Geely Auto (175 HK) EPS (Rmb) Turnover (Rmb m) Net profit. Sources: Company data, GF Securities (Hong Kong)

Transcription

1 Equity Research Auto Geely Auto (175 HK) Buy (maintained) Target price: HK$ Chongjing Deng SFC CE No. BEY GF Securities (Hong Kong) Brokerage Limited 29-3/F, Li Po Chun Chambers 189 Des Voeux Road Central Hong Kong Positive profit alert amid solid sales momentum and improving product mix Geely s profit alert guided 1H18 profit growth of 5% YoY, largely in line with our estimate Geely s strong profit upturn is underpinned by solid sales momentum (up by 45% YoY in 1H18) and product mix improvement, according to management. We think the profit alert indicates solid fundamentals from Geely, despite near-term external headwinds including rising materials cost, intensifying competition and sluggish sectorwide retail sales in May/June. 1H18 revisit: Rising market share amid steadily increasing sales volume Geely announced its June sales data on 9 July: sales volume went up 45% YoY/4% MoM to 128k units, while 1H18 volume rose 44% to 767k units, representing continuous strong momentum and 48.5% completion of Geely s 218 sales target of 1.58m units. As a result, Geely s 1H18 domestic market share rose to 6.5% on the back of steadily increasing sales, and the company ranked fourth among Chinese PV automakers in terms of monthly sales volume since April this year. We observe increasing concentration in the domestic own-brand segment, and believe Geely will continue to benefit from PV sector s further consolidation and realize more market share gains given its leading stance in the segment. Lynk & Co 1 SUV continues to ramp up to new high, 2 crossover on sale Lynk & Co 1 s June sales came in at 9,247 units, up.1% MoM. 2Q18 sales rose 47% QoQ to 28k units while 1H18 sales volume came in at 46k units, indicating a healthy ramp-up in our view. Our recent channel check suggests strong demand for the brand in Tier-1 cities: currently the waiting periods for the delivery of the 1/2 models are typically 2/3 months respectively, with the waiting period for the (2.T+6AT) version of the 2 reaching 4 months due to some constraints in the 6AT gearbox. Daily average unit sales per 4S outlet range between 6-8 cars, which can reach as high as 18 cars sold on some weekends. Stock performance 吉利汽车 Geely 43% 22% 1% Source: Bloomberg Key data Source: Bloomberg 恒生指数 HSI -2% July 16 (HK$) 2.4 Shares in issue (m) 8,976 Major shareholder Li Shufu (46.2%) Market cap (HK$ bn) M avg. vol. (m) W high/low (HK$) 29.8/17.1 Our Top pick for PV automakers, maintain Buy and TP of HK$33.29 We expect Geely to deliver strong full-year sales growth, underpinned by its solid product cycle (Binrui sedan, Boyue Coupe in 3Q18; Xingyue compact SUV, Lynk & Co 3 sedan and the company s first MPV in 4Q18), while its GPM and NPM should improve on greater operating leverage and economies of scale. We expect these new models, as well as upgrade versions and NEV versions of existing products, to drive 34% YoY sales growth in 218. Over the long run, we maintain our positive stance on the company s Blue Geely initiative and shared modular strategy with Volvo and Lynk & Co, which should give it an edge over local peers in terms of brand premium, reducing costs through joint procurement and the sharing of R&D expenses. The stock is currently trading at 8.9x our 218 EPS estimate, undervalued in our view. We think the recent share price drop does not justify the company s solid growth outlook, and we expect a share price rebound once the external headwinds have been lifted. We maintain our Buy rating and target price of HK$33.29, based on 15x 218E P/E, 1SD above its three-year historical average of 12x. Risks Monthly sales missing expectations; market downside risk. Stock valuation Turnover (Rmb m) Net profit EPS (Rmb) EPS YoY (%) P/E Yield BPS (Rmb) P/B ROE (%) 216 5,27 5, ,761 1, E 136,49 16, E 188,496 25, E 235,154 34, Sources: Company data, GF Securities (Hong Kong) This is a summary of a report originally written in Chinese. Please contact us for more information of the original report. The Chinese version shall prevail in the event of any discrepancy between the two versions.

