Big Wheels Keep on Turning: Raising Target Price, Reiterate CL-Buy

Home , Geely Boyue, Geely Emgrand S, Landwind, Maple (marque), Senova, Sinotruk (Hong Kong)

November 11, 2016 ACTION Buy Geely Automobile Holdings (0175.HK)

Return Potential: 25% Equity Research Big wheels keep on turning: Raising target price, reiterate CL-Buy

Source of opportunity Investment Profile Our core thesis on Geely remains the same – an improving product pipeline Low High and reducing capacity bottlenecks driving higher volumes/margins. We still Growth Growth see empty spaces for Geely to grow its brand, particularly in small/mid-size Returns * Returns * SUVs and MPVs. We take a closer look at its new Lynk & Co. brand, where a Multiple Multiple ‘blue sky’ scenario could see volume potential of >1mn units p.a. by 2020E, Volatility Volatility Percentile 20th 40th 60th 80th 100th leading to 44% higher total sales for Geely listco vs. our base case. We also Geely Automobile Holdings (0175.HK) examine Geely’s potential to optimize its platforms, powertrains and capacity. Asia Pacific Autos & Autoparts Peer Group Average Our 2017E EPS is 21% ahead of consensus and we reiterate our Buy (on * Returns = Return on Capital For a complete description of the investment profile measures please refer to the Conviction List) with a revised HK$10.15 12m TP implying 25% upside. disclosure section of this document.

Catalyst Key data Current Price (HK$) 8.15 (1) Continuous new product launches: Sub-compact SUV, MPV, and Lynk & Co. 12 month price target (HK$) 10.15 Market cap (HK$ mn / US$ mn) 71,736.2 / 9,248.2 models in 2017E; (2) High monthly volume likely in November/December Foreign ownership (%) -- upon removal of capacity bottleneck (we expect Boyue/GL monthly volume to reach 20k/10k units in 1Q17E); (3) Better visibility on the new Lynk & Co. 12/15 12/16E 12/17E 12/18E EPS (Rmb) New 0.26 0.47 0.78 0.98 product (potential introduction of BMA/SPA production architecture from EPS revision (%) 0.0 0.0 (1.0) (0.4) Volvo), production and dealer development plan; and (4) Strong FY16 result EPS growth (%) 58.0 81.9 67.0 25.7 EPS (dil) (Rmb) New 0.26 0.47 0.78 0.98 (March 2017). P/E (X) 11.7 15.3 9.1 7.3 P/B (X) 1.4 2.7 2.2 1.7 EV/EBITDA (X) 6.7 9.9 5.9 4.5 Valuation Dividend yield (%) 1.1 0.8 1.4 1.7 ROE (%) 12.3 19.3 26.3 26.2 Our 2016E-18E EPS are 2%/21%/22% above Bloomberg consensus and we CROCI (%) 20.4 20.7 27.7 26.9 believe consensus numbers could move up as the aforementioned catalysts start to get incorporated by the market. We maintain our valuation premium Price performance chart 10 11,500 at 35%, reflecting the high growth potential beyond 2018E from its new SUV 9 11,000 models and Lynk & Co. products. We raise our 2017E P/B vs. 2019E ROE- 8 10,500 based 12m TP to HK$10.15 (from HK$9.16), after incorporating higher sector 7 10,000 valuations and rolling over from 2016E and 2018E respectively. Geely is 6 9,500 5 9,000 trading at 9.1X 2017E P/E and 2.2X 2017E P/B vs. peers at 10.8X/1.4X, 4 8,500 against an EPS CAGR of 56% in 2015-2018E vs. peers at 26%. 3 8,000

2 7,500 Nov-15 Feb-16 May-16 Aug-16 Key risks Economic slowdown/policy change in China leading to sluggish growth in Geely Automobile Holdings (L) Hang Seng China Ent. Index (R) the domestic low-end car market; higher price erosion on competition. INVESTMENT LIST MEMBERSHIP Share price performance (%) 3 month 6 month 12 month Absolute 49.8 122.7 111.1 Asia Pacific Buy List Rel. to Hang Seng China Ent. Index 46.2 98.0 128.1

Asia Pacific Conviction Buy List Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 11/10/2016 close.

Coverage View: Neutral

Yipeng Yang +86(10)6627-3189 [email protected] Beijing Gao Hua Securities Company Limited Goldman Sachs does and seeks to do business with companies Yuqian Ding covered in its research reports. As a result, investors should be +86(10)6627-3327 [email protected] Beijing Gao Hua Securities Company Limited aware that the firm may have a conflict of interest that could Longjin Li affect the objectivity of this report. Investors should consider +65-6654-5141 [email protected] Goldman Sachs (Singapore) Pte this report as only a single factor in making their investment

decision. For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. Analysts employed by non- US affiliates are not registered/qualified as research analysts with FINRA in the U.S. The Goldman Sachs Group, Inc. Global Investment Research November 11, 2016 Geely Automobile Holdings (0175.HK)

Geely Automobile Holdings: Summary Financials

Profit model (Rmb mn) 12/15 12/16E 12/17E 12/18E Balance sheet (Rmb mn) 12/15 12/16E 12/17E 12/18E

Total revenue 30,138.3 52,261.4 73,356.4 89,687.5 Cash & equivalents 9,166.9 7,018.3 6,045.0 7,207.0 Cost of goods sold (23,524.9) (40,986.9) (55,634.3) (67,794.2) Accounts receivable 11,796.8 16,876.8 23,689.0 28,962.8 SG&A (3,805.4) (5,553.6) (7,685.2) (9,127.1) Inventory 1,226.2 2,360.9 3,204.6 3,905.1 R&D (258.8) (448.7) (629.8) (770.1) Other current assets 3,157.9 3,789.5 3,979.0 4,177.9 Other operating profit/(expense) 94.1 181.3 254.4 400.8 Total current assets 25,347.9 30,045.5 36,917.6 44,252.8 EBITDA 2,902.0 5,902.2 10,291.3 13,167.0 Net PP&E 8,034.4 9,034.6 11,533.9 13,602.8 Depreciation & amortization (1,142.7) (1,613.6) (2,050.0) (2,505.7) Net intangibles 5,262.8 7,783.0 10,202.6 11,906.1 EBIT 1,759.3 4,288.6 8,241.3 10,661.3 Total investments 2,015.5 2,029.7 2,044.0 2,058.2 Interest income 96.9 62.7 48.0 41.3 Other long-term assets 1,631.9 2,230.8 2,681.0 2,979.4 Interest expense (103.3) (102.6) (138.7) (161.9) Total assets 42,292.5 51,123.7 63,379.1 74,799.4 Income/(loss) from uncons. subs. 41.5 14.2 14.2 14.2 Others 1,080.4 927.5 544.3 462.6 Accounts payable 11,204.9 15,591.8 20,401.7 23,932.1 Pretax profits 2,874.8 5,190.5 8,709.2 11,017.6 Short-term debt 0.0 500.0 1,500.0 1,500.0 Income tax (586.1) (1,029.5) (1,772.8) (2,298.5) Other current liabilities 9,244.3 9,474.5 9,816.8 10,036.4 Minorities (28.1) (49.0) (70.1) (86.0) Total current liabilities 20,449.3 25,566.2 31,718.5 35,468.5 Long-term debt 1,928.9 1,978.9 1,978.9 1,978.9 Net income pre-preferred dividends 2,260.5 4,112.0 6,866.3 8,633.0 Other long-term liabilities 174.8 175.3 175.8 175.8 Preferred dividends 0.0 0.0 0.0 0.0 Total long-term liabilities 2,103.7 2,154.2 2,154.7 2,154.7 Net income (pre-exceptionals) 2,260.5 4,112.0 6,866.3 8,633.0 Total liabilities 22,552.9 27,720.4 33,873.1 37,623.2 Post-tax exceptionals 0.0 0.0 0.0 0.0 Net income 2,260.5 4,112.0 6,866.3 8,633.0 Preferred shares 0.0 0.0 0.0 0.0 Total common equity 19,523.8 23,124.8 29,137.7 36,697.7 EPS (basic, pre-except) (Rmb) 0.26 0.47 0.78 0.98 Minority interest 215.7 278.5 368.2 478.5 EPS (basic, post-except) (Rmb) 0.26 0.47 0.78 0.98 EPS (diluted, post-except) (Rmb) 0.26 0.47 0.78 0.98 Total liabilities & equity 42,292.5 51,123.7 63,379.1 74,799.4 DPS (Rmb) 0.030.060.100.12 Dividend payout ratio (%) 12.4 12.4 12.4 12.4 BVPS (Rmb) 2.22 2.63 3.31 4.17 Free cash flow yield (%) 13.9 (6.0) (2.3) 3.1

