20180823-兴业金融证券-吉利汽车-00175.HK-Good_As_Always__BUY_11页_547kb

Geely Automobile Summary

Core Content

Geely Automobile, a key player in the consumer cyclical sector, has demonstrated strong financial performance and growth expectations. The report, dated 23 August 2018, highlights the company's continued growth trajectory, with a recommendation to maintain a "BUY" rating and a target price of HKD29, which offers a 76% upside from the current price of HKD16.50. The valuation is based on an 11.4x 2019F P/E multiple, which is +1SD of its 3-year average, supported by a DCF valuation of HKD30.80.

Main Points

• Financial Performance:

  • In 1H18, Geely reported revenue of CNY53.7bn (+36.2% YoY) and earnings of CNY6.7bn (+53.5% YoY).
  • The company's gross margin increased slightly, and net profit margin improved significantly, indicating better cost control and profitability.

• Lynk & Co Contributions:

  • The Lynk & Co joint venture contributed CNY171m in net profit for 1H18, exceeding expectations.
  • Net margins for Lynk & Co are expected to remain around 5% in 2H18, even after accounting for intellectual property depreciation and amortisation expenses.

• Future Earnings and Revenue:

  • The company is expected to maintain strong performance in 2H18 and 2019, driven by a robust model cycle.
  • Five new Geely models are set to launch in 2H18, including an A-segment SUV, an A-segment sedan, a Boyue-series sporty SUV, an MPV, and an electric vehicle (EV).
  • Lynk & Co will also launch the C02 and C03 models in 2H18, which could further boost revenue and volume growth.

• Valuation and Metrics:

  • The target price of HKD29 is based on a 11.4x 2019F P/E multiple, which is below the sector average.
  • The current P/E ratio is 8.2x, which is considered a low entry point.
  • Estimated ROEs for 2017-2019 are sustained at 35%, supporting the valuation.

• Key Risks:

  • The primary risk is the unsuccessful sales of the Lynk & Co brand, which could impact the earnings forecast.

Key Financial Data

Financial Highlights

• Growth Projections:

  • Revenue growth is expected to continue, with a projected full-year sales volume of ~1.76m units in 2018, up 41% YoY.
  • The company's recurring EPS growth is projected at 46.3% for 2018, 36.6% for 2019, and 22.1% for 2020.

• Capital Expenditure:

  • Capex/sales is expected to remain around 8.8% for 2018-2020, indicating a strong investment in future growth.

• Operating Performance:

  • Operating EBITDA margin is projected to improve slightly, and net profit margin is expected to continue rising.

Peer Comparison

Geely is compared to various Chinese and international OEMs, showing a more favorable valuation and growth outlook. The company's P/E and P/B ratios are lower than the sector average, suggesting potential undervaluation.

Conclusion

Geely Automobile is recommended as a "BUY" due to its strong earnings growth, new model launches, and improved margins. The target price of HKD29 is supported by a DCF valuation and the company's favorable valuation metrics. The main risk is the performance of the Lynk & Co brand.