2 Figure 1: Geely Auto monthly sales volume and YoY growth 18, Monthly sales volume (LHS) YoY (RHS) 18% 16, 16% 1 14% 1 12% 1, 8, 8% 6, 6% 4% 2% % Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Figure 2: Geely Auto semi-annual net profit attributable to shareholders and YoY growth (Rmb 1m) H15 2H15 1H16 2H16 1H17 2H17 1H18 3% 25% 2% 15% 5% % Net profit (LHS) YoY (RHS) 2

3 Figure 3: Lynk & co 1 monthly retail and wholesale volume 6,652 6,12 6,173 8,57 6,212 9,79 9,234 9,247 7,492 7,88 4,12 3,491 1,424 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Wholesale volume Retail sales volume Sources: Company data, CAAM, GF Securities Development & Research Center Figure 4: Geely Auto sedan monthly sales volume and YoY growth 9, 8, 7, 6, 5, 3, 1, 12% 8% 6% 4% 2% % -2% -4% Sedan monthly sales volume (LHS) YoY growth (RHS) Sources: Company data, CAAM, GF Securities Development & Research Center 3

4 Figure 5: Geely Auto SUV monthly sales volume and YoY growth 1, 9, 8, 7, 6, 5, 3, 1, 1% 9% 8% 7% 6% 5% 4% 3% 2% % SUV monthly sales volume (LHS) YoY growth (RHS) Sources: Company data, CAAM, GF Securities Development & Research Center Figure 6: Geely Auto monthly retail and wholesale volume (units) 2, 18, 16, 1 1 1, 8, 6, Wholesale volume Retail volume Sources: Company data, CAAM, GF Securities Development & Research Center 4

5 (' units) YoY % Figure 7: Geely Auto sales volume and market share (1k units) Figure 8: Geely Auto sales volume structure 14 Annual sales volume (LHS) Market share (RHS) 6.5% 7% % of sedan % of SUV % 2.9% 3.1% 3.1% 2.1% 2.4% 3.2% 5.% 6% 5% 4% 3% 8% 6% 4% 49% 53% 52% H18 2% 1% % 2% % 31% 12% 15% 12% 213A 214A 215A 216A 217A 218E 219E Figure 9: Geely Auto sales volume forecasts Figure 1: Geely Auto key ratios forecasts 2,5 2, 1,5 1, E 219E Sales volume 2-Y CAGR sales volume (1) (2) (3) Sales volume growth E 219E GP margin (%) PBT margin (%) NP margin (%) 5

6 Figure 11: Geely Auto E estimated revenue Figure 12: Geely Auto E estimated net profit attributable to shareholders Revenue (Rmb m) YoY (%) Net profit attributable to shareholders (Rmb m) YoY (%) 25, , 15, 1, 5, , 3, 25, 15, 1, 5, E 219E 22E E 219E 22E Figure 13: Geely Auto key model sales and YoY growth (%) Model June sales YoY 1H18 sales YoY Boyue 22, % 139, % SUV Emgrand GS 14,44 13.% 82, % Vision SUV 1, % 61, % Vision X3 1,225 N/A 63,16 N/A New Vision 11, % 82, % Sedan Emgrand 19, % 128,8 5.3% Emgrand GL 13, % 77,1 51.3% Lynk & co Lynk & co 1 9,247 N/A 46,252 N/A Total sales 128, % 766, % 6

