20250321-招银国际-吉利汽车-00175.HK-Economies_of_scale_lays_foundation_for_FY25_profit_5页_1mb

Geely Automobile (175 HK) Summary

Core Content

Geely Automobile (175 HK) has demonstrated a mixed performance in its 4Q24 financial results, with a gross profit margin (GPM) exceeding expectations, which gives confidence in its potential for improved margins in FY25E. Despite a revenue decline compared to prior forecasts, the company's economies of scale and strategic positioning are seen as key factors in its ability to withstand rising competition.

Main Points

• 4Q24 Financial Performance:

  • Revenue was approximately 6% lower than the prior forecast, primarily due to a decline in Viridi sales.
  • GPM reached 17.3%, beating the forecast by 1.2ppts, resulting in an in-line gross profit.
  • Net profit was mixed, influenced by forex losses and intangible asset impairment, but partially offset by gains from equity-method entities and a fair value change in Horse Powertrain JV.
  • Excluding forex and fair value gains, net profit for FY24 was about RMB9.2bn, slightly above prior forecasts.

• FY25E Outlook:

  • Sales volume forecast was raised from 2.46mn to 2.74mn units, driven by strong performance in the first two months of 2025.
  • Geely and Galaxy are expected to perform well, with a forecast of 2.13mn units.
  • Zeekr and Lynk & Co are viewed with more caution, with forecasts of 0.27mn and 0.34mn units respectively.
  • GPM for Galaxy and Geely brands are expected to widen by 3.2ppts and 0.3ppts YoY, respectively.
  • Overall GPM for Geely is projected to narrow by 0.4ppts YoY to 15.5%, though management expects improvement.
  • Impairment and share-based payments are expected to decline significantly, potentially boosting FY25E net profit along with a possible forex gain.

• Valuation and Key Risks:

  • FY25E net profit estimates were raised by 7% to RMB14.6bn.
  • The BUY rating is maintained, with the target price increased to HK$23.00 from HK$19.00.
  • Valuation based on sum-of-the-parts (SOTP) suggests a target market cap of HK$231bn.
  • Zeekr is valued at 0.6x core revenue, implying a valuation of US$8.5bn, reflecting concerns about rising competition and Lynk & Co's transition.
  • Geely's other businesses are valued at 12x FY25E P/E.
  • Key risks include lower sales and GPM than expected, slower progress in autonomous driving, and sector de-rating.

Key Financials

Shareholding and Stock Data

• Shareholding Structure:

  • Mr. Li Shufu: 41.4%
  • Others: 58.6%

• Stock Performance:

  • Market Cap: HK$183,774.8 million
  • 3-month average turnover: HK$1,335.3 million
  • 52-week high/low: HK$18.98/HK$7.47
  • Total issued shares: 10,075.4 million

Analyst Ratings

• CMBIG Ratings:
  • BUY: Stock with potential return of over 15% over next 12 months.
  • HOLD: Stock with potential return of +15% to -10% over next 12 months.
  • SELL: Stock with potential loss of over 10% over next 12 months.
  • NOT RATED: Stock not rated by CMBIGM.
  • OUTPERFORM: Industry expected to outperform the relevant broad market benchmark.
  • MARKET-PERFORM: Industry expected to perform in-line with the relevant broad market benchmark.
  • UNDERPERFORM: Industry expected to underperform the relevant broad market benchmark.

Conclusion

Geely Automobile is expected to benefit from its economies of scale and strong brand performance, although challenges in Zeekr and Lynk & Co may impact overall margins. The BUY rating and increased target price reflect confidence in its long-term growth potential despite short-term uncertainties. Investors should consider the risks outlined, including competition, margin pressures, and market conditions, before making investment decisions.