Hong Kong Equity | Automobile Company in-depth
Geely Auto 吉利汽车 (175 HK) ACCUMULATE
Sales Rebound Following Mid-2019 Weak Performance Share Price Target Price Geely ranked No. 7 among Chinese auto makers in 2018, according to CAAM. HK$15.36 HK$16.7 Though Geely’s sales volume declined in 2Q2019, it has recovered gradually since 9/2019 and sold 143,234 units (+1.1%/10% YoY/MoM) in 11/2019. We believe the launch of 6-8 new models in 2020E and fuel vehicles sales pick-up in China may China / Automobile / Auto Maker continue to boost its sales volume. Combined with rising contribution from mid-to-high end vehicles to support ASP, we estimate 2020E profit to improve by 9 December 2019 26% YoY to RMB11.3 bn. We initiate Accumulate with TP of HK$16.7, suggesting 9% upside potential. Alison Ho (SFC CE:BHL697) Sales decline narrowed down: Geely sales dropped significantly in 2Q2019 & 3Q2019 (852) 3519 1291 mainly due to 1) the implementation of China VI vehicle emission standard from [email protected] 1/Jul/2019 in some cities resulting in customers squeezing demand for new cars in 1H2019; 2) the uncertainties on relations between China and US; 3) economic downturn to drag consumer’s purchasing power. However, we saw Geely’s auto sales decline has Latest Key Data narrowed since 9/2019 and recorded a growth of 1.1% yoy in 11/2019. Under Total shares outstanding (mn) 9,146 consideration that December and January are regarded as the high season for auto sales, Market capitalization (HK$mn) 140,476 with customers traditionally making purchases before Chinese New Year, we therefore Enterprise value (HK$mn) 126,335 believe Geely’s auto sales growth will keep improving in the near future. 12M average daily turnover (HK$mn) 822 12M volatility (%) 45 6-8 new models will be launched to support ASP in 2020E: Seeing that Geely guided PEG FY18-20E (x) (1.5) they would launch 6-8 models including Lynk & Co 05 and 06, Icon and Preface in 2020E, ROE avg FY18-20E (%) 21 we believe the new models will boost not only sales volume, but also ASP as most of P/B FY19E (x) 2.3 new cars are mid-to-high end vehicles. Since Geely strategically increases the weight of Net debt/equity FY19E (%) NC high-price vehicles sales, it is likely to support its ASP going forward. Further transfer of IPs to Proton to boost reputation and income: The transfer of 3 Performance (%) intellectual properties (IP) to Proton entitle Geely to receive the license fee and auto parts fee in 2018-2020. A win-win situation can be achieved via IP transfer as Proton can 1M YTD 12M Absolute 1 11 5 save huge R&D costs and Geely can receive decent profit. Geely guided that it will Relative to HSI 5 9 4 continue to make IP transfer to Proton, which enhances not only reputation but also income growth.
GPM may rebound slowly amid fierce competition: With the sluggish economic growth, Major Shareholders (%) we expect that Geely’s GPM will grow slowly in 2020E due to fierce competition as well Proper Glory Holdings Inc 28.8 as no more room for price hike. Zhejiang Geely Automobile 8.73 BlackRock Inc 4.9 A robust balance sheet: Considering Geely has RMB10.6 bn net cash, we expect that it can plan for expansion even in economic downturn to strengthen its market share. Initiate with Accumulate. Geely’s share price up 20% in the past 3 months as the sales Auditor volume decline narrowed. We believe its profit growth will recover in 2020E resulting Grant Thornton from new cars launch and fuel vehicles demand pick-up. We initiate Accumulate with target price of HK$16.7, which is based on 10-year DCF model. This implies FY20E P/E of 12.4x and FY20E P/B of 2.2x. Price Chart Investment Summary Turnover (HK$mn) Price (HK$) 5000 Geely 20.0 FY-end Dec 2017 2018 2019E 2020E 2021E 4500 HSI 18.0 Turnover (RMB mn) 92,761 106,595 97,598 108,371 120,777 4000 16.0 Chg (%) 73 15 (8) 11 11 Net Profit (RMB mn) 10,634 12,553 8,952 11,256 13,155 3500 14.0 Chg (%) 108 18 (29) 26 17 3000 12.0 EPS (RMB ) 1.190 1.398 0.978 1.215 1.423 2500 10.0 Chg (%) 105 17 (30) 24 17 2000 8.0 P/E (x) 11.6 9.9 14.1 11.4 9.7 1500 6.0 P/B (x) 3.7 2.8 2.3 2.0 1.7 P/OCF (x) 10.3 8.9 8.0 7.1 6.0 1000 4.0 EV/EBITDA (x) 8.1 6.8 8.4 6.8 5.5 500 2.0 DPS (RMB ) 0.074 0.342 0.245 0.308 0.360 0 0.0 18-Dec 19-Mar 19-Jun 19-Sep 19-Dec Yield (%) 0.5 2.5 1.8 2.2 2.6 Source: Company data, Bloomberg, Orient Securities (Hong Kong) Source: Bloomberg, Orient Securities (Hong Kong)
Orient Securities (Hong Kong) Limited Please read the analyst certification, company disclosure and disclaimer in the last page 1
Hong Kong Equity | Automobile Company in-depth
Chinese brands bear the brunt of a dip in Chinese auto sales
See rebound in auto sales Figure 1: Regions complied to China VI vehicle emission standards starting from 1/Jul/2019 The Chinese auto sales dropped for a 16th consecutive month in 10/2019, but figure 2 1 Shenzhen shows the decline narrowed. The auto market declined significantly in 1H2019 resulting 2 Shanghai from some regions like Shenzhen, Shanghai, Guangdong, and Henan to implement China 3 Tianjin 4 Chongqing VI vehicle emission standard in 7/2019, ahead of the original 1/Jul/2020 deadline, hence 5 Anhui the car dealers were rushing to clean up the China V standard vehicles by offering big 6 Nanjing discount. But most of car buyers were waiting for buying China VI standard vehicles, 7 Hangzhou which led to the inventory buildup and slump in vehicles sales. Meanwhile, the 8 Sichuan 9 Hainan uncertainties on relations with US as well as economic downturn also weigh on 10 Guangdong consumer’s purchasing power. In 2H2019, thanks to the implementation of China VI 11 Shandong vehicle emission standard by some cities and peak season-induced demand, the Chinese 12 Henan 13 Hebei auto sales rebounded with sales down by 9.7% yoy to 20.6 mn units in 10M2019 vs Source: Internet data, Orient Securities (Hong Kong) -12.4% in 1H2019, according to CAAM.
Figure 2: Monthly Auto sales in China Figure 3: Monthly auto sales by brands
Automobile sales volume China auto sales recorded YoY growth Domestic brands sales (LHS) negative growth since (%) declined since 9/2018 Unit % YOY growth(%) (RHS) 7/2018, but the decline but we see a sign of narrowed in 2H2019 vs 20 improvement now. 3,000,000 1H2019. 15 10 0 2,500,000 10 Chinese brands -10 2,000,000 5 0 -20 Japanese 1,500,000 (5) -30 brands* Germany 1,000,000 (10) -40 500,000 -50 brands* (15) US brands*
0 (20)
2018-03 2018-05 2018-07 2018-09 2018-11 2019-01 2019-03 2019-05 2019-07 2019-09 *Autoinfo no long release the data since 6/2019
Source: CAAM, Orient Securities (Hong Kong) Source: AutoInfo, Wind, Orient Securities (Hong Kong)
Domestic brands suffer most from auto sales slump The domestic brand vehicle sales fell by 17.5% yoy to 6.67 mn units in 10M2019 with Figure 4: China NEVs sales market shares dropping by 3.1ppt to 38.9%, according to CAAM, underperforming the market. The domestic brands suffered most as consumers who buying low-to-mid end Accumulated NEVs Sales (LHS) % vehicles, cut discretionary spending amid economy slowdown, which further intensifies Unit YoY growth(%) (RHS) 1,400,000 200 the competitions among Chinese car makers in 1H2019. Figure 3 shows that domestic 180 1,200,000 brand sales decline narrowed in 3Q2019, we believe it may continue to rebound in 160 1,000,000 140 4Q2019 since November and December are regarded as the high season for auto sales, 800,000 120 100 with customers traditionally making purchases before Chinese New Year. 600,000 80 400,000 60 40 200,000 NEVs sales slump amid the subsidies cut 20 0 0 The government announced the new NEVs subsidy policy in Q1/2019, saying that
subsidies will be cut by half on average starting from 26/Jun/2019. The car buyers then
2018-07 2018-10 2019-01 2019-04 2019-07 2019-10 2018-04 rushed to purchase NEVs before deadline, and NEVs sales surged 49.7% yoy to 0.616mn
units in 6M2019, according to CAAM, way outperforming the auto market. But after the Source: CAAM, Orient Securities (Hong Kong) implementation of new policy in the late June, NEVs sales dropped for the 4th straight
month in 10/2019 (45.6% yoy decline comparing to 51.5% yoy growth in the same month last year). With an expected continuous decrease in subsidies provided in 2020E,
we believe the potential decrease in demand for NEVs will put pressure on NEVs makers.