7 Figure 14: Financial statements Income Statement Balance sheet Year-end Dec 31 (Rmb m) E 219E 22E Year-end Dec 31 (Rmb m) E 219E 22E Revenue 53, , , , ,154.3 Non-current assets COGS (43,879.9) (74,779.3) (17,8.7) (147,27.3) (182,244.5) AFS financial assets Gross profit 9, , , , ,99.7 Interest in associates/jv 1,2. 4,84.9 5, , ,395.3 Other income 1, , , , ,346.1 Property, plant and equipment 1, , ,9.3 2, ,16.7 Selling and distribution costs (2,52.7) (4,55.7) (6,2.) (8,15.3) (1,111.6) Intangible assets 6, , , , ,182.2 Administrative expenses (2,559.9) (2,922.8) (5,865.6) (8,15.3) (1,111.6) Goodwill Other operating expenses: SBC (42.2) (27.7) (68.2) (94.2) (117.6) Prepaid land lease payments 2,2.9 2, , , ,826.9 Operating expenses_as stated (3,973.4) (5,777.1) (1,36.5) (14,349.9) (17,994.8) Deferred tax assets Operating profits_as stated 5, , , , ,914.9 Total non-current assets 2, , , , ,9.2 Finance income Current assets Finance costs (115.5) (162.3) (146.2) (168.1) (193.3) Inventories 3,65.8 6,27.3 7, , ,242. Share of (loss)/profit of associates/j (8.7) , ,562. 6,224.1 Accounts receviables 1, ,51.1 1, ,364.9 Profit before tax 6, ,774. 2, , ,125.9 Prepayments and other receivables 2, , , , ,758.7 Taxation (1,33.8) (2,38.6) (3,229.2) (4,96.1) (6,58.1) Notes receivable 24, ,79.9 3, , ,329.1 Profit for the year 5, , , , ,545.7 Financial assets at fair value..... Profit attributable to: Tax recoverable Equity holders of the Company 5, , , , ,131.2 Cash and cash equivalents 15, , , ,65. 34,513.5 Non-controlling interests Total current assets 47, ,8.2 6, , ,37.3 Current liabilities Cash Flow Statement Accounts payable 23,41.3 3, , , ,214.6 Year-end Dec 31 (Rmb m) E 219E 22E Notes payable ,45. 1, , ,527. Income before taxation 6, ,774. 2, , ,126 Advances from customers 7,91.4 7, , ,37. 8,473.2 Depreciation & amortisation 1, ,938. 2, ,97. 3,488 Dividends and other payables 8, ,99.2 8,7.1 9,57.1 1,527.2 Associate adjustment (1,182.5) (3,562.) (6,224) Non-current borrowings due < 1 Yr , Tax paid (753.7) (1,758.9) (3,229.2) (4,96.1) (6,58) Tax payable ,73. 1,18.3 1, ,428.1 Change in working capital 1,538.1 (51.3) (561.4) (617.5) (679) Total current liabilities 4, , , , ,17.1 Net cash from operating activities 8, , , , ,435 Non-current liabilities Capex (3,451.6) (3,796.7) (4,176.4) (4,594) Borrowings/Senior notes 2, Investment (2,655.2) (3,95.) (1,975.) (987.5) (494) Deferred tax liabilities Net cash from investment activities (2,557.5) (11,911.1) (1,281.3) (9,673.5) (9,597) Total non-current liabilities 2, Dividend paid (281.) (96.1) (4,926.7) (7,485.) (1,39) Net assets 24, , , , ,636.8 Other non-operating 31.4 (724.5) Equity Net cash from financing activities 29.5 (1,684.6) (4,426.7) (6,985.) (9,537) Equity attributable to holders Change in net cash 5,89.7 (1,62.2) 2, , ,497 Issued capital Reserves 24, , , , ,181.5 Opening cash and cash equivalents 9, , , , ,65 Shareholders' funds 24, , , , ,346 Effect of FX, net 68.8 (28.6) (5.) (5.) (49) Non-controlling interests (6,912.4) (17,359.8) (3,79) Closing cash and cash equivalents 15, , , ,65. 34,513 Total equity 24, , , , ,637 7