Growth & margins (%) 12/15 12/16E 12/17E 12/18E Ratios 12/15 12/16E 12/17E 12/18E Sales growth 38.6 73.4 40.4 22.3 CROCI (%) 20.4 20.7 27.7 26.9 EBITDA growth 57.9 103.4 74.4 27.9 ROE (%) 12.3 19.3 26.3 26.2 EBIT growth 82.5 143.8 92.2 29.4 ROA (%) 5.7 8.8 12.0 12.5 Net income growth 58.0 81.9 67.0 25.7 ROACE (%) 18.1 26.7 30.6 29.2 EPS growth 58.0 81.9 67.0 25.7 Inventory days 22.1 16.0 18.3 19.1 Gross margin 21.9 21.6 24.2 24.4 Receivables days 149.0 100.1 100.9 107.1 EBITDA margin 9.6 11.3 14.0 14.7 Payable days 173.2 119.3 118.1 119.3 EBIT margin 5.8 8.2 11.2 11.9 Net debt/equity (%) (36.7) (19.4) (8.7) (10.0) Interest cover - EBIT (X) 273.2 107.5 90.9 88.4

Cash flow statement (Rmb mn) 12/15 12/16E 12/17E 12/18E Valuation 12/15 12/16E 12/17E 12/18E Net income pre-preferred dividends 2,260.5 4,112.0 6,866.3 8,633.0 D&A add-back 1,142.7 1,613.6 2,050.0 2,505.7 P/E (analyst) (X) 11.7 15.3 9.1 7.3 Minorities interests add-back 28.1 49.0 70.1 86.0 P/B (X) 1.4 2.7 2.2 1.7 Net (inc)/dec working capital 3,469.7 (1,827.8) (2,846.0) (2,443.8) EV/EBITDA (X) 6.7 9.9 5.9 4.5 Other operating cash flow 507.8 (1,244.3) (653.4) (511.6) EV/GCI (X) 1.0 2.3 1.7 1.3 Cash flow from operations 7,408.8 2,702.5 5,486.9 8,269.4 Dividend yield (%) 1.1 0.8 1.4 1.7

Capital expenditures (3,708.7) (6,480.4) (6,968.9) (6,278.1) Acquisitions (450.8) 0.0 0.0 0.0 Divestitures 0.0 1,346.5 0.0 0.0 Others (374.9) 0.0 0.0 0.0 Cash flow from investments (4,534.4) (5,133.9) (6,968.9) (6,278.1)

Dividends paid (common & pref) (173.8) (281.0) (511.1) (853.4) Inc/(dec) in debt (691.6) 550.0 1,000.0 0.0 Common stock issuance (repurchase) 0.0 0.0 0.0 0.0 Other financing cash flows (45.2) 13.8 19.7 24.2 Cash flow from financing (910.7) 282.8 508.6 (829.2) Total cash flow 1,963.8 (2,148.6) (973.3) 1,162.1 Note: Last actual year may include reported and estimated data. Source: Company data, Goldman Sachs Research estimates.

Analyst Contributors

Yipeng Yang [email protected]

Yuqian Ding [email protected]

Longjin Li [email protected]

Goldman Sachs Global Investment Research 2 November 11, 2016 Geely Automobile Holdings (0175.HK)

Strong Oct volume growth underpins positive growth outlook; further volume potential from new launches

Geely’s recently reported October sales data highlighted the following: 1) total October sales volume reached 96k units, +94% yoy, and accumulated January-October 2016 sales volume reached 555k units, up 56% yoy; 2) the three newly launched SUV models – Boyue (NL-3), Emgrand GS, and Vision (NL-4) SUV – achieved 16.8k/10.0k/10.9k units of sales respectively in the month; and 3) the Emgrand sedan (including GL) and Vision sedan recorded 32.1k/15.7k units in monthly sales, up by 60%/15% yoy respectively. Exhibit 2 shows that Geely’s volume was primarily driven by the five key models discussed above.

Exhibit 1: Geely reported strong Jan-Oct volume growth Exhibit 2: Five key models sales volume as % of total Monthly sales volume (units) and growth rate (yoy), 2015 and volume has been increasing Jan-Oct 2016 Monthly sales volume (units) of five key models (Boyue, Emgrand GS, Vision SUV models; and Emgrand sedan, incl. GL, and Vision sedan models), Jan-Oct 2016

120,000 100% 120000 100%

100,000 80% 100000 80% 80000 80,000 60% 60% 60000 60,000 40% 40% 40000 40,000 20% 20000 20%

20,000 0% 0 0% Jan Feb Mar Apr May Jun Jul Aug Sep Oct - -20% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec The rest of models sales volume 2015 monthly volume 2016 monthly volume Five key models sales volume Five key models sales volume % (RHS) 2015 monthly growth (yoy) (RHS) 2016 monthly growth (yoy) (RHS)

Source: Company data. Source: Company data.

In light of the strong product cycle and near-term monthly sales volume, we expect Geely to achieve 112% yoy growth in 4Q16E and its annual volume to exceed 1mn units by 2017E.

Exhibit 3: We expect higher volume growth for Geely in light of the strong performance of its newly launched models Geely sales volume estimates

Sales Vol. (in units) 2014 2015 2016E 2017E 2018E 2019E 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16E

Sales (units) Panda/GX2/GX3 24,770 15,450 5,622 3,300 3,300 3,300 5,104 1,770 4,890 3,686 1,862 1,760 863 1,137 Haoqing/Merrie ------Maple/Haijing/SC7 25,605 13,056 - - - - 3,606 3,413 1,510 4,528 - - Ziyoujian/GC3/SC3 18,991 11,736 - - - - 2,647 4,906 1,708 2,475 260 (260) - Kingkong/Jinying 72,380 55,526 53,953 27,000 20,250 20,655 18,550 12,110 11,822 13,044 22,625 13,328 9,000 9,000 SC6/SC6-RV 7,168 4,430 - - - - 2,000 2,430 - - Vision/GC7 (new in Aug 2014) 39,095 114,963 143,925 112,500 114,750 117,045 29,326 25,598 23,898 36,141 35,939 31,986 27,609 48,391 Dragon ------EC7/Xindihao/GL 162,613 198,302 262,893 295,000 313,500 329,175 60,000 39,999 38,057 60,246 56,623 46,270 54,481 105,519 EC7 EV 10,295 15,500 20,150 25,188 - - 768 3,027 6,500 EC8 3,186 3,090 200 - - - 1,635 (194) 984 665 11 (11) 200 TX4 743 1,030 842 1,000 - - 441 352 538 (301) 254 288 300 Emgrand GS (mid 2016) - 63,400 122,500 132,000 142,560 - - 7,400 22,793 33,207 NL-3 SUV (Boyue, NL platform) - 129,211 250,000 253,000 273,240 - - - 1,018 18,193 34,311 75,689 NL-4 SUV (Vision SUV FE platform) - 51,000 135,000 137,500 148,500 - - - 17,107 33,893 A0 SUV (2018E) - - 40,000 65,000 - - - - GX9 (SUV) 661 4,000 - - - - - 4,000 - - EV7/EV8 (MPV) - - 8,000 15,000 16,500 - - - - GX7/SX7 (SUV) 62,639 55,943 15,298 - - - 18,431 16,353 10,221 10,938 11,262 2,948 1,088 - GC9 (Borui, KC platform) 32,571 50,786 49,000 50,225 52,736 5,790 9,862 16,919 12,955 11,831 11,452 14,548 New products (CMA, joint platform with Volvo) - - 20,000 120,000 290,000 - - Others 0 0 20,000 - - Total sales volume (units) 417,851 510,097 787,425 1,038,800 1,219,675 1,503,899 139,740 112,097 103,490 154,770 143,577 136,760 178,704 328,384 YoY% -24% 22% 54% 32% 17% 23% 56% 15% 19% 8% 3% 22% 73% 112% Source: Company data, Gao Hua Securities Research