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Hong Kong Equity | Automobile Company in-depth
Geely is gaining market share SAIC accounted for 25% of total Chinese auto sales Figure 5: 2018 Market shares of According to CAAM, SAIC is the largest car maker in China, with sales volume of 7.01 mn auto makers units, its market share reached 25.2% in 2018. We observed that SAIC’s sales volume 2.8% 2.7% SAIC 3.8% kept rising and maintained the market leading position from 2013 to 2018, the domestic Dongfeng 5.5% brands under SAIC include ROEWE, MG, MAXUS, Yuejin, Wuling, Baojun and the brands FAW produced under SAIC joint ventures include SAIC-VW, SAIC-GM, SAIC GM Wuling, 25.2% BAIC 7.7% GAC Shanghai Sunwin Bus, SAIC-IVECO Hongyan and NAVECO. We know SAIC-VW, SAIC-GM 7.7% Changan and SAIC GM Wuling ranked No. 1, No. 3 and No. 4 of best passenger car sellers 13.8% Geely respectively, in China in 2018. With rising competitiveness of SAIC, we believe it will GWM 12.3% continue to gain market shares. By contrast, Dongfeng, the second largest car maker, 9.0% Brilliance Chery recorded single-digit decline in sales volume during 2017-2018 mainly due to marked
sales decrease in its subsidiaries including Dongfeng Renault, Dongfeng Peugeot-Citroën Source: CAAM, Orient Securities (Hong Kong) and Dongfeng Liuzhou Motor, and its market shares hence dropped from 16.0% in 2013 to 13.8% in 2018, underperforming the industry. Figure 6: Tier one auto makers sales volume Figure 7: Tier two auto makers sales volume 0'000 units 0'000 units SAIC 250 800 692 701 214 GAC 647 200 700 586 Dongfeng 200 558 165 Geely 600 507 Motor 130 152 500 428 412 150 117 387 383 FAW 107 107131 105 353 380 100 GWM 80 85 400 342 100 73 335 78 86 80 78 309 284 311 BAIC 75 77 75 300 291 306 287 56 Brilliance 255 278 240 55 43 220 251 214 50 200 285 70 67 74 240 249 Changan 211 47 49 52 Chery 100 Automobile 0 2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 2017 2018
Source: CAAM, Orient Securities (Hong Kong) Source: AutoInfo, Wind, Orient Securities (Hong Kong)
Figure 8: Auto makers ranking in Geely, GAC and Chery outperformed the industry in the past 5 years 2014-2016 The Chinese auto market sales grew at a CAGR of 5% during 2013-2018. Geely, GAC and 2014 2015 2016 Chery were few high-growth companies among top 10 auto makers. Geely’s sales volume 1 SAIC SAIC SAIC 2 Dongfeng Dongfeng Dongfeng more than doubled from 0.55 mn units in 2013 to 1.52 mn in 2018, with a CAGR of 23% 3 FAW FAW FAW during 2013-2018, mainly due to the launch of popular models like Emgrand GS, 4 Changan Changan Changan Emgrand GL and Boyue. The second high growth auto maker was GAC Group, with a 5 BAIC BAIC BAIC 6 GAC GAC GAC CAGR of 16% during 2013-2018. Since the Japanese brands have high price-performance 7 Brilliance Brilliance GWM ratio, lots of car buyers continue to snap up Japanese brands and we believe GAC Group 8 GWM GWM Geely will benefit from it. The sales volume of Chery grew at a CAGR of 9% over 2013-2018 9 Chery JAC Brilliance 10 JAC Geely Chery mainly due to surge in Arrizo 5 sales in 2016 and we saw its sales volume grew stably in Source: CAAM, Orient Securities (Hong Kong) 2017-2018.
Figure 9: Auto makers ranking in 2017-5M2019 Geely is gaining market share among domestic brands 2017 2018 5M2019 Geely has been gaining the market share in the past five years. Figure 8 and figure 9 1 SAIC SAIC SAIC shows that it was non-top 10 players in 2014 but ranked No. 7 in 2018, and its market 2 Dongfeng Dongfeng Dongfeng 3 FAW FAW FAW share, in terms of sales volume, rose from 2.5% in 2013 to 5.5% in 2018. Even though its 4 Changan BAIC Changan sales volume dropped by 14% yoy in 10M2019, its market shares maintained at 5.3% 5 BAIC GAC BAIC since its peers also performed badly during 2019, for example, SAIC/Dongfeng sales 6 GAC Changan GAC 7 Geely Geely GWM volume dropped by 13.7%/4.2% yoy in 10M2019. Meanwhile, Geely ranked No. 1 among 8 GWM GWM Geely domestic brands in terms of sales volume, according to Gasgoo, we believe it will 9 Brilliance Brilliance Brilliance continue to gain market share in domestic market on the back of its technology 10 Chery Chery Chery Source: CAAM, Orient Securities (Hong Kong) *CAAM enhancement and research upgrade by close cooperation with Volvo. no longer announced the ranking after 5/2019
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Hong Kong Equity | Automobile Company in-depth
Zhejiang Geely – One of the leading auto manufacturers in China
ZGH has entered into auto business since 1997 Figure 10: ZGH covered low-end to luxury Zhejiang Geely Holding Group (ZGH), a privately held automotive manufacturer, cars principally involved in the design and development, production and sales of vehicles and
Luxury brands - Volvo powertrains, and it also provided mobility services, financial services, education, and
motorsports. ZGH was founded in Taizhou City, Zhejiang Province in 1986 and entered
Mid-to-high end - Lynk & the automotive industry in 1997. ZGH has 5 subsidiaries named Geely Auto (175.HK),
ZGH CO Volvo group, Geely Commercial Vehicle, Mitime Group and Geely Technology Group. The
Low-to-mid end - Geely well-known international brands including Geely Auto, Lynk & Co, Volvo Cars, Polestar, brands Lotus, London Electric Vehicle are held by its subsidiaries. ZGH has taken steps to position itself as auto market leader since 2010, and up to now, its products completely Source: Company data, Orient Securities (Hong Kong) cover low-end market by Geely brand, mid-to-high end market by Lynk & CO brand and luxury market by Volvo brand.
Figure 11: Zhejiang Geely Holding Group Structure
Zhejiang Geely Holding Group (ZGH)
Geely Geely Mitime Group Commercial Geely Auto (175.HK) Volvo Technology Vehicle Group
Mitime Geely Lynk & Co Education London EV Volvo Terrafugia
Lotus Mitime Geometry Yuan Cheng CAOCAO Sports Auto Polestar
Mitime Tourism
Source: Company data, Orient Securities (Hong Kong) Mr. Li Shufu led the Group to acquire international auto brands The chairman of ZGH is Mr. Li Shufu (李书福), who was born in Taizhou, Zhejiang in 1963. Figure 12: Mr. Li Shufu Mr. Li holds a Master’s degree in engineering from Yan Shan University. In 2010, Mr. Li has led ZGH to acquire luxury brand – Volvo Car from Ford Motor for USD1.8 bn, which helped ZGH to gain reputation as this was the biggest purchase of overseas carmaker by a domestic car manufacturer. With the joint cooperation between ZGH and Volvo, ZGH can enhance technologies in the short-to-mid-term and be able to produce luxury cars in China. In 2013, ZGH bought London Taxi Company by paying USD14.6 mn, and then it acquired a 49.9% stake in Proton and 51% stake in the Lotus sports car in 2017. In 2018, as ZGH continued to acquire 8.2% stake in AB Volvo and 9.7% stake in Daimler, Mr. Li became the largest shareholder in AB Volvo and Daimler. We believe the acquisitions can support ZGH to improve global visibility, enforce global strategy and innovative and Source: Company data, Orient Securities (Hong Kong) enhance competitiveness with the access to the first-class German auto technology.
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Hong Kong Equity | Automobile Company in-depth
Geely Auto was highly supported by ZGH
Geely got 3 auto brands Figure 13: Brands under Geely Geely Auto (“Geely”), a subsidiary of ZGH, is principally engaged in the production and sales of passenger cars, most of which are sold to PRC under Geely brand, Lynk & Co, Proton and Lotus. Currently, Geely has 12 production bases with total annual production capacity of 2,400,000 units of vehicles. The company has 980 Geely brand distributors, 243 Lynk & Co Centres and 20 Lynk & Co Spaces in the PRC by the end of 6/2019. Both Geely brand and Lynk & Co have separate marketing and distribution systems. Besides, the company exported its products to 24 countries via 24 sales agents and 336 sales and service outlets in 2018, mainly focusing on developing countries like Eastern Europe, Source: Company data, Orient Securities (Hong Kong) Middle East and Africa. As requested by ZGH, Volvo has made a technology transfer to Geely, which not only improves the competitiveness of the company, but also helps grab customers’ eyeballs.
