Comprehensive Analysis of Geely Automobile Holdings

UOB Kay Hian – November 15, 2024

On November 15, 2024, UOB Kay Hian released an in-depth analysis of Geely Automobile Holdings, maintaining a “BUY” recommendation with a revised target price of HK\$23.00. This comprehensive analysis dives into the financial performance, market position, and future prospects of Geely Automobile Holdings.

Company Overview

Geely Automobile Holdings, listed under the ticker 175 HK, manufactures and sells automobiles under its proprietary brands GEELY and Lynk & Co in China and overseas. The company’s market cap stands at HK\$139,792 million with a 52-week high/low of HK\$15.54/HK\$7.23. Major shareholder Mr. Li Shufu owns 57.98% of the shares.

3Q24 Financial Performance

Geely’s core net profit for 3Q24 exceeded estimates, coming in at Rmb2,267 million, marking an 81% year-over-year (yoy) increase and a 29% quarter-over-quarter (qoq) rise. Revenue grew by 20% yoy and 10% qoq to Rmb60.38 billion, driven by upbeat margins and additional income from battery packs, components, and R&D services.

Detailed Financial Metrics

• Sales Volume: 534,000 units, up 18.7% yoy and 11.2% qoq
• Revenue: Rmb60,379 million, up 20.5% yoy and 9.8% qoq
• Gross Profit: Rmb9,408 million, up 21.6% yoy
• Net Profit: Rmb2,455 million, up 92.4% yoy
• EBIT: Rmb2,823 million, up 93.5% yoy

Future Growth Drivers

Looking ahead, Geely’s earnings are expected to be driven by its strong product pipeline, burgeoning export growth, and margin recovery. The company has raised its 2024-26 net profit forecasts by 18%/8%/8% respectively, with expected net profits for these years at Rmb9,173 million, Rmb10,666 million, and Rmb13,032 million.

Sales Volume and Revenue Projections

Geely is projected to see a 20% CAGR in sales volume, increasing its 2024-26 estimates to 2.1 million units, 2.5 million units, and 2.9 million units respectively. This growth is attributed to the successful launch and strong sales of new models like Galaxy E5, Xingyuan, and Starship 7. The company is also expanding its sales network and product offerings in emerging markets, further boosting its revenue.

Margin Improvements

Geely has shown significant improvements in its margins. The gross margin increased from 15.1% in 1H24 to 15.6% in 3Q24. The EBIT margin also rose from 2.4% in 1H24 to 4.7% in 3Q24. The company has revised its 2024-26 EBIT margin assumptions to 3.5%, 3.7%, and 3.9% respectively, based on the optimization of sales mix, increasing export share, and economies of scale.

Restructuring and Efficiency Improvements

Geely is undergoing a group restructuring to streamline operations and improve efficiency. The company plans to acquire an additional 11.3% stake in Zeekr, raising its ownership from 51.5% to 62.8%. Zeekr will also acquire stakes in Lynk & Co, facilitating better coordination between the two premium brands and generating synergies. This restructuring is expected to boost Geely’s earnings by 3% in 2025 and 6% in 2026.

Earnings Revision and Valuation

UOB Kay Hian has raised its net profit forecasts for 2024-26 by 18%/8%/8% respectively. The target price has been lifted from HK\$21.50 to HK\$23.00, based on a 20x 2025 target PE and higher 2025F EPS.

Key Financials

• Net Turnover: Rmb221,020 million (2024F), Rmb247,500 million (2025F), Rmb286,480 million (2026F)
• EBITDA: Rmb1,700 million annually from 2024 to 2026
• Net Profit (Adjusted): Rmb9,173 million (2024F), Rmb10,666 million (2025F), Rmb13,032 million (2026F)
• EPS: 91.2 fen (2024F), 106.1 fen (2025F), 129.6 fen (2026F)
• PE Ratio: 13.9x (2024F), 11.9x (2025F), 9.8x (2026F)

Conclusion

Geely Automobile Holdings has demonstrated robust financial performance and promising future prospects. With strong revenue growth, improved margins, and strategic restructuring, the company is well-positioned for sustained growth. UOB Kay Hian’s recommendation to maintain a “BUY” rating with a revised target price of HK\$23.00 reflects confidence in Geely’s ability to capitalize on its market opportunities.