20180418-广发证券_香港_-吉利汽车-00175.HK-Strong_model_pipeline_and_rising_contribution_from_key_models__valuation_still_undemanding_9页_873kb

Geely Auto (175 HK) Equity Research Summary

Core Content

This report provides an in-depth analysis of Geely Auto's performance and outlook for 2018. The research maintains a Buy rating with a target price of HK$33.29, based on a 15x 2018E P/E ratio, which is 1 standard deviation above its three-year historical average of 12x. The report highlights the company's strong product pipeline, growing sales, and strategic initiatives to enhance its market position.

Key Highlights

Sales Performance

• March 2018 Sales: 120,964 units, up 39.1% YoY and 9.7% MoM.
• 1Q18 Sales: 386,296 units, up 38.7% YoY, representing 24.4% / 23.3% of the 2018 annual sales target/estimate.
• Export Growth: Exports surged 194% to 1,586 units in March 2018.
• Lynk & Co 01: Sold 8,507 units in March, up 112% MoM. Expected to reach 160,000 unit sales in 2018 with the ramp-up of production capacity and dealer network.
• Emgrand GL: Surged 51.6% YoY to 12,352 units in March, maintaining a strong growth trend with >25% YoY growth for six months.
• Boyue 2018: Launched in March with the GKUI interface, showing 7.1% YoY growth in sales.

Product Pipeline

• 2018 New Models:
  • Geely Brand: Seven new models including two NEVs, two sedans, two SUVs, and one MPV.
  • Lynk & Co: Three new models, including the 02 crossover and 03 sedan, expected to be launched in 2Q18 and 2H18 respectively.
• Platform Sharing: Geely and Lynk & Co are using Volvo's CMA and SPA platforms, which will enhance branding and reduce costs through shared R&D and procurement.
• NEV Strategy: Geely is expanding its NEV lineup with two new EV models and PHEV/HEV versions of key models, under the "Blue Geely" initiative.

Financial Performance (2017)

• Revenue: Rmb92.8bn, up 72.7% YoY.
• Net Profit: Rmb10.6bn, up 108% YoY.
• Gross Margin (GPM): 19.4%, up 1.1pp YoY.
• Operating Margin (OPM): 13.2%, up 2.2pp YoY.
• Cash Dividend per Share: HK$0.29, up 142% YoY.
• Net Cash: Rmb12.2bn, down 5.4% YoY, but still indicates strong cash flow.

Valuation

• P/E Ratio (2018E): 9.7x, considered undemanding.
• Target Price: HK$33.29, based on 15x 2018E P/E.
• Market Cap: HK$200.993bn.
• Shares in Issue: 8,973 million.
• Major Shareholder: Li Shufu (46.2%).

Strategic Initiatives

• Overseas Expansion: Production facilities in Belarus and Malaysia are operational, signaling a shift from exporting to localizing.
• GKUI Interface: Collaborating with Tencent and BOSCH, this interface is expected to enhance the driving experience and position Geely as a leader in future mobility.
• Dealer Network: Lynk & Co has established almost 100 dealers in China, aiming for 250-300 by end-2018.

Risks

• Monthly Sales Miss Expectations
• Market Downside Risk
• Aggressive Discounts Affecting Profitability
• Higher Marketing Expenses for Lynk & Co

Financial Projections

Conclusion

Geely Auto is positioned as a top pick in the auto sector due to its strong product cycle, growing sales, and strategic initiatives in overseas expansion and NEV development. The company is expected to drive 33% YoY sales growth in 2018, supported by a robust lineup of new models and platform sharing. Despite some risks, the valuation is considered undemanding, and the Buy rating is maintained.