Figure 14: Geely’s milestones
1986 Geely was founded in Zhejiang as a 2005 Geely was listed on HKEX refrigerator parts manufacturer.
It purchased a 19.97% stake in Manganese Bronze Holding (an owner of London taxi) and 1994 Geely produced and sold 2006 motorcycles in Taizhou City formed the JV to produce and sell London taxi in China Expansion period Geely Group was established ZGH acquired 100% shares of Volvo Car 1996 2010 Corporation
Geely entered the automotive Research 1997 2013 ZGH acquired 100% control of Manganese industry period Bronze Holding.
Geely acquired 49.9% stake in Malaysian 1998 First vehicle was produced. 2017 automaker Proton and 51% luxury sport car brand Lotus Rapid growth It became China’s top ten automaker 2002 2017 Lynk & CO 01 was launched. period
Zhejiang Geely Holding Group was ZGH acquired 9.7% stake in Daimler AG 2003 established 2018
Source: Company data, Orient Securities (Hong Kong) Focusing on NEEVs development since 2015 Geely announced its new energy vehicle strategy named 'Blue Geely Initiatives' in 2015, Figure 15: Emgrand GSe which would concentrate resources on developing NEVs and it targeted to make 90% of
the Group’s total sales consist of new energy and electrified vehicles (“NEEVs”) sales by
2020, while NEEVs sales will be split into 65% for PHEV/MHEV and 35% for EV. Up to
10M2019, NEEVs only accounted for 8.2% of Geely’s sales, and the management
explained the low proportion was mainly due to lower-than-expected demand for NEVs
from car buyers. Meanwhile, the Blue Geely Initiatives entailed to launch over 30 NEEVs model before 2018, but only 9 NEEV models (Emgrand PHEV, Emgrand EV, Borui GE PHEV,
Source: Company data, Orient Securities (Hong Kong) Borui GE MHEV, Emgrand GSe, Emgrand GL PHEV, Lynk & Co 01, 02, 03) have been sold in 2018. Given that Geely accelerates NEEVs development and speeds up its digitalization and electrification, we believe those strategies can strengthen its market position even though it missed the Blue Geely Initiatives target.
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Hong Kong Equity | Automobile Company in-depth
Lynk & CO covers mid-to-high end auto market
Lynk & CO merged both European design and technology Geely ’s parent company - ZGH bought Swedish brand Volvo in 2010 from Ford Motor. A Figure 16: Lynk & CO stake Chinese-foreign joint venture - Lynk & CO was established in 2016 and is owned 50%, 20% and 30% by Geely Auto, Geely Group and Volvo respectively, and the brand is positioned between the Geely brand and the Volvo marque. Given the cooperation with Volvo, Geely not only enhances its research and innovative capabilities but also enjoys solid reputation via producing high-quality vehicles. As we know, Volvo has already supplied engines to Geely vehicles and shared technology to Lynk & CO. Meanwhile, Geely and Volvo have shared and developed common vehicle platform – CMA, which combines European technology and design, based on Volvo technology. 3 Lynk & CO vehicles produced by CMA platform were launched in 2017 and 2018. On the back of more jointly developed vehicles to be launched in the future, we believe it would increase Geely’s competitiveness and prestige. Geely Group Volvo 20% Geely Auto 30% A different business model from Geely brands 50% Lynk & CO has different distribution channels from Geely brands. Just like Tesla which sells the cars with a transparent price system and ordering system via online platform or Source: Company data, Orient Securities (Hong Kong) offline stores, we believe it can make the car purchase process more easily and save the purchasing time costs. Besides, Lynk & CO promises to provide consumers with lifetime
free warranty, lifetime free road rescue and lifetime free data traffic, which can protect the customers from car problems. In addition, the company allows consumers to change models freely within a certain period, hence we think it can attract young buyers.
Figure 17: Geely brand vs Lynk & CO brand Geely Brand Lynk & CO Brand
First car launch year 1998 2017 Price Range (RMB) 43,900 – 216,800 113,800 -228,800 Segment definition Low-to-high end (Focus on low-end) Mid-to-high end Manufacturing platform Geely-designed Shared and deigned with Volvo Target customers Mass market Young professional Modular architecture AMA, BMA, CMA, DMA CMA Turbo engine 1.0L/1.3L/1.5L/1.8L/2.4L 1.0T/1.4T/1.5T/1.8T/2.0T 1.5T/2.0T Features Great value for money All aluminum cylinder to save oil consumption Geely not only offers attractive price, but also and to make the life longer upgrades its technologies, sales channels as In-house international design capabilities well as services to attract more customers. Distribution channel up to Dealers – 980 dealers in China and almost Offline shop- 243 Lynk&Co Centres and 20 6/2019 500 sales and services points overseas. Lynk&Co Spaces Online shops Main competitors Domestic brands like Greatwall, ChangAn, Trumpchi Foreign brands like Toyota, Volkswagen, GM, Ford Production Capacity (units) 2,400,000 200,000 Source: Internet, Company data, Orient Securities (Hong Kong) See last page for disclaimer. 6
Hong Kong Equity | Automobile Company in-depth
Geely shifting the focus from low-end to mid-to-high end vehicles
Figure 18: Geely’s share price
HKD Geely's share price kept at Geely's share price surged Geely's share price HKD2-HKD5 in 2013-2015, mainly from HKD3 in 2016 to plummeted from 30 due to a high concentration on HKD27 in 2017, mainly due HKD27 in 2017 to 25 low-to-mid end products and no to an significant increase in c.HKD15 recently, 20 significant increase in profit sales volume, market mainly due to the shares as well as earnings. slowdown in auto 15 during 2012-2015. market and its sales 10 volume growth 5 missed market 0 expectation. 01-2013 07-2013 01-2014 07-2014 01-2015 07-2015 01-2016 07-2016 01-2017 07-2017 01-2018 07-2018 01-2019 07-2019
Price range Sales volume (‘000 units) Our View (RMB ‘000) 2015 2016 2017 2018 2019E Low-end models 208.9 208.5 237.0 461.9 356.3 Geely Panda 37-50 14.1 7.2 1.1 - - The contribution from low-end vehicles reduced notably in past 5 years: Geely’s low end vehicles Free Cruiser 39-42 10.8 0.3 - - - accounted for 41% of its total sales in 2015. We Vision X1 40-58 - - 24.5 11.9 0.0 saw that Geely has strategically terminated some Vision X3 46-69 - - 30.9 116.9 93.5 low-price cars like Panda and Free Cruiser ’s Geely Kingkong 48-66 57.4 63.4 35.6 17.0 - production and has shifted its focus to mid-to-high end vehicles since 2016. The Geely Vision 48-74 122.0 137.7 145.0 143.9 80.7 contribution from low-end cars recently dropped Englon SC7 52-57 4.6 - - - - to 26% in 10M2019. Among the low end cars, Emgrand/ New Vision X3, Vision and Emgrand are most popular 70-99 - - - 172.2 182.1 models which sold >7,000 units in 10/2019. Emgrand Low-to-mid end models 268.7 481.2 933.6 834.9 732.5 Vision S1 60-103 - - 10.8 67.9 25.6 Emgrand GS and Emgrand GL sales volume Emgrand (EC7） 70-101 206.2 223.8 239.5 42.9 - dropped significantly in 10M2019: Emgrand GS, Vision SUV 70-106 - 42.4 125.5 113.3 75.3 Emgrand GL and