Geely Automobile (175 HK) Summary
Core Content Overview
This document provides an equity research update on Geely Automobile (175 HK), focusing on its financial performance, business segments, valuation analysis, and investment outlook. The report maintains a HOLD rating and updates the target price from HK$13.50 to HK$16.50. It highlights the performance of its Zeekr brand as a key growth driver, while other segments remain uncertain.
Main Points and Key Insights
Financial Performance (1H22)
- Net profit fell 35% YoY to RMB 1.6bn, below expectations.
- Revenue increased 29% YoY to RMB 58.184bn, driven by battery pack sales.
- Gross margin was 14.6%, 2 ppts below forecast, attributed to rising battery costs and depreciation expenses.
Zeekr Valuation
- Zeekr is expected to achieve 10,000 units in monthly sales by 4Q22 and 70,000 units in FY22E.
- Projected FY23E sales volume is 0.15mn units, driven by lower-priced new models.
- Valuation for Zeekr is based on 3x FY23E core revenue, leading to an estimated HK$146bn for 100% ownership, comparable to Xpeng's (XPEV US) current market cap.
Other Businesses
- Valuation of other businesses (Geometry, PHEVs, etc.) is more challenging due to low earnings quality and uncertain future performance.
- The report assigns a 10x FY23E P/E to these segments to account for the less exciting nature and potential industry challenges.
- Geometry faces challenges due to its reliance on ride-hailing fleets, and its upcoming models may not signal strong brand focus.
- PHEV models are seen as derivatives of ICE products, so profitability is emphasized in valuation.
Financial Projections (FY22E to FY24E)
| Metric |
FY22E (RMB mn) |
FY23E (RMB mn) |
FY24E (RMB mn) |
| Revenue |
143,777 |
171,250 |
186,940 |
| Gross Profit |
22,356 |
27,872 |
30,581 |
| Operating Profit |
4,431 |
7,345 |
7,757 |
| Net Profit |
4,706 |
6,990 |
7,793 |
| Gross Margin |
15.5% |
16.3% |
16.4% |
| Operating Margin |
3.1% |
4.3% |
4.1% |
| Net Margin |
3.3% |
4.1% |
4.2% |
Valuation Methodology
Sum-of-the-Parts (SOTP) Valuation
- Zeekr’s core revenue (FY23E): RMB 42,300 mn
- Valuation for Zeekr: 3x core revenue = HK$146bn for 100% ownership
- Geely’s other businesses (FY23E net profit): RMB 6,901 mn
- Valuation for other businesses: 10x P/E = HK$80.3bn
- Total SOTP valuation: HK$165.3bn
- Target price: HK$16.50 (based on SOTP)
Key Risks
- Sales volume for PHEVs and other segments may deviate from expectations.
- Sector re-rating or de-rating could affect overall valuation.
- Uncertainty around Geely’s other brands and profitability remains.
Shareholding and Stock Data
| Metric |
Value (HK$ mn) |
| Market Cap |
168,510 |
| Average 3-month turnover |
1,283 |
| 52-week High/Low |
29.04/9.79 |
| Total Issued Shares (mn) |
10,021 |
Shareholding Structure
| Holder |
Percentage |
| Li Shufu |
43.2% |
| Others |
56.8% |
Share Performance
| Period |
Absolute (%) |
Relative (%) |
| 1-month |
-0.1 |
5.1 |
| 3-months |
22.2 |
26.5 |
| 6-months |
1.0 |
19.7 |
Analyst Rating and Target Price
- Rating: HOLD
- Target Price: HK$16.50
- Previous Target Price: HK$13.50
- Price Movement: -1.9% from current price (HK$16.82)
Key Ratios
| Ratio |
FY20A |
FY21A |
FY22E |
FY23E |
FY24E |
| Gross Margin |
16.0% |
17.1% |
15.5% |
16.3% |
16.4% |
| Operating Margin |
5.4% |
4.3% |
3.1% |
4.3% |
4.1% |
| Net Profit Margin |
6.0% |
4.8% |
3.3% |
4.1% |
4.2% |
| ROE |
9.4% |
7.3% |
6.6% |
9.2% |
9.3% |
| Current Ratio |
1.2x |
1.1x |
1.1x |
1.2x |
1.3x |
| Net Cash/Total Equity (x) |
0.2 |
0.3 |
0.3 |
0.3 |
0.4 |
Investment Outlook
- The HOLD rating reflects uncertainty in the valuation of non-Zeekr segments.
- The target price increase reflects optimism in Zeekr's growth potential.
- The report emphasizes the need for careful monitoring of sales performance and sector dynamics.
Disclaimer
- This report is not investment advice.
- Past performance does not guarantee future results.
- Investors are advised to consult professional financial advisors.
- CMBIGM is not liable for any loss or damage resulting from reliance on this report.
Summary
Geely Automobile (175 HK) is a key player in the Chinese automotive sector, with Zeekr showing strong growth potential. Despite a 29% YoY revenue increase in 1H22, net profit fell by 35%, leading to a HOLD rating and a target price increase to HK$16.50. The valuation of non-Zeekr segments remains uncertain, and the report suggests a 10x P/E for these businesses. Key risks include sales volume discrepancies and sector re-rating. The SOTP valuation is HK$165.3bn, with Zeekr accounting for a significant portion of the value. Investors are advised to exercise caution and seek professional guidance.