Goldman Sachs Global Investment Research 3 November 11, 2016 Geely Automobile Holdings (0175.HK)

We see further potential for Geely brand to grow its volume from the empty spaces (e.g., small & midsize SUV/MPV) From Exhibits 4 and 5 we can see that there are still empty spaces for the Geely brand in terms of its sub-segment market share. Based on our estimates, Geely’s portfolio in 2018 is likely to show improved share in the two biggest sub-segments, compact notchback sedan and compact SUV (via its new GL sedan, Buoyue/GS/Vision SUV). While Exhibit 5 shows it has no products in the mid-sized SUV (B-SUV) and MPV segments, and its market share in small SUV is still limited, we believe that with potential new products to be launched in these spaces, Geely could boost its market share further.

Exhibit 4: Geely FY15 market share (in red) by segment Exhibit 5: Geely FY18E market share (in red) by segment by bodytype by bodytype FY15 volume mix: A00=mini; A0 = small; A=compact; B= mid- FY18E volume mix: A00=mini; A0 = small; A=compact; B= size; C=full-size, retail volume, excluding import mid-size; C=full-size, retail volume, excluding import

C = 4.2% C = 0.4% C = 4.2% C = 0.4% B = 10.8% B = 9.0% GX9: 0.6% ~15% ~15% B = 17.7% B = B = 17.8% B = 19.3% GC9: 2.6% 15.0% GC9: 1.2% CMA mid-size sedan: 2.0%

A ~5%= A = 70.2% A ~5%= 34.9% 45.0% Boyue: 3.5% Vision SUV: 1.9% A = 61.8% A = 69.1% A = 65.0% Emgrand GS: 1.9% GX7: 1.5% EC7: 2.8% Xindihao/Emgrand GL: 4.4% CMA SUV: 0.6% Vision: 1.6% Vision: 1.6% A0 = 45.8% CMA compact sedan: 0.6% A0 = A0 = 20.0% 40.0%

A0 = 14.6% A0 = 12.0% A0 SUV: 2.0% A0 = 19.2% King Kong: 3.6% King Kong: 1.5% A00 = 1.7% A00A00 = 0.9%0.5% A00 = 1.0% A00A00 = 0.9%0.4% Sedan: SUV: MPV: Sedan: SUV: MPV: 59.0% 30.0% 11.0% 45.9% 42.5% 11.6%

Source: Company data, China Passenger Car Association (CPCA). Source: CPCA, Gao Hua Securities Research.

Goldman Sachs Global Investment Research 4 November 11, 2016 Geely Automobile Holdings (0175.HK)

ASP/GPM set to increase on upgraded models

Boyue (NL-3) is an upgraded SUV vs. previous GX7 SUV We observe that there has been a clear upgrade trend for China auto consumption. While the SUV model H6 (introduced by Great Wall five years ago) and the new SUV model GS4 (from GAC) are relatively more expensive versus competitors, they have managed to capture share of the SUV market due to better exterior/interior and superior quality. We see Geely’s Boyue SUV, launched in March 2016, as demonstrating similar characteristics to meet the upgraded consumer demands.

Exhibit 6: Geely Boyue, the upgraded SUV vs. previous GX7, with better equipment and higher pricing, was launched in late March 2016 Comparison of Boyue and GX7 model specification

Models Length (mm) Width (mm) Height (mm) Wheelbase (mm) Engine size Transmission MSRP (RMB '000) Launch time Boyue 4519 1831 1694 2670 1.8T/2.0L MT/AT 98.8‐157.8 26‐Mar‐16 GX7 4553 1833 1700 2661 1.8L/2.0L MT/AT 69.9‐119.9 23‐Apr‐12

Source: Autohome.com.

Exhibit 7: Geely Boyue has better equipment vs. peers Exhibit 8: Geely Boyue enjoys higher popularity on Comparison of selective equipment between Geely Boyue Baidu’s search engine vs. peers SUV and peers, as of November 10, 2016 Baidu search index of Geely Boyue SUV and peers in the past three months

Equipment Geely Boyue Great Wall H6 Coupe GAC GS4 Changan CS75 Zotye T600 60,000 Electronic Parking Brake Systems √√× √√ Electronic Stability Program √√√√√ 50,000 Lane Departure Warning Systems √ ×××× 40,000 Adaptive Cruise Control √ ×××× Panoramic Camera √ ×××√ 30,000 GPS Navigator √√√√√ 20,000 Car Rear View System √√√√√ Panoramic Sunroof √√×× √ 10,000 ‐ Geely Boyue Great Wall H6 GAC GS4 Changan CS75 Zotye T600 Coupe

Baidu Search Index (avg. of past 3 months)

Source: Autohome.com. Source: Baidu Search Index

Exhibit 9: Geely Boyue has almost as many features as the Mercedes Benz GLC/C models Comparison of select equipment between Geely Boyue SUV and Mercedes Benz models

Equipment Geely Boyue Mercedes GLC Mercedes C class Electronic Parking Brake Systems √√√ Electronic Stability Program √√√ Lane Departure Warning Systems √√√ Adaptive Cruise Control √√√ Panoramic Camera √√√ GPS Navigator √√√ Park Assist Vision Systems × √√ Blind Spot Monitoring Systems × √√ Panoramic Sunroof √√√

Source: Autohome.com.

Goldman Sachs Global Investment Research 5 November 11, 2016 Geely Automobile Holdings (0175.HK)

New GL is also upgraded vs. previous version of Xindihao/EC7 In September 2016, Geely launched its new compact sedan GL, the new generation Xindihao (Emgrand) sedan with a bigger size and higher pricing. Previously, we expected that the launch of GL might lead to internal cannibalization with the Xindihao/EC7, but from the recent October sales volume data we see that the new GL achieved 7k unit of sales while the Xindihao still booked a record-high 25k unit monthly sales. We believe that GL will co-exist with Xindihao via targeting different customers whose income and product demands tend to be higher than for the Xindihao.

Exhibit 10: Geely Dihao GL, the new generation of Xindihao sedan, with bigger size and higher pricing, was launched in late Sep 2016 Comparison of Dihao GL and Xindihao model specification

Models Length (mm) Width (mm) Height (mm) Wheelbase (mm) Engine size Transmission MSRP (RMB '000) Launch time Dihao GL 4725 1802 1478 2700 1.3T/1.8L MT/DCT 80‐120 20‐Sep‐16 Xindihao 4631 1789 1470 2650 1.3T/1.5L MT/CVT 69.8‐100.8 26‐Jul‐14

Source: Autohome.com.

Higher SUV volume mix/higher ASP should lead to higher GPM Via the launching of more SUV models (Boyue/GS/Vision SUV) and the upgraded products (Boyue in the SUV space and GL in the sedan space), we expect Geely’s ASP to increase along with SUV mix improvement, which should lead to higher GPM (according to industry empirical rules, SUV models in general contribute higher GPM and more expensive models generate higher GPM than less expensive ones).