Vision SUV were hot models in GL Eagle GX7 70-120 59.9 15.3 - - - 2017 which sold over 100K units, but we Bin Rui 76-111 - - - 33.1 83.0 observed that Emgrand GS and Emgrand GL sales dropped significantly from 129K units and 127K Emgrand GS 78-117 - 60.5 151.0 150.2 102.5 units in 10M2018 to 77.6K units and 66.2K units Bin Yue 79-130 - - - 23.4 139.3 in 10M2019 respectively. It is probably due to the Emgrand GL 79-122 - 30.0 120.7 148.5 79.2 launch of Bin Yue and Bin Rui, which eat some of Emgrand EC8 89-119 2.6 0.0 - - - market shares of Emgrand GL and Emgrand GS. Geely Boyue 99-162 - 109.2 286.2 255.7 227.6 Mid-end models 31.5 52.0 43.5 52.1 91.1 Jia Ji 100-149 - - - - 29.8 The contribution from mid-end vehicles Emgrand GSe 120-160 - - - 7.5 11.1 increases: Geely only produced 2 mid-end Bo Rui (GC9） 130-155 31.5 52.0 42.8 19.5 5.1 vehicles before 2017, but it accelerated the Xing Yue 136-196 - - - - 22.8 launch of mid-end models since 2018 and totally Emgrand PHEV 136-160 - - 0.8 0.4 0.5 8 models are sold in 2019. We estimate the weight of mid-end model sales to reach 7% in Bo Rui GE 137-180 - - - 24.8 16.3 2019E, up from 3% in 2018. We believe Geely will Bin Yue EV 150-170 - - - - 1.5 focus on mid-to-high end models development in 170-193 Jia Ji EV - - - - 3.8 the future to boost its GPM. Mid-to-high-end models 1.8 1.3 28.3 151.8 174.5 Xing Yue EV 189-217 - - - - 0.8 An Increase in NEEVs sales to boost ASP: Geely’s Emgrand EV 166-186 - - 21.4 31.4 27.8 mid-to-high end products include Lynk & Co Lynk & CO 03 199-229 - - - 9.3 55.6 brand, Geometry brand and NEEVs. Thanks to the Lynk & CO 02 200-230 - - - 21.8 26.7 rapid development of NEEVs and new brands, Englon TX4 208-228 1.8 1.3 0.8 - - Geely’s mid-to-high end model sales increased dramatically from 1.8K units in 2015 to 151.8K Geometry A 210-250 - - - - 12.9 units in 2018. We expect 2019E mid-to-high end Lynk & CO 01 223-260 - - 6.0 89.4 50.8 model sales to further rise to 174.5K units. Source: 16888.com, Autohome, Company data, Orient Securities (Hong Kong) * Low-end price <100K, Mid-end price:100K-200K, High-end price: >200K
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Hong Kong Equity | Automobile Company in-depth
Geely’s car models price range
Figure 19: Price range of fuel vehicles and NEEVs
Price range
Vision Bin Rui Geely produces the RMB47,900-73,900 RMB75,800-110,800 low-end fuel sedans
Sedan and SUVs with the selling price between New Emgrand RMB45,900 and RMB69,800-98,800 RMB161,800. Those
Bin Yue models sales are Emgrand GS Vision X3 RMB78,800-129,800 under pressure in RMB77,800-116,800 RMB45,900-68,900 1H2019 amid the
SUV shrinking Chinese Boyue auto market. Vision S1 Vision SUV RMB98,800-161,800 RMB59,900-102,900 RMB69,900-105,900
Emgrand PHEV Geometry A Its NEVs’ prices are RMB210,00-250,000 much higher than fuel RMB135,800-159,800 vehicles’, ranging from NEV Sedan RMB119,800 to RMB259,800. The mid-to-high end New Emgrand EV vehicles such as RMB165,800-238,300 Geometry A and Xing Bin Yue EV Yue EV launched in Lynk 01 2019 may support RMB149,800-169,800 RMB229,800-259,800 Geely’s ASP on the
NEV SUV back of their high selling prices. Emgrand GSE Xing Yue EV RMB119,800-159,800 RMB188,880-216,800
Source: CPCA, Sohu, Wind, Orient Securities (Hong Kong)
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Hong Kong Equity | Automobile Company in-depth
Geely’s vehicles description (1)
Figure 20: 10/2019 sales comparison between Geely and peers Domestic brand Sedan Ranking Geely’s models and sales volume
Top 20 in 10/2019 Sedan Model Monthly Sales Volume Our view
Unit New Emgrand, accounting for 14% of Geely’s sales in 0 5,000 10,000 15,000 20,000 unit 30,000 10/2019, continues to be the best selling model among 1 Emgrand EC7 18,342 domestic-brand sedans in China, but its sales dropped 20,000
2 Roewe i5 8,677 by 22% yoy to 146K units in 10M2019, mainly due to 10,000 the weak demand for domestic brands. We observed 3 EADO 8,207 0 its sales have recovered since 3Q2019 and reached 18K
4 Binrui 7,763 New Emgrand /Emgrand EC7 units in 11/2019, properly due to demand pick-up after
5 BAIC BJEV EU Series 7,623 (RMB69,800-98,800) the implementation of China VI vehicle emission standard in some cities.
6 Vision 7,388 Bin Rui was launched in 9/2018 and ranked No. 4 unit 7 Lynk&CO 03 6,951 15,000 among domestic-brand sedans in 10/2019. We 10,000 8 Arrizo 5 6,033 observed its sales has rebounded since 8/2019 and 5,000 reached 7,763 units in 10/2019 and 8,288 units in
9 MG 6 0 5,416 11/2019. With the positive comments from car buyers,
10 Venucia D60 5,250 Bin Rui we believe its sales volume will continue to increase in (RMB75,800-110,800) 2020E.
11 Arrizo GX 5,165 Vision was used to be Geely’s popular model and it
12 AION S 4,217 unit accounted for 24% of Geely’s total sales in 2015, but its 25,000
13 Emgrand GL 3,874 20,000 contribution dropped to 6% in 10M2019. Vision ranked 15,000 No.6 among domestic-brand sedans with the sales
14 Yixuan 3,790 10,000 5,000 volume of 7,388 units (-34% yoy) in 10/2019. Although 0 15 Roewe i6 3,241 Its sales volume reached 8,622 units (+16.7% MoM) in Vision
16 MG 5 2,637 11/2019, we forecast its sales to reduce going forward
2018-03 2018-05 2018-07 2018-09 2018-11 2019-01 2019-03 2019-05 2019-07 2019-09 (RMB47,900-73,900) 2018-01 as car buyer may shift to buy new models.
17 Emgrand GL PHEV 2,307 unit
18 BYD F3 2,236 10,000 Lynk & CO 03 was launched in 9/2018 and ranked No. 7 5,000 among domestic-brand sedans in 10/2019. Its sales
19 Qin Pro (gasoline) 2,217 0 kept increasing in the past 4 months, which is likely to
20 BYD e2 2,151 Lynk & Co 03 support Geely’s profit in light of its high ASP. (RMB198,700-228,700) Source: Gasgoo, 16888.com, Orient Securities (Hong Kong)
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Geely’s vehicles description (2)
Figure 21: 10/2019 sales comparison between Geely and peers Domestic-brand SUV Ranking Geely’s models and sales volume Top 20 in 10/2019 SUV Model Monthly Sales Volume Our view
Unit 0 10,000 20,000 30,000 40,000 50,000 Boyue was launched in 3/2016 with average monthly unit sales volume of 24,000 units in 2017, and became
1 Haval H6 40,623 30,000 Geely’s best-selling vehicles in 2017-2018. Up to
2 Changan CS75 25,189 25,000 10/2019, with sales of 21,396 units, Boyue is still the company’s best-selling car, accounted for 16.4% of total
3 Boyue 21,396 20,000 sales and ranked No.3 among China domestic-brand
4 Roewe RX5 18,954 15,000 SUV. Although Boyue sales declined in the mid-2019, it has rebounded since 6/2019 and sold 22,166 units in 5 Haval M6 15,211 10,000 Boyue 11/2019, and we expect its sales may further increase in
6 Haval F7 15,017
2018-03 2018-05 2018-07 2018-09 2018-11 2019-01 2019-03 2019-05 2019-07 2019-09 RMB98,800-161,800 2018-01 short term since customers may rush to buy cars before
7 Song Pro 14,059 Lunar New Year.
8 Changan CS35 13,338 unit Bin Yue was launched in 11/2018, but it has accounted 20,000 for 10% of Geely sales in 10M2019. We observed that 9 Tiggo 8 13,152 15,000 10,000 its sales gradually increased in the past 6 months and 5,000