8 Rating definitions Benchmark: Hong Kong Hang Seng Index Time horizon: 12 months Company ratings Buy Stock expected to outperform benchmark by more than 15% Accumulate Stock expected to outperform benchmark by more than 5% but not more than 15% Hold Expected stock relative performance ranges between -5% and 5% Underperform Stock expected to underperform benchmark by more than 5% Sector ratings Positive Sector expected to outperform benchmark by more than 1% Neutral Expected sector relative performance ranges between -1% and 1% Cautious Sector expected to underperform benchmark by more than 1% Analyst Certification The research analyst(s) primarily responsible for the content of this research report, in whole or in part, certifies that with respect to the company or relevant securities that the analyst(s) covered in this report: (1) all of the views expressed accurately reflect his or her personal views on the company or relevant securities mentioned herein; and (2) no part of his or her remuneration was, is, or will be, directly or indirectly, in connection with his or her specific recommendations or views expressed in this research report. Disclosure of Interests (1) The proprietary trading division of GF Securities (Hong Kong) Brokerage Limited ( GF Securities (Hong Kong) ) and/or its affiliated or associated companies do not hold any shares of the securities mentioned in this research report. (2) GF Securities (Hong Kong) and/or its affiliated or associated companies do not have any investment banking relationship with the companies mentioned in this research report in the past 12 months. (3) Neither the analyst(s) preparing this report nor his/her associate(s) serves as an officer of the company mentioned in this report and has any financial interests or hold any shares of the securities mentioned in this report. Disclaimer This report is prepared by GF Securities (Hong Kong). It is published solely for information purpose and does not constitute an offer to buy or sell any securities or a solicitation of an offer to buy, or recommendation for investment in, any securities. The research report is intended solely for use of the clients of GF Securities (Hong Kong). The securities mentioned in the research report may not be allowed to be sold in certain jurisdictions. No action has been taken to permit the distribution of the research reports to any person in any jurisdiction that the circulation or distribution of such research report is unlawful. No representation or warranty, either express or implied, is made by GF Securities (Hong Kong) as to their accuracy and completeness of the information contained in the research report. GF Securities (Hong Kong) accepts no liability for all loss arising from the use of the materials presented in the research report, unless is excluded by applicable laws or regulations. Please be aware of the fact that investments involve risks and the price of securities may be fluctuated and therefore return may be varied, past results do not guarantee future performance. Any recommendation contained in the research report does not have regard to the specific investment objectives, financial situation and the particular needs of any individuals. The report is not to be taken in substitution for the exercise of judgment by respective recipients of the report, where necessary, recipients should obtain professional advice before making investment decisions. GF Securities (Hong Kong) may have issued, and may in the future issue, other communications that are inconsistent with, and reach different conclusions from, the information presented in the research report. The points of view, opinions and analytical methods adopted in the research report are solely expressed by the analysts but not that of GF Securities (Hong Kong) or its affiliates. The information, opinions and forecasts presented in the research report are the current opinions of the analysts as of the date appearing on this material only which may subject to change at any time without notice. The salesperson, dealer or other professionals of GF Securities (Hong Kong) may deliver opposite points of view to their clients and the proprietary trading division with respect to market commentary or dealing strategy either in writing or verbally. The proprietary trading division of GF Securities (Hong Kong) may have different investment decision which may be contrary to the opinions expressed in the research report. GF Securities (Hong Kong) or its affiliates or respective directors, officers, analysts and employees may have rights and interests in securities mentioned in the research report. Recipients should be aware of relevant disclosure of interest (if any) when reading the report. Copyright GF Securities (Hong Kong) Brokerage Limited. Without the prior written consent obtained from GF Securities (Hong Kong) Brokerage Limited, any part of the materials contained herein should not (i) in any forms be copied or reproduced or (ii) be re-disseminated. GF Securities (Hong Kong) Brokerage Limited. All rights reserved. 29-3/F, Li Po Chun Chambers, 189 Des Voeux Road Central, Hong Kong Tel: Fax: Website: 8