Exhibit 11: We see higher SUV volume mix for Geely… Exhibit 12: …as well as higher ASP Geely 2012-2019E SUV volume mix, % Geely 2012-2019E ASP in Rmb’000

60.0% 90 54.7% 52.7% 78.8 50.1% 80 73.5 50.0% 70.6 70 66.4 59.1 40.0% 60 52.0 32.9% 50 30.0% 40

20.0% 15.1% 30 11.8% 20 10.0% 10

0.0% 0 2014 2015 2016E 2017E 2018E 2019E 2014 2015 2016E 2017E 2018E 2019E

Source: Company data, Gao Hua Securities Research Source: Company data, Gao Hua Securities Research

Goldman Sachs Global Investment Research 6 November 11, 2016 Geely Automobile Holdings (0175.HK)

Exhibit 13: We see higher GPM for SUV vs. sedan Exhibit 14: NPM of OEM is positively correlated with ASP Great Wall 2014-2019E GPM by SUV and sedan Regression of NPM on ASP by OEMs, 2015H1-2016H1

30% y = 7E‐05x + 0.0728 R² = 0.0664 16% 25%

NPM 14% 20% 12%

15% 10%

8% 10% 6% 5% 4%

0% 2% 2014 2015 2016E 2017E 2018E 2019E 0% SUV Sedan 0 50 100 150 200 250 300 350 400 ASP (000 RMB)

Source: Company data, Gao Hua Securities Research Source: Company data, Gao Hua Securities Research

Goldman Sachs Global Investment Research 7 November 11, 2016 Geely Automobile Holdings (0175.HK)

More visibility on new brand; lofty ‘blue sky’ volume potential

In October 2016, Geely launched its new umbrella brand called Lynk & Co. with following goals: 1) target the global mainstream market; 2) develop an independent dealer network and open online sales; 3) develop 6-8 models based on the Compact Modular Architecture (CMA) platform jointly developed with Volvo; 4) start sales of the first model CX11 (an SUV) to be unveiled in 2H17; 5) the brand/products to feature connectivity, open software platform, e-powertrain, safety and unique exterior/interior; and 6) produce first in China, then in the US/EU.

As per the company announcement, there will be more than 4 models of Volvo cars and 6- 8 Lynk & Co. models (3 new CMA products, including 2 SUV models to be launched in 2017E, and at least 3 more CMA products to be launched in 2018E) based on the CMA platform. We believe the new Lynk & Co. brand could lead to lofty volume upside for Geely given:

1. Lynk & Co. provides access to a new target market for Geely: We see global auto OEMs in general as having different umbrella brands targeting different markets, Toyota group as an example has Lexus for the luxury market, Toyota for the mainstream market, and Daihatsu for the low-end market. Geely Group (before the launch of Lynk & Co.) had the Volvo brand (under the parentco) for the luxury market, the Geely brand for low-end local market, and no brand for the mainstream market. However, we believe Geely’s new Lynk & Co. brand might target the mainstream segment (c.50% of the total China car market in 2018E per Exhibit 15), competing with other international brands like VW, Toyota, and Hyundai.

Exhibit 15: Geely Group to rationalize three umbrella Exhibit 16: We currently see three differentiated brands brands’ positioning in 2018E under the Toyota Group Geely planned brand portfolio after 2018 Toyota group brand portfolio in Japan

650 1,100 ） 600 550 1,000 500

RMB 000 900 450 （ 400 Lynk & Co 800

Price 350 700 300 250 600 200 Volvo: 500 150 XC40/S40/V40 will 100 be based on CMA 400 50 platform 0 300 Geely A New brand based Volvo 200 on CMA platform 100 0 Included in the listco Owned by parentco. Daihatsu Toyota Lexus • Geely is targeting local brands • New brand Lynk & Co is targeting int’l mainstream brands (which consists 50% of total car market in China in 2018E)

Source: Company data, Gao Hua Securities Research. Source: Company data.

Goldman Sachs Global Investment Research 8 November 11, 2016 Geely Automobile Holdings (0175.HK)

Exhibit 17: Lynk & Co. aims to become the first global Exhibit 18: Volvo products to standardize to two brand from China architectures: SPA and CMA Mission, features & product functions of Lynk & Co. Volvo product portfolio

Brand mission Brand feature Product functions First global brand Connectivity/sharing Sharable digital locks Sedan MPV/Cross SUV Platform from China, Radio‐frequency identification (RFID) innovation, young Open application programming interface (API) Full size S80, S90 V70, V90, V90 XC XC70, XC90 SPA & fun Third‐party software innovation Control via a smartphone app On‐line sales Mid size S60 V60 XC60 SPA Electrification ICE/PHEV/EV powertrains available Safety/ADAS Joint R&D leveraging Volvo safety engineering Compact size S40 V40 XC40 CMA expert Autonomous emergency braking

Adaptive cruise control Notes: SPA = Scalable Product Architecture; CMA = Compact Modular Pedestrian detection Architecture. Attractive exteriors & Linking northern Europe & Chinese design interiors language Drivability 1.5T/2.0L engine 7 speed DCT Unique customers Car sharing experience App store Standardized price Simplified product choices Connectivity

Source: Company data. Source: Company data.

2. There is enough space between international mainstream brands and local brands for Geely’s new Lynk & Co.: We see the realistic way to tap the car market in China for a new unknown brand is still value-for-money. We believe there is enough space between international brands and local brands – taking the SUV segment as an example, we observe from Exhibit 19 that for a compact SUV longer than 4.4 meters, most of the international models have a starting MSRP higher than Rmb150k while most of the local bestsellers are below Rmb120k. We see market opportunities between Rmb120k-150k for the new Lynk & Co. brand. Nevertheless, it is not easy to persuade customers to buy-in on the new brands, as the target customers of current international brands may see the new brand as cheaper but question whether it can give them similar reliability and brand prestige (sharing architecture with Volvo might partly release the concerns of these customers, in our view). For the current local brands’ target customers, the new brand would need to provide extra features/equipment/brand perception to persuade them to pay extra money (i.e. differentiated interior/exterior), although we note that brand perception linked with Volvo could add weight to justify the extra value of the new brand.

Goldman Sachs Global Investment Research 9 November 11, 2016 Geely Automobile Holdings (0175.HK)

Exhibit 19: SUV bubble charts: We see space between local brands & international brands SUV models by price/length/sales volume (size of bubble)/local (white bubble) or int’l brands (shaded bubble); A0 = small; A=compact; B= mid-size; 1-3Q, 2016

Price (in RMB) SUV 300,000 Segment A0 Segment A Segment B

280,000 BMW X3 GLA 260,000

Audi Q3 UR-V Edge 240,000 Highlander

220,000 Envision

Tiguan Cherokee 200,000 Kuga RAV 4 Kodiaq

X-TRAIL 180,000 5008 CR-V

BMA/SPA products 160,000 ix35 New Tucson Other CMA products

New Sportage 140,000 XR-V Qashqai CX-11 Liebao CS6 Vezel 120,000 Landwind ix25 GS4 CX-3 CS75 BYD S7 CS55 NL-3 100,000 C3-XR Roewe RX5 Haval H2 Tiggo 5 DX7 Haval H6 GS3 Tiggo Jingyi SUV 80,000 Vision SUV T600 CS35 Haima S5 Emgrand GS X40 Damai X5 CX70 A0SUV JAC S3 60,000 Baojun560 SENOVA X25 Baojun530 Baojun510 40,000

20,000

0 4,100 4,200 4,300 4,400 4,500 4,600 4,700 4,800 4,900 5,000

International brand Domestic brand Geely models Key models to be launched in 2017 Geely new models Length (in mm)

Source: ChinaAutoMarket; Autome.com, Gao Hua Securities Research.

3. Potential introduction of new products based on BMA/SPA production architecture from Volvo: On November 3, 2016 the Sichuan Daily reported that the Geely parent company had signed a contract with the Chengdu government on three auto investment projects with a total annual capacity of 600k units: 1) new energy vehicles for both Geely and Volvo; 2) Volvo SPA production platform; and 3) BMA production platform. As the company has not disclosed details about the new models to be produced in these plants we do not yet include the BMA/SPA products in our numbers. However, we do see further volume potential from the contributions of these new products, especially in the segment of midsize/full size sedan/SUV/MPV as SPA is the Volvo architecture used mainly for midsize/full size passenger cars.