10 Baojun 510 12,808 0 ranked No. 11 among domestic-brand SUV in 10/2019.
11 Binyue 12,492 With the reasonable price and good looking, it bodes
Bin Yue
2018-03 2018-05 2018-07 2018-09 2018-11 2019-01 2019-03 2019-05 2019-07 2019-09 RMB78,800-129,800 2018-01 well for its sales in 2020E. 12 Jetour X70 12,065 unit
13 Emgrand GS 11,995 30,000 Emgrand GS sales dropped significantly from over 129K 20,000 units in 10M2018 to 77K units in 10M2019. However, it
14 Vision X3 11,122 10,000 has rebounded since 7/2019 and sales volume reached 0 15 MG ZS 10,956 11,995 units in 10/2019, which ranked No. 13 among Emgrand GS
16 domestic-brand SUV. Baojun 530 9,742 RMB77,800-116,800
17 Fengguang 580 8,565 unit 15,000 Vision X3 was launched in 2017 and its monthly sales
18 Tiggo 5X 7,765 10,000 kept at >10K units in 2018, but its average monthly sales 5,000 19 Vision SUV 7,621 dropped to 7.5K units in 11M2019, only accounting for 0 6% of Geely’s sales. It declined probably due to
20 Trumpchi GS3 7,307 Vision X3 customers shifting to buy new model - Bin Yue. RMB45,900-68,900 Source: Gasgoo, 16888.com, Orient Securities (Hong Kong)
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Geely’s vehicle models description (3)
Figure 22: Vehicles types and launch time Launch Driving Enjoy NEV/Fuel Type Class Model Sales volume contribution in 10M2019 (%) Date range (km) subsidy 0% 5% 10% 15% 20%
1 Geely Vision 2006 Geely Vision 6% 2 Emgrand/ New Emgrand 2014 Compact Emgrand/ New Emgrand 13% Bin Rui and Bin Yue 3 Emgrand GL 09/2016 Emgrand GL 6% have launched in Sedan 4 Bin Rui 09/2018 3Q2018 and 4Q2018 Bin Rui 6% respectively, then they 5 Bo Rui （GC9） 05/2015 Bo Rui （GC9） 0% successfully ranked Mid-size 6 Bo Rui GE 06/2018 No. 6 and No. 3 of Bo Rui GE 1% Geely’s top selling 7 Lynk & CO 03 09/2018 Lynk & CO 03 4% models respectively. 8 Vision X1 05/2017 Vision X1 0% Small-size 9 Vision X3 09/2017 FUEL Vision X3 7% 10 Bin Yue 11/2018 Bin Yue 10%
11 Geely Boyue 03/2016 Geely Boyue 17% 12 Emgrand GS 05/2016 SUV Emgrand GS 7% 13 Vision SUV 09/2016 Vision SUV 6% All the top 5 best selling models Compact 14 Vision S1 11/2017 are fuel vehicles. Boyue, has Vision S1 2% already launched for 3 years, 15 Lynk & CO 01 12/2017 Lynk & CO 01 3% accounted for 17% of Geely’s sales in 10M2019 and becomes 16 Lynk & CO 02 07/2018 Lynk & CO 02 2% Geely’s best selling vehicle. 17 Xing Yue 05/2019 Xing Yue 1%
MPV 18 Jia Ji 03/2019 Jia Ji 2%
19 Emgrand EV 04/2017 450 Emgrand EV 3% Geely launched 4 new NEEVs in 2019,
Sedan Compact 20 Emgrand PHEV 11/2017 66 Emgrand PHEV 0% among them, only Geometry A enjoys the Govenrment’s subsidies. We belive Geely 21 Geometry A 04/2019 410 Geometry A 1% will continue to expand NEEVs business NEV Small-size 22 Bin Yue EV 05/2019 62 Bin Yue EV 0% as China is encouraging the car buyers to SUV 23 Emgrand Gse 07/2018 400 Emgrand Gse 1% Compact purchase NEEVs to reduce the pollution. 24 Xing Yue EV 06/2019 56/80 Xing Yue EV 0%
MPV 25 Jia Ji EV 03/2019 56 Jia Ji EV 0% Source: 16888.com, Orient Securities (Hong Kong)
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Joint development with Volvo to enhance technologies CMA platform can support 8-10 models production Figure 23: Geely’s CMA platform A car platform is used by a number of car models to share set of common design, engineering, production efforts and major components, the management explained that the most basic and simple platform can support 1-2 models production, the more advance platform is likely to underpin 5-6 models production. Geely now is using modular architecture platform, which is much flexible as it can produce 8-10 models in one production line, the advantages are to reduce the production costs, save the manufacturing time as well as keep a high utilization rate. Geely and Volvo jointed together to develop the Compact Modular Architecture (CMA) in 2013, which is a global
Source: Internet, Orient Securities (Hong Kong) mid-size unibody automobile platform. Except the distance between the centre of the front wheels and the pedal box, CMA allows to configure different components to suit the different vehicles design. CMA started to operate in 2017, Volvo XC40, Lynk & Co 01, Lynk & Co 02, Lynk & Co 03 and Xing Yue are produced under CMA platform. Figure 24: Geely manufacturing platform Platform Launch date Models Powertrain Options Development Developed by Geely Auto and makes use of Volvo Cars’ KC 2014 Borui / B-class Fuel/NEEV innovations in safety, manoeuvrability, and durability Emgrand Series, Vision / Joint developed by China Euro Vehicle Technology FE 2015 Fuel/NEEV Centre and Geely Research Institute with partial A-class technical support from Volvo Cars NL SUV Fuel/NEEV Developed by Geely Auto CV 2016 MPV Fuel/NEEV Developed by Geely Auto SPA 2014 C-class / D-class Fuel/NEEV Developed by Volvo BMA 2018 A0 class to A+ class Fuel/NEEV Joint developed with Volvo basing on CMA platform Volvo XC40/ XingYue/ CMA 2017 Fuel/NEEV Joint developed with Volvo Lynk & CO/ A+ class DMA 2020 B-class Fuel/NEEV Joint developed with Volvo PMA 2020 EVs EV Joint developed with Volvo Source: Internet, company data, Orient Securities (Hong Kong) BMA primarily develops for small compact cars Since development costs for CMA is extremely high, it is not suitable for low-end vehicles. Geely and Volvo have developed a relatively cheap platform - BMA that based on CMA basis to support A0 to A+ vehicles. Given the rate of commonality with shared parts and Figure 25: BMA platform components reaching 70% for all BMA based vehicles, BMA can save time for component testing, which shorten the vehicles development time from >36 months on average to 18-24 months, allowing Geely to develop new car quickly to meet users demand.
New platforms are expected to replace old platform Both CMA and BMA can be used for development all kinds of vehicles like SUV, MPV, Sedan, Crossover, Wagons. Meanwhile, they can also supports a variety of power options such as 1.0TD, 1.4T, 1.5TD, or hybrid powertrain systems such as PHEV, HEV, or MHEV. After the new platforms pick up, the management guided that old platforms including KC,
Source: Internet, Orient Securities (Hong Kong) FE, NL and CV will gradually phase out.
PMA specializes in EV development PMA platform fully supports EVs production since EVs have the unique characteristics that are different from fuel vehicles, for examples, it does not need an engine and gearbox, but it needs big space to store the battery, the different design may lengthen the production time if both fuel vehicles and EVs are manufactured in the same production line. Thus, Geely and Volvo developed PMA platform to meet what EVs production need.
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IP sold to Proton to boost income Geely sold 3 IPs to Proton Figure 26: Proton stake Zhejiang Geely Holding Group (ZGH) and DRB-HICOM hold 49.9% and 50.1% stake in
Malaysian car manufacturer Proton, respectively. ZGH has signed an agreement with
Geely in 2018 regarding that Proton can use Geely’s intellectual properties (IP) and the
rights to manufacture and sell 3 Geely models including Boyue (Proton X70), BinYue and
VF11 MPV in Southeast Asian Nations. With sharing the IP, Geely can receive the license
fee of RMB1,344 mn from ZGH in 5 equal annual instalments over 5 years started from
2018. In 2018, the first right-hand-drive-Boyue (Proton X70) started to ship to Malaysia
and immediately became the top-selling SUV in Malaysia. Meanwhile, Geely has signed ZGH DRB-HICOM 49.9% 50.1% the contract with ZGH that agree to sell complete buildup units, complete knock down
kits and after-sales parts of 3 licensed models to Proton, Geely then receives RMB398 mn/RMB3,803 mn/RMB4,147 mn in 2018/2019/2020 together with 5.83% cost-plus Source: Company data, Orient Securities (Hong margins from ZGH. Kong)
Figure 27: Geely and Proton agreement process
Licensing Agreement: Geely Auto agreed to license the IP to ZGH for the design, development, manufacture, sale, marketing and distribution of the Licensed Models within the Licensed Regions during the Licensed period.
Zhejiang Geely Holding Geely Auto will receive RMB1,344 mn from ZGH in 5 equal annual installments Group (ZGH) over 5 years from the date on which the Licensed Period for the relevant Licensed Model commences. Geely Auto (175.HK)
ZGH Proton Sales Agreement: Geely Auto Group agreed to sell CBUs, CKDs and related sub-licenses after-sales parts of the Licensed Models for a term of 3 years ending on 31 the IP to December 2020 to ZGH. Proton. Geely Auto will receive RMB398mn, RMB3,803 mn and RMB4,147 mn in 2018/2019/2020 + 5.83% margin Proton from ZGH.
Source: Company, Orient Securities (Hong Kong) A win-win situation between Geely and Proton Given the strategic cooperate with Proton, we ensure that it would be a win-win Figure 28: Genius AFC stake situation between Geely and Proton as Proton can have advance technology without
spending huge R&D costs, Geely can also receive decent profit from ZGH. We believe Geely would continue to transfer technology to Proton going forward, which would boost
its reputation and income.
An increase in auto finance penetration rate benefits Geely
Geely has set up an auto finance JV, named Genius Auto Finance Company (“Genius
AFC”), with BNP Paribas in 2015, which provides auto financing products and services,
including wholesale financing solutions to auto dealers and retail financing solutions to
end-customers. It mainly serves Geely brands, Lynk&Co and Volvo. With the injection Geely BNP Paribas from Geely, Genius AFC registered capital reaches RMB4 billion recently. Geely expects its Geely80% Group 20% loan book to reach RMB20 bn in 2019E. Given rising auto finance penetration rate in China and more customers prefer to buy a car via financing, we expect Geely’s auto Source: Company data, Orient Securities (Hong Kong) financing revenue to increase rapidly in the future. Geely claimed that its default rate is around 0.07%, which is also far lower than that in commercial bank.
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6-8 New models to be launched in 2020E
6-8 new models are expected to be launched in 2020E
Geely guided that 6-8 new models including Icon, Lynk & CO 05, Lynk & CO 06, Preface,
Geometry B and one MPV will be launched in 2020E, all of them except Geometry B will
offer conventional fuel, MHEV, PHEV for consumers to choose. The above new models
are expected to be launched before 8/2020, after that, Geely may debut 1-2 more new
models in 4Q2020 but it hasn’t confirmed yet. With the new models launch, we believe
Geely can enhance its competitiveness as well as economies of scales to lower the
production costs. Besides, as most of new products are mid-to-high end models, which is
likely to boost its ASP in 2020E.
