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Geely Auto Alert

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Geely Auto Alert Deutsche Bank Markets Research Rating Company Date 28 March 2016 Hold Geely Auto Alert Company Update Asia China Reuters Bloomberg Exchange Ticker Price at 24 Mar 2016 (HKD) 3.70 Automobiles & 0175.HK 175 HK HSI 0175 Price target - 12mth (HKD) 3.70 Components ADR Ticker ISIN 52-week range (HKD) 4.67 - 2.51 GELYY US36847Q1031 HANG SENG INDEX 20,346 Boyue SUV launch reverse roadshow Vincent Ha, CFA ta keaways Research Analyst Geely hosted a reverse roadshow on 27 March, right after the launch of Boyue (+852 ) 2203 6247 SUV on the 26th. Key takeaways are as below: [email protected] - 1Q16E sales review: Geely recorded muted YoY sales growth in 1Q16, and management attributed that to 1) high base effect, 2) lack of new models and Stock data some models' discontinuation, and 3) inventory destocking. Indeed, the Market cap (HKDm) 32,567 company expects March retail sales to grow 20% YoY, better than wholesale Market cap (USDm) 4,198 growth. - Company outlook: Management believes that FY16E is going to be a turning Shares outstanding (m) 8,802.0 point as they expect the Borui mid-size sedan facelift (to be launched in April) Major shareholders Zhejiang Geely and the just-launched Boyue (with a competitive price range of RMB98.8k- Hldg (45%) 157.8k) to boost its sales in 2Q-4Q16E. Geely is therefore comfortable with its Free float (%) 56 600k-unit 2016E sales target. Avg daily value traded 28.7 - Boyue: the pre-order of Boyue has already reached about 15k-16k units. (USDm) Management expects the model's margin to be higher than Borui, which Source: Deutsche Bank shares the same platform. Regarding the production pace, initial monthly output would be about 3,000 units and will be ramped up to about 9,000- Key data 10,000 units in July. If Geely acquires the Baoji plant from its parent, monthly FYE 12/31 2015A 2016E 2017E production of Borui and Boyue can reach 20,000 units. Sales (CNYm) 30,138 37,227 44,350 - Other new models: After Boyue, Geely also plans to launch the Emgrand Net Profit 2,260.5 2,967.7 3,457.9 cross-over SUV in May, the new GX7 (a.k.a. Vision SUV), the Xindihao Hybrid, (CNYm) and a pure EV in 2016. Starting 2017E, 4 to 5 new models that are based on DB EPS (CNY) 0.31 0.35 0.39 new CMA platform will be rolled out, starting with an SUV. PER (x) 9.6 8.8 8.0 - Target competitors: Geely competes with other local brands with its existing Yield (net) (%) 1.1 1.3 1.4 and new products based on its current platforms, while the CMA-based Source: Deutsche Bank models will compete with JV brands. - Cost savings: Geely has been able to reduce the component procurement costs for many years. At the moment, the company utilizes some savings as incentives to partly make up for the expired RMB3,000 government fuel- efficient subsidies. Deutsche Bank view - improving sales momentum in the price We concur with Geely management that they are within reach to their FY16E sales target, but we think that the improvement sales momentum with the Boyue launch is in the price. This is not to mention that upside on volume and margin may be limited given the near-term capacity bottleneck and lower new model initial margins. Maintain Hold. Key upside risks are strong new model reception and margin improvement, while key downside risks are weak new model sales and margin. ________________________________________________________________________________________________________________ Deutsche Bank AG/Hong Kong The views expressed above accurately reflect the personal views of the authors about the subject companies and its(their) securities. The authors have not and will not receive any compensation for providing a specific recommendation or view. Deutsche Bank does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors. FOR OTHER IMPORTANT DISCLOSURES PLEASE VISIT http://gm.db.com/ger/disclosure/Disclosure.eqsr?ricCode=0175.HK MCI (P) 124/04/2015. .
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