Goldman Sachs Global Investment Research 10 November 11, 2016 Geely Automobile Holdings (0175.HK)

Potential upside for Lynk & Co. volumes

In addition to our base case sales volumes for the Lynk & Co. brand over the next four years (415k units sold annually by 2020E), we look at a ‘blue sky’ scenario for the brand which could result in total sales of Geely listco to be boosted by 44% vs. our base case.

1) Base case: We assume each of the 5 new models of Lynk & Co. achieves the 2016E sales volume of at least the top JV models in China in the sub-segment (could be Top 10, Top 5, or Top 1 of the JV models sold, depending on the size and no. of competitors in the sub-segment), then mark up by 20% to include the sales volume outside China. According to the company, Lynk & Co. will be launched and manufactured in Europe and the US as well as China, so we assume 20% additional sales volume from outside China (as a reference, Hyundai achieved more than 30% volume mix from Europe & North America in 2015, and we conservatively use 20% for Lynk & Co.). In our base case, Lynk & Co. sells 415k units by 2020E, higher than our previous estimation of 175k after reflecting more visibility about the car models to be launched as well as plans for branding and dealerships etc.

2) ’Blue sky’ scenario: As the CMA platform can handle both compact and small segment models, we believe Lynk & Co. might introduce 3 extra models in the small segment in addition to the 5 models in the compact segment we incorporate in our base case. We assume each of the 8 new models reach the average 2016E sales volume of top JV models in China in the sub-segment, then mark up by 20% to include the sales volume outside China (per our base case). In our ‘blue sky’ scenario Lynk & Co. could sell more than 1mn units annually by 2020E, which could lead to total sales of Geely listco being 44% higher than in our base case.

Exhibit 20: We see 415k units of volume potential for Lynk & Co. by 2020E in our base case and >1mn units potential in our ‘blue sky’ scenario Estimation of volume potential

No. of top Geely Sub-segment Jan-Sep 2016 sales volume FY2016E sales volume Geely 2020E China vol Geely 2020E vol - RoW Geely 2020E vol - total JV models model Average top models Least of top models Average top models Least of top models Base case Blue-Sky Base case Blue-Sky Base case Blue-Sky A SUV 10 108,305 62,512 144,407 83,349 CX11 83,349 144,407 16,670 28,881 100,019 173,288 A NB 10 213,842 138,447 285,122 184,596 CS11 184,596 285,122 36,919 57,024 221,515 342,147 A HB 5 109,288 25,823 145,717 34,431 CH11 34,431 145,717 6,886 29,143 41,317 174,860 A Cross 1 55,303 55,303 73,737 73,737 CC11 36,869 73,737 7,374 14,747 44,242 88,485 A MPV 5 16,723 5,319 22,297 7,092 CV11 7,092 22,297 1,418 4,459 8,510 26,756 A0 SUV 5 80,653 48,099 107,538 64,132 NA 107,538 - 21,508 - 129,045 A0 NB 5 86,194 10,627 114,925 14,169 NA 114,925 - 22,985 - 137,910 A0 HB 5 56,645 10,627 75,527 14,169 NA 75,527 - 15,105 - 90,632 Sum 346,337 969,269 69,267 193,854 415,604 1,163,123 Notes: 1) ‘Top models’ is combined sales volume of the Top 10/5/1 JV models in China in the sub-segment (could be Top 10, Top 5, or Top 1 of the JV models sold, depending on the size and no. of competitors in the sub-segment); 2) We apply normal seasonality on Jan-Sep 2016 sales volume to get FY2016E numbers.

Source: CAM, Company data, Gao Hua Securities Research

Goldman Sachs Global Investment Research 11 November 11, 2016 Geely Automobile Holdings (0175.HK)

Optimization of platform, powertrain and capacity

We see Geely’s strong volume growth and product upgrade to 2020E as supported by optimization of its product platform, powertrain and production capacity.

Optimization of platform and powertrain Generally, in the auto industry, if a car model utilizes a different manufacturing platform and is not able to share components with other models, the complication of the operation will increase significantly in R&D, production, component sourcing and other functions. According to the company, the number of platforms for Geely will be streamlined from the current 8 to 6 by 2017, with each covering both sedan and SUV products (see Exhibit 21). We believe a streamlined platform would play an important role in reducing business complications for Geely when launching multiple new products in a short period of time.

We also see powertrain upgrades with new engine and transmission technologies/components as key in differentiating a company’s products from its competitors. In Exhibit 22, we summarize Geely’s plans to upgrade its powertrain technology via continuous investment into engine/ transmission as well as via leveraging its partnership with Volvo.

We believe a streamlined platform and an upgraded powertrain would enable Geely to achieve high sales volume through new product launches.

Exhibit 21: No. of platforms to be streamlined by Geely to Exhibit 22: Geely continues to invest in 6 by 2017E, each covering both sedans and SUVs engine/transmission upgrades by leveraging its Volvo Summary of Geely platforms and models partnership Summary of Geely’s investment in engine upgrade

Platform Sedan products SUV/Cross products Early investment Investing into small size engine (1.3L) since 2009 before Volvo S40 Volvo XC40/V40 CMA (compact Volvo acquisition (an early bird among locals) Modular Architecture, Jointly‐developed with Geely CS11/CH11 Geely CX11/CC11 Volvo) Total 6‐8 models under CMA Engine (a modular platform introduced covering 1.0-2.0L engine) • 1.3 turbo engine ranked China top 10 in 2014; Volvo S60 Volvo XC60/V60 BMA/SPA (Jointly‐ • 1.8 turbo + direct injection engine ranked China top 10 in developed with Volvo) 2015; To be determined • Ranking by “Auto Sports” magazine in China;

KC Borui (GC9) Boyue (NL‐3) • 1.5 turbo to be launched in 2017E; • Synergy with Volvo: Geely focusing on 1.3L/1.5L while Volvo working on 1.8L/2.0L in future; FE (Framework Emgrand GL Emgrand GS Extendable) Vision Vision SUV (NL‐4) Transmission: • 7-speed DCT developed by Geely based on Volvo 6-speed King Kong King Kong King Kong SUV DCT technologies; • CVT transmission is under developed by Geely; Panda (potentially replaced by Panda N/A • DSI, an independent Australian transmission maker was a light‐weighted sold from Geely to an A-share listed company: Shuanglin. platform) DSI will still produce 6-AT for Geely and is currently developing 8-AT product.

Source: Company data. Source: Company data.

Goldman Sachs Global Investment Research 12 November 11, 2016 Geely Automobile Holdings (0175.HK)

Capacity expansion and optimization We also see the gradual expansion of Geely’s production capacity as removing the bottleneck in sales of its key models. We expect the Baoji plant might reach 15k-20k unit production of the Boyue SUV in 3-6 months and the Jinzhong plant might reach 10k-15k unit of GS SUV/GL sedan (share platform) in 6-9 months.

From Exhibit 23 we can see that 3 out of 9 Geely plants are located in remote provinces (i.e., provinces where the auto industry/supply chain is not well developed). In 2015, Geely received government subsidies constituting 29.5% of its pre-tax profit. We believe the construction of new plants in remote provinces as well as the relocation of old plants in the Zhejiang province may enable the company to monetize the land appreciation and sustain the level of government subsidies.

Exhibit 23: Most of Geely’s plants are located in remote provinces, which helps maximize government subsidies Geely current plant location

Zhangjiakou

Jinzhong Jinan

Baoji Ningbo (Hangzhouwan+Chunxiao) Chengdu 1 Chengdu 2 Taizhou/Luqiao Linhai

Xiangtan MS≥5% 5%>MS≥2%

2%>MS≥0%

Notes: 1) Market share (MS) refers to the auto production share by province; 2) The red stars represent plants owned by Geely and the black stars represent joint plants with Volvo (owned by the parentco).

Source: IHS Global Insight, Company data.