Figure 29: Geely new model debut in 2020E
New models Type Platform Features
ICON is the second model on Geely’s BMA architecture (the 1st one is Bin Rui sedan). It is equipped with 1.5TD+7DCT+48V light 1 Icon SUV BMA hybrid power, with a maximum power of 140kW and a maximum torque of 300N•m. The fastest 0-100 km/h acceleration is only 7.9s. It may be embedded with an oversized central control screen, which integrates air conditioning control into the screen. It may 2 Lynk & CO 05 Small SUV CMA be powered by 1.5T and 2.0T engines. The gearbox is matched with a 7-speed dual clutch or an 8-speed automatic transmission. No information 3 MPV No information release yet release yet It is expected to use the same powertrain as Geometry A and introduce two batteries energy density. One is low 4 Geometry B EV SUV - battery version with 51.9kWh and the second one is a higher battery version with 61.9kWh. The drive motor has a maximum power of 120 kW. Preface may be embedded 1.5T three-cylinder engine with a maximum power of 130kW and a peak torque of 5 Preface Sedan CMA 255N.m. The drive system is matched with 6MT or 7DCT gearbox. The car is expected to provide conventional fuel, MHEV, PHEV for consumers to choose.
Using a seven-seat layout, it will be 6 Lynk & CO 06 Small SUV DMA equipped with a Volvo T5 (2.0T) engine and match 8AT gearbox.
Source: internet source, Company data, Orient Securities (Hong Kong)
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NEEVs sales has rebounded since 8/2019 Figure 30: 2019 NEVs market share The contributions from NEEVs sales kept increasing in the past 3 years
Changa Geely mainly focused on fuel vehicles production before 2015, but after an VW, n, 2.6% 3.0% announcement of 'Blue Geely Initiatives' in 2015, it shifted the focus to NEEVs. In the BMW, Euler, 2.7% BYD, past 4 years, Geely not only launched the high quality NEEVs like Emgrand EV and 3.7% 21.8% Chery, Geometry A, but also jointed Volvo to develop Lynk & CO. Given the launch of 3/3/4 4.1% Baojun, NEEVs (include Lynk & CO) in 2017/2018/2019, its proportion of NEEVs sales volume rose 4.3% rapidly from 4.5% in 2018 to 8.4% in 11M2019. In 10/2019, Geely ranked No. 3 in China Roewe, NEV market with market share of 6.0% (BYD and BJEV ranked No. 1 and No. 2, with Geely, BJEV, 5.3% 6.0% 11.2% market shares of 21.8% and 11.2% respectively). On the back of the launch of 6 NEEVs models in 2020, we believe Geely will continue to gain market share. Source: DIEV, Orient Securities (Hong Kong)
Figure 31: China NEVs subsidy Year Year RMB Subsidy coefficients Driving Range 2018 2019 YOY growth Battery energy density 2018 2019 YOY growth (KM) 150-199 15,000 0 105-119 (WH/KG) 0.6
200-249 24,000 0 120-124 (WH/KG) 1 250-299 34,000 17,000 -50% 125-139 (WH/KG) 1 0.8 -20% 300-399 45,000 17,000 -62% 140-159 (WH/KG) 1.1 0.9 -18% ≥400 50,000 25,000 -50% ≥160 (WH/KG) 1.2 1 -17% Source: internet source, Orient Securities (Hong Kong) 2019 NEV policy dragged NEVs market
According to the new NEV subsidy policy implemented by the end of June, the vehicles Figure 32: Geely’s NEEVs annual sales with lower than 250KM driving range or the battery energy density with less than volume 125WH/KG for are no longer to enjoy the subsidies. Even though the vehicles meet the
requirement, the overall subsidies have been cut by more than 50% to compare with Unit NEEV sales YOY growth(%) 2018. After implementation of new NEV policy, the accumulated NEVs sales in China 120,000 200% 100,000 150% plummeted by 28.0% yoy to 319K units in 7/2019-10/2019 vs 444K units in the same 80,000 60,000 100% period of last year. Given that the Chinese government planned to phase out the subsidy 40,000 20,000 50% 0 0% by the end of 2020, we expect the competitiveness of NEVs to increase and only the
high-quality car makers can survive going forward.
Source: Company data, Orient Securities (Hong Kong) Geely’s NEEVs sales have rebounded since 8/2019
Before the subsidy cut by the Government, Geely NEEV sales recorded 301% yoy growth Figure 33: Geely’s NEEVs monthly in 1H2019, the average monthly sales reached 9,600 units in 6M2019 vs 2,400 units in sales volume 6M2018. Given subsidies cut by the government starting from the late June, Geely’s
NEEVs NEEVs sales dropped significantly to c.4,500 units in Jul/2019, but the decline has Unit YOY growth (RHS) narrowed down since 8/2019 and its NEEVs sales successfully recovered in 10/2019, with 20,000 200% 150% sales of 10.3K units and 14.1K units in 10/2019 and 11/2019, recorded YoY growth of 15,000 100% 27% and 34% respectively. Its accumulated NEEVs sales rose by 67.2% yoy to 103K units 10,000 50%
0% in 11M2019. The management claimed that they will continue to offer PHEV and MHEV 5,000 -50% 0 -100% for new models for customers to choose. Under consideration of more new models debut in 2020E, we believe Geely’s NEEV sales will keep rising going forward.
Source: Company data, Orient Securities (Hong Kong)
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Sales volume and ASP are expected to increase in 2020E
Fuel vehicles sales kept improving in 2H2019 Figure 34: Geely’s sales volume by type Geely is one of the market leaders with 5.3% market shares in Chinese auto market. The company is selling 17 fuel vehicles (including Lynk &Co) currently, which accounted for 8% Fuel 92% of its total sales in 11M2019. With the sluggish demand for vehicles, Geely’s fuel vehicles vehicles sales dropped by 16% yoy to 1.128 mn units in 11M2019. But we observed that sales its fuel vehicles monthly sales have begun to rebound since 7/2019 given that yoy NEEVs decline narrowed gradually from -39% in 6/2019 to -2% in 11/2019. We believe its sales will continue to gain momentum in short term as car buyers may consider buying 92% vehicles before Lunar New year. Thus, we forecast 2019E total vehicle sales to reduce by 10% yoy to 1.354 mn units in 2019E or improve by 7.8% HoH to 0.702 mn units in Source: Company data, Orient Securities (Hong Kong) 2H2019E. Besides, the launch 6-8 new vehicles is expected to boost Geely’s 2020E sales. Thus, we forecast 2020E total vehicle sales to rise by 12% yoy to 1.518 mn units.
Figure 35: Geely fuel vehicles yearly sales volume Figure 36: Geely fuel vehicles monthly sales volume
Fuel Vehicles YOY growth (RHS) Unit Fuel vehicles sales YOY growth(%) Unit 1,600,000 80% 200,000 0% 1,400,000 60% 1,200,000 -10% 40% 150,000 1,000,000 -20% 800,000 20% 100,000 600,000 0% -30% 400,000 50,000 -40% 200,000 -20% 0 -40% 0 -50%
Source: Company data, Orient Securities (Hong Kong) Source: Company data, Orient Securities (Hong Kong)
A rising mid-to-high end car sales boosting ASP We expect Geely’s ASP to increase on the back of rising sales in mid-to-high end vehicles. Figure 37: Geely total sales volume Geely launched 3 mid-to-high end vehicles in 2019 and some vehicles such as Xing Yue Sales volume (LHS) and Jiaji sold over 2,000 units a month, we therefore estimate the weight of mid-to-high YoY Growth (RHS) Unit end vehicles to increase to 20% in 2019E from 13% in 2018. With an improvement in 2,000,000 80% 60% product mix, Geely’s ASP (exclude Lynk & Co) is expected to rise by 3.5%/2.5% yoy in 1,500,000 40% 2019E/20E. Under consideration of an increase in ASP but decline in sales volume in 1,000,000 20% 0% 500,000 2019E, we expect Geely’s 2019E revenue to decrease by 8.4% yoy to RMB97.6 bn. -20% 0 -40% Besides, with an expected improvement in both vehicles sales and ASP in 2020E, we
forecast 2020E revenue to rise by 11.0% yoy to RMB108.4 bn.
