cars.

No-moat Great Wall Motor, or GWM, reported a 15.2% year-over-year decline in its preliminary net profit for 2023 to CNY 7.0 billion, which was in line with our estimate of CNY 7.1 billion. Management attributed the earnings decline to an increase in sales expenses and accelerated investment in new energy vehicles, or NEVs.

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.

Geely Automobile is one of China’s largest automakers, selling about 1.4 million cars in 2022. Unlike state-owned automakers, which often team up with foreign brands to produce vehicles, Geely is dedicated to developing mass-market homegrown cars.

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.

Geely Automobile is one of China’s largest automakers, selling about 1.4 million cars in 2022. Unlike state-owned automakers, which often team up with foreign brands to produce vehicles, Geely is dedicated to developing mass-market homegrown cars.

We raise our fair value estimate for Geely to HKD 20.00 from HKD 13.60 as the company’s new energy initiatives start to gain positive traction. We reduce our 2022-23 net profit forecasts by 17%-33% to reflect weaker-than-expected first-half margins but lift 2024 earnings by 5% and longer-term assumptions to factor in long-term earnings potential from higher new energy vehicle, or NEV, contribution. Excluding the estimated Zeekr valuation on peers’ average 2 times forward price/sales ratio, our fair value implies a 2023 price/earnings ratio of 13.7 times for the remaining group, which is at a 9% discount to its historical average of 15 times. With first-half 2022 earnings below market expectation, a consensus earnings revision down is likely, but we see value at the current share price. We project 2022 to be the profit trough. With a strong NEV model portfolio, we anticipate Geely to deliver a 28% net profit CAGR in 2021-24 with long-term value creation potential through the launch of Zeekr.

Geely Automobile is one of China’s largest automakers, selling about 1.3 million cars in 2021. Unlike state-owned automakers, which often team up with foreign brands to produce vehicles, Geely is dedicated to developing mass-market homegrown cars.

The State Council announced on May 23 that the government plans to set aside CNY 60 billion to support the consumption of passenger vehicles, or PVs, in the form of vehicle purchase tax exemption without elaborating on vehicle types and how the subsidy works. We expect detailed policy to be released soon. Meanwhile, we note that since April, many local governments, such as Shandong, Sichuan, Jilin, Guangdong, and Jiangxi, have announced various supportive policies to stimulate auto purchase.

We reduce our fair value estimate to HKD 13.60 from HKD 16.70 after no-moat Geely reported weaker-than-expected 2021 results. We reduce Geely's 2022-23 net profit forecasts by 26% and 22%, respectively, but slightly lift our longer-term assumptions to factor in Zeekr’s long-term earnings potential. Thanks to a strong product cycle for this year, we forecast Geely to post a 18.7% 2021-24 revenue CAGR with margin improvement. Our fair value implies a forward 2022 price/earnings ratio of 16 times, which is justified by 27.4% 2021-24 net profit CAGR and in line with its historical average of 15 times.

Geely Automobile is one of China’s largest automakers, selling about 1.3 million cars in 2021. Unlike state-owned automakers, which often team up with foreign brands to produce vehicles, Geely is dedicated to developing mass-market homegrown cars.

While the recent COVID-19 outbreaks across China pose some uncertainty to the supply chain, we think the production suspensions will be short-lived--evidenced by how most municipalities have been able to contain spreads in a matter of weeks. Therefore, the fair value estimates for our auto coverage are unchanged.

Geely Automobile is one of China’s largest automakers, selling more than 1.3 million cars in 2020. Unlike state-owned automakers, which often team up with foreign brands to produce vehicles, Geely is dedicated to developing low-priced homegrown cars.

No-moat Geely’s interim earnings missed our estimates, and we do not think it can deliver its volume target for the rest of the year. Shares of the firm look expensive, but we see long-term value creation potential through the launch of Zeekr, and we have raised our long-term forecasts and fair value estimate to HKD 16.70 from HKD 15.50.