Goldman Sachs Global Investment Research 13 November 11, 2016 Geely Automobile Holdings (0175.HK)

Exhibit 24: Plant, capacity and products of Geely

Capacity ('000 units) 2013 2014 2015 2016E 2017E 2018E Company comments Total 650 580 620 690 1020 1570 Owned by Geely Ningbo - 1 Shut down Ningbo - 2 50 50 50 50 Might be shut down; still doing a little export currently Ningbo - Hangzhouwan 120 120 200 200 200 200 FE platform: EC7 (Xindihao) Ningbo - Chunxiao 50 120 120 120 KC/NL platform (GC-9 Borui and NL-3 Boyue), with a max annual capacity of 150k units Shanghai - 1 Sold to the JV with EV maker Kandi, then disposed to parent company Shanghai - 2 70 Sold to the JV with EV maker Kandi, then disposed to parent company Linhai 50 50 30 100 100 FE platform: Emgrand GL/GS produced in new plant and shut down the old plant in Linhai Taizhou/Luqiao - old 100 100 100 Shut down the old plant (King Kong) Xiangtan 100 100 100 100 100 100 Potential to reach annual capacity of 200k units, FE platform/New Vision/Panda produced here Lanzhou - 1 40 40 Sold to the JV with EV maker Zhidou/Xindayang, then disposed to parent company Baoji 40 200 200 KC/NL platform (GC-9 Borui and NL-3 Boyue) Shanxi Jinzhong 50 100 FE platform: Emgrand GL/GS, alternative powertrains are also available Jinan 50 50 50 50 EC8, the plant is to be disposed or to produce MPV products Chengdu - 1 70 70 70 100 100 100 GX7 before, now replaced by NL-4/Vision SUV Subtotal 650 580 620 690 870 920 Owned by parentco. Taizhou/Luqiao - new 150 300 Build a new plant in Taizhou/Luqiao for CMA platform models (joint production with Volvo) Zhangjiakou 150 CMA platform models (joint production with Volvo) Chengdu - 2 200 NEV models, Volvo SPA models, BMA (Lynk&Co. brand models) Subtotal 150 650

Source: Company data, Gao Hua Securities Research.

Goldman Sachs Global Investment Research 14 November 11, 2016 Geely Automobile Holdings (0175.HK)

Raising 12-month TP by 10.8% to HK$10.15, implying 25% upside

As summarized in Exhibit 25 we make only minor adjustments to our 2016E-18E EPS of up to -1% (on slightly lower revenues), and 2019E remains unchanged at Rmb1.14. Our 2016E- 2018E EPS are currently 2%/21%/22% above Bloomberg consensus, although we expect consensus numbers to increase further as we believe the catalysts, such as strong new SUV and sedan models sales volume and more details to be announced about new brand Lynk & Co., have not yet been fully incorporated by the market.

Based on an unchanged P/B-ROE valuation framework (although we roll-over to the 2017E P/B vs. 2019E ROE valuation line from 2016E P/B vs. 2018E ROE), we raise our 12-month target price for Geely by 10.8%, from HK$9.16 to HK$10.15, implying 25% upside potential. The increase is primarily driven by the H-share auto coverage share price on average having increased by 9% since our sector restack on August 3, thus we incorporate a higher sector valuation after the mark-to-market of the P/B-ROE valuation line. We maintain our P/B-ROE valuation premium applied at 35% for Geely to reflect the high earnings growth we expect beyond 2018E coming from its new SUV models and CMA products. Geely is trading at 9.1X 2017E P/E and 2.2X 2017E P/B vs. peers at 10.8X/1.4X, against an EPS CAGR of 56% in 2015-2018E vs. peers at 26%.

Exhibit 25: We make only minor changes to our EPS estimates Earnings forecast summary

2016E 2017E 2018E (Rmb mn) New Old Diff. New Old Diff. New Old Diff. Revenue 52,261 52,261 0% 73,356 74,219 ‐1% 89,687 89,963 0% Gross profit 11,274 11,274 0% 17,722 17,901 ‐1% 21,893 21,968 0% EBIT 4,289 4,289 0% 8,241 8,328 ‐1% 10,661 10,701 0% Pretax profit 5,191 5,191 0% 8,709 8,796 ‐1% 11,018 11,057 0% Reported net profit 4,112 4,112 0% 6,866 6,934 ‐1% 8,633 8,664 0% Reported EPS (Rmb) 0.47 0.47 0% 0.78 0.79 ‐1% 0.98 0.98 0%

Source: Gao Hua Securities Research.

Exhibit 26: Our 2016E-2018E EPS estimates are 2%/21%/22% above Bloomberg consensus Our earnings forecast vs. Bloomberg consensus (as of November 10, 2016), Rmb mn

2016E 2017E 2018E GH BBG Diff. GH BBG Diff. GH BBG Diff. Revenue 52,261 46,732 12% 73,356 65,640 12% 89,687 80,259 12% Gross profit (excl. D&A) 11,274 8,735 29% 17,722 12,623 40% 21,893 15,782 39% EBIT 4,289 4,917 ‐13% 8,241 7,005 18% 10,661 8,302 28% Pretax profit 5,191 5,095 2% 8,709 7,220 21% 11,018 9,158 20% Reported net profit 4,112 4,031 2% 6,866 5,777 19% 8,633 7,271 19% Reported EPS (Rmb) 0.47 0.46 2% 0.78 0.64 21% 0.98 0.81 22%

Source: Bloomberg, Gao Hua Securities Research.

Goldman Sachs Global Investment Research 15 November 11, 2016 Geely Automobile Holdings (0175.HK)

Exhibit 27: We rollover to a 2017E P/B vs. 2019E ROE valuation line from 2016E P/B vs. 2018E ROE 2017E P/B (X) vs. 2019E ROE, auto sector, H-share

P/B (2017E) y = 7.3614x + 0.2005 R² = 0.8 3.0

Geely 2.0

Brilliance

Great Wall (H) GAC 1.0 Weichai (H)

Sinotruk Dongfeng

- 0% 5% 10% 15% 20% 25% 30% 35% 40%

ROE (2019E)

Note: Dotted line is the previous valuation line; solid line is the current mark-to-market line, which is the new valuation line we incorporate in our valuation methodology.

Source: Datastream, Bloomberg, Gao Hua Securities Research.

Exhibit 28: We see clear positive catalysts for Geely in the coming 12 months Summary of catalysts

Horizon Catalysts 1M 1. Strong Nov monthly sales

1. Boyue SUV monthly volume might exceed 20k units with the help from capacity ramp‐ up of Baoji plant 3M 2. GL sedan monthly sales volume might exceed 10k units with the help from capacity ramp‐up of Jingzhong plant

1. Strong FY2016 earnings 6M 2. Launching of Geely small SUV & MPV

12M 1. Launching of Lynk & Co SUV sedan and cross models

Source: Gao Hua Securities Research

Goldman Sachs Global Investment Research 16 November 11, 2016 Geely Automobile Holdings (0175.HK)

Appendix

Exhibit 29: Comparison between Geely and Great Wall, two leading local brands in China Comparison of sales volume, ASP, NPM, and valuation between Geely and Great Wall

Volume to outpace Great Geely, 2015 Geely, 2018E Great Wall, 2016E Wall on strong product Sales volume 000 units 510 1,220 985 cycle (Sedan + SUV) ASP Rmb'000/unit 59 74 93 Sales revenue Rmb'mn 30,138 89,687 91,611 ASP to be still weaker NPM % 7.5% 9.6% 10.3% than Great Wall on lower Net income Rmb'mn 2,261 8,633 9,463 SUV mix No. of shares issued mn shares 8,802 8,802 9,127 EPS Rmb/share 0.26 0.98 1.04 Weaker NPM of Geely vs. Latest close HK$/share 7.62 7.62 7.30 Great Wall on lower SUV mix FX HS$/Rmb 1.15 1.15 1.15 and weaker vertical P/E X 25.80 6.76 6.12 integrated B-model

P/E of Geely in 18E is close to that of Great Wall in 16E

Note: As Great Wall has a first mover advantage in the SUV space, we expect Geely’s volumes and NPM in 2018E to be at a comparable level vs. that of Great Wall in 2016E.