Source: Company data, Orient Securities (Hong Kong)
Figure 38: Geely’s ASP Figure 39: Geely revenue
ASP (LHS) YoY Growth (RHS) RMB 80,000 25% RMB mn Revenue(LHS) YoY Growth(RHS) 70,000 140,000 100% 20% 60,000 120,000 80% 100,000 60% 50,000 15% 40,000 80,000 40% 60,000 20% 30,000 10% 40,000 0% 20,000 5% 20,000 -20% 10,000 0 -40% 0 0% 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2013 2014 2015 2016 2017 2018 6M2019
Source: Company data, Orient Securities (Hong Kong) Source: Company data , Orient Securities (Hong Kong)
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Earnings to decrease in 2019E, but may improve in 2020E
Gross profit is expected to improve in 2020E Figure 40: Geely’s GP and GPM Under consideration of decline in sales volume but mild increase in ASP in 2019E, we
RMB Gross Profit (LHS) expect 2019E Geely’s gross profit to drop by 18.3% yoy to RMB17.57 bn, hence GPM is mn GPM expected to reduce by 2.2 ppts yoy to 18.0%. Against the backdrop of 6-8 new models to 25,000 21% 20,000 20% be launched in 2020E and fuel vehicles sales to accelerate, Geely’s sales volume and ASP 15,000 19% are expected to rise in 2020E, hence we estimate the company’s 2020E GPM to increase 10,000 18% by 0.5ppt yoy to 18.5%, while gross profit is estimated to rise by 14.1% yoy to RMB20 bn. 5,000 17%
0 16%
Cooperation with Proton and auto finance expansion may boost other income growth
2013 2014 2015 2016 2017 2018
2019E 2020E 2021E Geely guided that it will keep transferring technology to Proton, thus we expect IP Source: Company data, Orient Securities (Hong Kong) income from ZGH to increase in the future. Besides, with an increase in penetration rate of auto finance in China, we anticipate that more customers will choose car-loan Figure 41: Geely’s other income payment. Thus, we forecast Geely’s other income to boost by 10%/19% yoy to RMB1.35 bn /RMB1.61 bn in 2019E/2020E. RMB Other income (LHS) mn YoY Growth (RHS) 2,000 20% 1,500 15% An expected decrease in S&GA expenses ratio in 2020E 1,000 10% Due to the large proportions of fixed costs such as depreciation and R&D costs incurred, 500 5% we thus expect S&D and G&A expenses ratios to rise by 0.3ppt and 1.3 ppt to 4.5% and 0 0% 4.8%, respectively, in 2019E given decline in revenue. Since we forecast Geely’s sales to recover in 2020E, we estimate its S&D and G&A expenses ratios to reduce by 0.2ppt and
Source: Company data, Orient Securities (Hong Kong) 0.5 ppt to 4.3% and 4.3%, respectively, in 2020E.
Figure 42: Expenses ratio Figure 43: Share of profits of joint ventures
Selling expenses ratio G&A expenses ratio Gross Profit Margin Net Margin RMB mn 1,400 25.0% 19.4% 20.2% 1,200 18.3% 18.0% 18.5% 19.0% 20.0% 1,000 800 15.0% 11.5% 11.8% 10.9% 9.5% 9.2% 10.4% 600 10.0% 400 4.7% 4.4% 4.2% 4.5% 4.3% 4.3% 200 5.0% 0 4.8% 4.8% (200) 2016 2017 2018 2019E 2020E 2021E 0.0% 3.2% 3.5% 4.3% 4.3% 2016 2017 2018 2019E 2020E 2021E
Source: Company data, Orient Securities (Hong Kong) Source: Company data, Orient Securities (Hong Kong)
Figure 44: Geely’s net profit
Attributable to: Equity LYNK & CO sales are likely to rise in 2020E RMB holders of the Company Geely will launch LYNK & CO 05 and 06 in 2020E, with new cars launch and increase in mn (LHS) YoY growth (RHS) utilization rate, we expect the shares of profits from JV to increase significantly by 38%/37% yoy to RMB696 mn /RMB952 mn in 2019E/2020E. 14,000 140% 12,000 120% 100% 10,000 80% 8,000 60% Net profit is expected to improve in 2020E 6,000 40% 20% 4,000 0% Given expected decrease in GPM and increase in expenses ratios in 2019E, we estimate 2,000 -20% 0 -40% the net profit attributable to equity shareholders to reduce by 28.7% yoy to RMB8.95 bn in 2019E. As we forecast that the fuel vehicle market will keep improving in 2020E, we estimate Geely will benefit from it and its 2020E net profit attributable to equity
Source: Company data, Orient Securities (Hong Kong) shareholders is expected to climb by 25.7% yoy to RMB11.26 bn.
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Hong Kong Equity | Automobile Company in-depth
Geely’s revenue and profit trend
Figure 45: Geely revenue and profit trend
Sales volume may improve in Unit Sales volume (LHS) 2020E due to acceleration of YoY Growth (RHS) 2,000,000 auto market sales in 2H2019. 80% 60% 1,500,000 Sales volume 40% 1,000,000 20% 0% 500,000 -20% 0 -40% 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E
2014 2016 2018 2019
2% 5% 8% Fuel vehicles Sales volume sales by type of cars NEEVs 100 % 98% 95% 92%
ASP may rise gradually due RMB ASP (LHS) exclude Lynk & CO YoY Growth (RHS) to more mid-to-high end models launch in 2020E. 100,000 25% 20% ASP 80,000 15% 60,000 10% 5% 40,000 0% 20,000 -5% -10% 0 -15% 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E
Revenue is expected to go up RMB mn Revenue(LHS) YoY Growth(RHS) with expected increase in sales 150,000 volume and ASP in 2020E. 100% 80% 100,000 60% Revenue 40% 20% 50,000 0% -20% 0 -40% 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E
Gross Profit (LHS) GPM RMB mn 25,000 20.1% 20.2% 19.0% 21% 19.4% 18.0% 18.5% 20,000 20% 15,000 18.2% 18.2% 18.3% 19% GPM 10,000 18% 5,000 17% 0 16% 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E Geely’s GPM and NPM are likely to improve with achieving Net Profit (LHS) NPM economies of scale in 2020E. RMB mn 15,000 11.5% 11.8% 10.9% 15% 9.2% 10.4% 9.3% 9.5% 10,000 6.6% 7.5% 10% NPM 5,000 5%
0 0% 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E
Source: Orient Securities (Hong Kong)
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Hong Kong Equity | Automobile Company in-depth
Robust balance sheet supports Geely’s expansion
3 new factories went into operation in 2019 Figure 46: Geely’s CAPEX Geely got 12 production bases with 2.4 mn units production capacity recently, 3 of them
RMB have started to operate since mid-2019 and contribute 0.69 mn units production capacity mn CAPEX 15,000 to Geely. The management guided that no new factory plans to be built in the next two
10,000 years as they think the recent production capacity should be enough for 2020E-2021E
sales. Therefore, Geely guided that its CAPEX will reach RMB 10 billion in both 2019E and 5,000 2020E, which mainly used in R&D as well as production technology upgrade. The capex is
0 expected to be funded by internal cash flow and no borrowing is needed. 2017 2018 2019E 2020E 2021E
Source: Company data, Orient Securities (Hong Kong)
Figure 47: Geely production facilities Usable annual Prodcution Capacity Name Models ( units per double shift) Geely Kingkong Series (1.5L), 1 Luqiao plant 150,000 Vision X3 (1.5L) New Emgrand (1.5L, 1.8L,1.3T) Vision S1 (1.4T, 1.5L) 2 Ningbo/Cixi plants 300,000 Emgrand EV, Emgrand HEV, Emgrand PHEV Binrui (1.4T) Geely GC9 (1.8L, 2.4L) 3 Chunxiao plant 160,000 Borui GE PHEV, Borui GE MHEV Geely Boyue(1.8T, 2.0L) Vision Series (1.5L, 1.8L) 4 Xiangtan plant 240,000 Binyue(1.0T, 1.5T) 5 Jinan plant 50,000 Vision X1 (1.3L) 6 Chengdu plant 130,000 Vision SUV (1.3T,1.4T,1.8L) 7 Baoji plant 200,000 Geely Boyue(1.8T, 2.0L) Emgrand GL (1.4T, 1.8L) 8 Linhai plant 300,000 Emgrand GL PHEV Emgrand GS (1.3T, 1.4T, 1.8L) Emgrand GS (1.3T, 1.8L), Emgrand GSe 9 Jinzhong plant 180,000 Emgrand EV, Emgrand HEV, Emgrand PHEV 10 Guiyang Plant 270,000 -
11 Hangzhou Bay Plant 240,000 -
12 Da jiangdong Plant 180,000 - Total production capacity 2,400,000 Source: Internet, company data, Orient Securities (Hong Kong)
Figure 48: Geely’s net cash position Robust balance sheet with net cash level Geely has very robust balance sheet with net cash of RMB10.6 bn (borrowings of RMB3.4 RMB Net cash/(debt) bn but cash of RMB14.0 bn) by the end of 6/2019. We expect the company will keep at mn 20,000 net cash level in the next 3 years due to 1) strong cash on hand; 2) no major investment
15,000 on building production plants in the next 2 years; 3) strong operating cash inflow. The solid cash level allows Geely to defend from economic downturn and develop new 10,000 products extensively. Besides, Geely was fully supported by its parent company, given 5,000 share technology and production lines with Volvo, it not only saves costs, but also increases the utilization rate and operating efficiency. 0 2017 2018 2019E 2020E 2021E
Source: Company data, Orient Securities (Hong Kong)
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Hong Kong Equity | Automobile Company in-depth
Valuation: Apply DCF to value the stock
We value Geely based on below assumptions:
1) The auto sales volume will decrease in 2019E but it will improve in 2020E due to demand recovery. 2) The GPM would increase given ASP and sales volume to grow in 2020E Figure 49: Key DCF assumptions 3) The S&D and G&A expenses ratios are expected to decrease while achieving Discount rate 14.1% economies of scale in 2020E. PV of FCF (HK$m) 103,119 4) The other income will increase significantly with more IPs transferring to Proton. Terminal value (HK$m) 61,962 5) Profits from JV will increase given rising sales from Lynk & CO. Total PV of FCF (HK$m) 165,081 Net Cash/Net Debt (HK$m) 14,691 NAV Price/Share (HK$) 19.7 The fair value of Geely is HK$16.7 based on DCF methodology Current NAV Discount (%) -22% Target NAV Discount (%) -15% We value Geely with a two-stage DCF model, the first stage is from 2019E to 2028E and the second stage is after 2028E. Target Price (HK$) 16.7 According to Bloomberg data, we estimate cost of equity of 14.05% with risk free Upside Potential 9% rate of 3.2%, market risk premium of 8.5% and beta of 1.37. Source: Company data, Orient Securities (Hong Kong) We then obtain WACC of 14.1% by using tax rate of 15.2%, debt-to-equity ratio of
7.6% and after-tax cost of debt of 2.9%.