Source: Company data, Gao Hua Securities Research.

Exhibit 30: Valuation summary: Global auto companies

Valuation Summary - Auto China Ticker Company name Currency Close Target Price Rating Market cap EPS P/E P/B ROE Dividend yield CROCI % 15-18E 11/10/2016 USD'mn CAGR 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 600104.SS SAIC CNY 23.96 21.82 Neutral 30,127 4% 8.1X 7.7X 8.0X 1.4X 1.3X 1.2X 18% 17% 15% 6% 7% 6% 23% 21% 20% 0489.HK Dongfeng HKD 8.03 8.18 Neutral 8,921 4% 4.7X 4.8X 4.6X 0.6X 0.6X 0.5X 14% 13% 12% 3% 3% 3% 16% 15% 16% 2238.HK GAC HKD 9.64 11.39 Buy 4,350 32% 6.8X 6.1X 5.6X 1.2X 1.1X 1.0X 19% 19% 18% 4% 5% 5% 25% 25% 24% 1114.HK Brilliance HKD 9.91 9.49 Neutral 6,422 8% 12.7X 12.9X 10.0X 1.9X 1.7X 1.5X 16% 14% 16% 1% 1% 1% 15% 17% 20% 000625.SZ Changan (A) CNY 15.50 14.78 Neutral 9,615 -1% 6.3X 6.7X 7.5X 1.7X 1.5X 1.4X 30% 24% 19% 6% 7% 6% 25% 22% 20% 2333.HK Great Wall (H) HKD 7.33 5.46 Sell 3,882 0% 6.0X 6.4X 7.3X 1.3X 1.1X 1.0X 23% 19% 15% 5% 5% 4% 26% 21% 18% 601633.SS Great Wall (A) CNY 10.48 7.79 Sell 13,064 0% 10.1X 10.4X 12.0X 2.1X 1.9X 1.7X 23% 19% 15% 3% 3% 3% 25% 22% 18% 0175.HK Geely HKD 8.15 10.15 Buy* 9,249 56% 14.8X 9.1X 7.3X 2.7X 2.2X 1.7X 19% 26% 26% 1% 1% 2% 21% 28% 27% 1211.HK BYD HKD 49.00 59.45 Buy 12,952 41% 21.0X 17.1X 13.4X 2.3X 2.1X 1.9X 12% 13% 15% 2% 1% 2% 13% 14% 14% 600418.SS JAC CNY 12.94 10.09 Neutral 2,462 17% 14.1X 14.2X 13.6X 2.0X 1.8X 1.7X 15% 14% 13% 2% 2% 2% 13% 12% 10% 000800.SZ FAW Car CNY 11.64 6.73 Sell 2,797 128% NA NA 30.1X 2.3X 2.4X 2.2X -7% -2% 8% 0% 0% 0% 2% 4% 8% 2338.HK Weichai (H) HKD 13.02 10.01 Neutral 3,356 24% 21.1X 18.9X 17.2X 1.4X 1.3X 1.2X 6% 7% 7% 1% 1% 1% 13% 13% 12% 000338.SZ Weichai (A) CNY 10.48 10.63 Neutral 3,094 24% 20.0X 17.4X 15.8X 1.3X 1.2X 1.1X 6% 7% 7% 1% 1% 2% 13% 13% 12% 3808.HK Sinotruk HKD 4.98 3.84 Neutral 1,773 42% 29.4X 24.7X 20.5X 0.6X 0.6X 0.6X 2% 2% 3% 1% 1% 2% 7% 7% 7% China Average 29% 12.8X 11.6X 12.3X 1.6X 1.4X 1.3X 14% 14% 13% 3% 3% 3% 17% 17% 17% China Average (excl. FAW Car) 19% 13.5X 12.0X 11.0X 1.6X 1.4X 1.3X 16% 15% 14% 3% 3% 3% 18% 18% 17% China A share Average (excl. FAW Car) 9% 11.7X 11.3X 11.4X 1.7X 1.5X 1.4X 19% 16% 14% 4% 4% 4% 20% 18% 16% China H average 26% 12.5X 10.8X 9.3X 1.6X 1.4X 1.3X 16% 16% 16% 2% 3% 3% 19% 19% 19%

Valuation Summary - Global Peers Ticker Company name Currency Close Rating Market cap EPS P/E P/B ROE Dividend yield CROCI % 15-18E 11/10/2016 USD'mn CAGR 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E MRTI.BO Maruti Suzuki INR 5,325 6,917 Buy 24,197 34% 27.1X 21.1X 18.2X 4.6X 4.8X 4.0X 18% 25% 24% 1% 1% 1% 18% 18% 19% TAMO.BO Tata Motors INR 534 542 Neutral 24,803 14% 10.7X 10.9X 8.8X 1.7X 1.9X 1.6X 18% 19% 20% 0% 0% 0% 18% 15% 17% India Average 24% 18.9X 16.0X 13.5X 3.1X 3.3X 2.8X 18% 22% 22% 0% 1% 1% 18% 17% 18% 005380.KS Hyundai Motor KRW 129,000 129,000 Neutral 30,152 -5% 6.1X 6.1X 6.3X 0.5X 0.5X 0.5X 9% 8% 8% 3% 3% 3% 11% 11% 11% 000270.KS Kia Motors KRW 38,100 27,000 Sell 13,289 -4% 5.1X 6.6X 6.5X 0.6X 0.5X 0.5X 12% 8% 8% 3% 3% 3% 8% 6% 6% Korea Average -4% 5.6X 6.3X 6.4X 0.5X 0.5X 0.5X 10% 8% 8% 3% 3% 3% 10% 9% 8% PEUP.PA Peugeot EUR 13.63 17.50 Buy 12,907 15% 5.7X 6.1X 5.9X 0.9X 0.9X 0.8X 19% 15% 14% 4% 4% 4% 10% 7% 7% VOLVb.ST Volvo SEK 96.75 91.00 Neutral 23,376 -1% 17.1X 14.9X 13.6X 2.2X 2.0X 1.9X 13% 14% 15% 3% 3% 4% 8% 11% 11% RENA.PA Renault EUR 75.40 79.00 Neutral 24,409 10% 5.8X 5.3X 5.2X 0.7X 0.6X 0.6X 12% 12% 11% 4% 4% 4% 8% 8% 8% BMWG.DE BMW EUR 76.84 85.00 Neutral 54,648 2% 7.4X 7.4X 7.5X 1.1X 1.0X 0.9X 15% 14% 12% 4% 5% 5% 14% 12% 11% FCHA.MI FCA EUR 6.27 7.50 Buy 10,384 22% 4.6X 3.4X 3.1X 0.5X 0.5X 0.4X 13% 15% 14% 0% 0% 0% 12% 12% 11% DAIGn.DE Daimler AG EUR 63.89 75.00 Buy 74,822 2% 8.1X 7.2X 7.7X 1.2X 1.1X 1.0X 15% 15% 13% 5% 5% 5% 15% 17% 16% VOWG_p.DEVolkswagen EUR 116.40 115.00 Sell 66,978 23% 7.2X 5.2X 4.8X 0.6X 0.6X 0.5X 11% 11% 11% 2% 3% 4% 7% 7% 7% Europe Average 10% 8.0X 7.1X 6.8X 1.0X 0.9X 0.9X 14% 14% 13% 3% 4% 4% 10% 11% 10% 7203.T Toyota Motor JPY 5,838 6,400 Neutral 176,845 -6% 10.1X 11.0X 10.1X 1.4X 1.0X 0.9X 14% 9% 9% 3% 4% 4% 15% 11% 12% 7269.T Suzuki Motor JPY 4,018 4,300 Buy* 21,417 17% 16.0X 12.9X 14.4X 2.0X 2.0X 1.7X 10% 15% 13% 1% 1% 1% 11% 13% 15% 7201.T Nissan Motor JPY 983 1,050 Neutral 39,278 5% 9.5X 7.8X 7.7X 1.1X 0.9X 0.8X 11% 11% 11% 4% 5% 5% 5% 7% 7% 7261.T Mazda Motor JPY 1,563 1,850 Buy 8,935 -8% 10.0X 8.9X 7.6X 1.4X 0.9X 0.8X 15% 11% 12% 1% 2% 3% 13% 10% 11% 7202.T Isuzu Motors JPY 1,270 1,350 Buy 10,201 1% 10.2X 9.9X 9.0X 1.6X 1.3X 1.2X 15% 13% 14% 2% 3% 3% 9% 8% 9% 7267.T Honda Motor JPY 2,981 3,500 Buy 51,382 4% 19.8X 10.5X 9.6X 1.0X 0.8X 0.8X 5% 8% 8% 2% 3% 3% 10% 8% 8% 7205.T Hino Motors JPY 1,167 900 Neutral 6,371 -11% 12.5X 15.0X 12.7X 1.9X 1.4X 1.3X 15% 10% 11% 3% 2% 2% 8% 6% 7% 7270.T Fuji Heavy JPY 3,805 4,200 Neutral 28,405 7% 7.9X 10.5X 9.4X 2.6X 2.0X 1.7X 37% 20% 20% 3% 4% 4% 38% 23% 22% Japan Average 1% 12.0X 10.8X 10.1X 1.6X 1.3X 1.2X 15% 12% 12% 2% 3% 3% 13% 11% 11% F Ford USD 11.58 12.00 Neutral 46,007 -4% 6.5X 7.2X 6.8X 1.4X 1.3X 1.2X 23% 19% 18% 7% 5% 5% 16% 12% 13% GM GM USD 30.96 29.00 Neutral 47,988 -3% 5.1X 5.6X 6.8X 1.1X 1.0X 0.9X 22% 18% 13% 5% 5% 5% 19% 18% 14% TSLA Tesla Motors USD 190.06 190.00 Neutral 27,130 NA NA NA 10.9X 8.0X 8.6X -15% -9% 1% 0% 0% 0% 5% 14% 18% American Average -4% 5.8X 6.4X 6.8X 4.5X 3.4X 3.5X 10% 9% 11% 4% 3% 3% 14% 15% 15% American Average (excl. Tesla) -4% 5.8X 6.4X 6.8X 1.3X 1.1X 1.0X 23% 18% 16% 6% 5% 5% 18% 15% 14% Note: *denotes the stock is on our regional Conviction List. NA=Not Applicable.

Source: Datastream, Company data, Goldman Sachs Global Investment Research, Gao Hua Securities Research.

Goldman Sachs Global Investment Research 17 November 11, 2016 Geely Automobile Holdings (0175.HK)

Disclosure Appendix Reg AC We, Yipeng Yang and Yuqian Ding, hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. Investment Profile The Goldman Sachs Investment Profile provides investment context for a security by comparing key attributes of that security to its peer group and market. The four key attributes depicted are: growth, returns, multiple and volatility. Growth, returns and multiple are indexed based on composites of several methodologies to determine the stocks percentile ranking within the region's coverage universe. The precise calculation of each metric may vary depending on the fiscal year, industry and region but the standard approach is as follows: Growth is a composite of next year's estimate over current year's estimate, e.g. EPS, EBITDA, Revenue. Return is a year one prospective aggregate of various return on capital measures, e.g. CROCI, ROACE, and ROE. Multiple is a composite of one-year forward valuation ratios, e.g. P/E, dividend yield, EV/FCF, EV/EBITDA, EV/DACF, Price/Book. Volatility is measured as trailing twelve-month volatility adjusted for dividends. Quantum Quantum is Goldman Sachs' proprietary database providing access to detailed financial statement histories, forecasts and ratios. It can be used for in-depth analysis of a single company, or to make comparisons between companies in different sectors and markets. GS SUSTAIN GS SUSTAIN is a global investment strategy aimed at long-term, long-only performance with a low turnover of ideas. The GS SUSTAIN focus list includes leaders our analysis shows to be well positioned to deliver long term outperformance through sustained competitive advantage and superior returns on capital relative to their global industry peers. Leaders are identified based on quantifiable analysis of three aspects of corporate performance: cash return on cash invested, industry positioning and management quality (the effectiveness of companies' management of the environmental, social and governance issues facing their industry). Disclosures Coverage group(s) of stocks by primary analyst(s) Yipeng Yang: A-Share Autos, China Autos. Yuqian Ding: A-Share Autos, China Autos. A-Share Autos: Anhui Jianghuai Automobile Co., Chongqing Changan Auto (A), FAW Car, Fuyao Glass Industry Group (A), Great Wall Motor Co.(A), Huayu Automotive Systems, SAIC Motor, Weichai Power (A), Weifu High-Technology Group (A). China Autos: Baoxin Auto Group, Brilliance China Automotive, BYD Co., China Harmony New Energy Auto, Dongfeng Motor, Fuyao Glass Industry Group (H), Geely Automobile Holdings, Great Wall Motor Co. (H), Guangzhou Automobile Group, Minth Group, Nexteer Automotive Group, Sinotruk (Hong Kong), Weichai Power (H), Zhengtong Auto Services Holdings, Zhongsheng Group. Company-specific regulatory disclosures The following disclosures relate to relationships between The Goldman Sachs Group, Inc. (with its affiliates, "Goldman Sachs") and companies covered by the Global Investment Research Division of Goldman Sachs and referred to in this research. Goldman Sachs beneficially owned 1% or more of common equity (excluding positions managed by affiliates and business units not required to be aggregated under US securities law) as of the month end preceding this report: Geely Automobile Holdings (HK$8.15) Goldman Sachs expects to receive or intends to seek compensation for investment banking services in the next 3 months: Geely Automobile Holdings (HK$8.15) Goldman Sachs had an investment banking services client relationship during the past 12 months with: Geely Automobile Holdings (HK$8.15) Goldman Sachs had a non-securities services client relationship during the past 12 months with: Geely Automobile Holdings (HK$8.15) Goldman Sachs makes a market in the securities or derivatives thereof: Geely Automobile Holdings (HK$8.15) Distribution of ratings/investment banking relationships Goldman Sachs Investment Research global Equity coverage universe

Rating Distribution Investment Banking Relationships Buy Hold Sell Buy Hold Sell Global 31% 55% 14% 64% 59% 53% As of October 1, 2016, Goldman Sachs Global Investment Research had investment ratings on 2,921 equity securities. Goldman Sachs assigns stocks as Buys and Sells on various regional Investment Lists; stocks not so assigned are deemed Neutral. Such assignments equate to Buy, Hold and Sell for the purposes of the above disclosure required by the FINRA Rules. See 'Ratings, Coverage groups and views and related definitions' below. The Investment Banking Relationships chart reflects the percentage of subject companies within each rating category for whom Goldman Sachs has provided investment banking services within the previous twelve months.

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Price target and rating history chart(s)

Geely Autom obile Holdings (0175.HK) Stock Price Currency : Hong Kong Dollar Goldman Sachs rating and stock price target history 10.00 16,000 4.74 6.08 15,000 9.00 3.03 3.71 4.51 4.86 14,000 8.00 4.57 3.13 2.94 3.93 4.61 13,000 4.73 3.2 7.00 3.33 12,000 6.00 3.11 11,000 4.66 5.00 8.24 10,000 8.45 9,000 4.00 8,000 3.00 6.33 5.3 7,000 2.00 6,000 Jun 2 Feb 10 Feb 22 May 17 B N B N B N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S 2013 2014 2015 2016 Index Price Stock Price Source: Goldman Sachs Investment Research for ratings and price targets; FactSet closing prices as of 9/30/2016. Rating Covered by Yipeng Yang Pric e tar get Price target at removal Not covered by current analyst Hang Seng China Ent. Index

The price targets show n should be considered in the context of all prior published Goldman Sachs research, which may or may not have included price targets, as w ell as developments relating to the company, its industry and financial markets.

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