We use 3% as terminal growth rate. The NAV price is expected to be HK$19.7 per share, we would set 15% discount to its NAV after take into consideration of market volatilities and uncertainties on future trade relations between US and China, which equivalent to HK$16.7 per share. This implies 12.4x 2020E P/E , 2.2x 2020E P/B and 2.0% 2020E dividend yield.
Figure 50: DCF forecasts RMB $mn 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E Pre-tax profit 10,668 13,413 15,676 17,760 20,033 22,209 24,070 25,367 26,688 28,293 Taxes paid (1,629) (2,048) (2,394) (2,712) (3,059) (3,392) (3,676) (3,874) (4,076) (4,321) Depreciation and amortization 3,602 4,499 5,483 6,233 7,223 8,180 5,344 5,767 6,268 6,584 Change in working capital 1,779 1,522 1,732 1,544 1,641 1,531 1,881 1,205 1,258 1,543 Others 1,299 286 403 462 (423) 150 26 (191) (326) (1,902) Operating cash flow 15,718 17,671 20,900 23,287 25,414 28,678 27,645 28,275 29,813 30,198 CAPEX (10,294) (9,246) (7,275) (7,306) (7,337) (7,368) (7,401) (7,434) (7,468) (7,503) Annual Free Cash Flow (RMBmn) 5,423 8,426 13,625 15,981 18,077 21,310 20,244 20,840 22,345 22,695 Annual Free Cash Flow (HK$mn) 6,027 9,364 15,142 17,761 20,090 23,682 22,498 23,160 24,832 25,222 Discounted free cash flow(HK$mn) 5,979 8,258 11,864 12,364 12,425 13,009 10,980 10,043 9,567 8,630
Source: Company data, Orient Securities (Hong Kong)
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Hong Kong Equity | Automobile Company in-depth
Key risk factors
1) Auto consumption reduces amid economic slowdown: If China’s economic
continues to slowdown, we believe it will reduce customers’ purchasing power and
hit hard auto market.
2) Subsidy cut hurts NEEVs sales: China’s NEEVs sales are expected to reduce with
lower subsidies provided by the government, we expect it will intensify NEEVs
competition.
3) Low utilization rate of new factories: The utilization rate of new factories would be
low since they haven’t fully utilized.
4) Keen competitions among auto market: Since lots of auto manufacturers speed up
its development and expansion, which will intensify the competition.
Figure 51: Peer valuation table
Ticker Company Reporting Share Market P/E PEG P/B Div. Yield (%) EV/EBITDA Currency Price Cap. (x) (x) (x) (x) (HK$mn) FY 2018 2019E 2020E 2021E 18-20E 2018 2019E 2018 2019E 2018 2019E 2020E HK listed auto manufacturers:
175 HK GEELY AUTOMOBILE CNY 15.36 140,476 9.9 14.1 11.4 9.7 -1.5 2.8 2.3 2.5 1.8 6.8 8.4 6.8 1211Equity HK BYD CO LTD-H CNY 37.15 101,351 35.9 43.9 34.1 28.6 14.1 1.7 1.6 0.6 0.4 9.1 10.8 9.9 1114Equity HK BRILLIANCE CHINA CNY 8.63 43,541 6.7 5.9 5.2 4.8 0.5 1.1 1.1 1.4 5.8 489Equity HK DONGFENG CNY 7.53 64,879 4.5 4.3 4.1 3.9 0.9 0.5 0.4 5.2 4.8 39.0 10.4 9.5 1958Equity HK MOTORBAIC MOTOR-H -H CNY 4.49 35,989 7.3 7.7 6.5 6.0 1.3 0.7 0.6 4.7 4.4 1.5 1.5 1.4 2333Equity HK GREAT WALL MOT-H CNY 5.86 53,486 9.2 11.0 9.8 9.0 -3.2 0.9 0.9 5.5 3.7 6.0 5.9 5.3 2238Equity HK GUANGZHOU AUTO CNY 8.87 90,808 7.4 10.2 8.4 7.5 -1.3 1.0 1.0 4.8 3.9 12.2 19.4 13.2 Equity Sector average 13.3 16.5 13.3 11.5 2.0 1.5 1.4 3.2 2.9 11.1 9.6 7.7 Source: Company data, Orient Securities (Hong Kong) HK$ Figure 52: P/E band Figure 53: Historical P/E
HK$40.0 (x) HK$35.0 25.0 HK$30.0 20.0 +1 Std HK$25.0 22.0x 19.0x 15.0 HK$20.0 16.0x Mean 10.0 HK$15.0 13.0x HK$10.0 10.0x 5.0 -1 Std HK$5.0 7.0x 0.0
HK$0.0
2016-01 2017-01 2017-07 2012-01 2012-07 2013-01 2013-07 2014-01 2014-07 2015-01 2015-07 2016-07 2018-01 2018-07 2019-01 2019-07
Source: Bloomberg, Orient Securities (Hong Kong) Source: Bloomberg , Orient Securities (Hong Kong) Figure 54: P/B band Figure 55: Historical P/B
(x) HK$50.0 7.0x 7.0 HK$45.0 5.7x 6.0 HK$40.0 5.0 HK$35.0 4.4x +1 HK$30.0 4.0 Std 3.1x HK$25.0 3.0 HK$20.0 Mea 1.8x HK$15.0 2.0 n HK$10.0 1.0 HK$5.0 0.5x -1 0.0
HK$0.0 Std
2012-07 2013-01 2013-07 2014-01 2014-07 2015-01 2015-07 2016-01 2016-07 2017-01 2017-07 2018-01 2018-07 2019-01 2019-07 2012-01
Source: Bloomberg , Orient Securities (Hong Kong) Source: Bloomberg , Orient Securities (Hong Kong)
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Hong Kong Equity | Automobile Company in-depth
Financial Statements & Forecast
Income statement (consolidated) Balance sheet (consolidated) FY-end Dec (RMB mn) 2017 2018 2019E 2020E 2021E FY-end Dec (RMB mn) 2017 2018 2019E 2020E 2021E Revenue 92,761 106,595 97,598 108,371 120,777 Current assets 53,008 42,785 45,003 47,541 55,627 Cost of goods sold (74,779) (85,082) (80,030) (88,322) (97,829) Inventories 6,027 4,097 3,854 4,253 4,711 Gross profit 17,981 21,513 17,568 20,049 22,948 Trade and other receivables 33,478 22,865 23,908 26,547 29,586 S&D expenses (4,056) (4,523) (4,392) (4,660) (5,193) Land lease prepayments 48 67 67 67 67 G&A expenses (2,923) (3,777) (4,685) (4,660) (5,193) Financial assets at fair value - - - - - Other income 1,201 1,222 1,353 1,611 1,795 through profit or loss Operating Profit 12,204 14,435 9,844 12,339 14,356 Income tax recoverable 4 - - - - Finance income 127 193 210 204 260 Pledged bank deposit 36 19 19 19 19 Finance costs (162) (114) (133) (133) (133) Cash and cash equivalents 13,415 15,737 17,155 16,655 21,244 Share of profits of JVs 39 (60) 50 50 50 Non-current assets 31,973 48,676 60,075 70,611 77,756 Share of profits of associates 3 505 696 952 1,143 Net Property, plant and 14,053 23,423 28,821 33,818 38,341 Gain on disposal of equipment subsidiaries 563 0 0 0 0 Net Intangible assets 10,552 14,993 18,288 22,184 23,150 Gain on disposal of JV 0 0 0 0 0 Goodwill 16 26 26 26 26 Profit before tax 12,774 14,959 10,668 13,413 15,676 Prepayment for land lease 2,124 3,268 3,847 4,439 5,046 Income tax expenses (2,039) (2,285) (1,629) (2,048) (2,394) payments-LT Non-controlling interests (102) (121) (86) (109) (127) Others 5,228 6,965 9,093 10,143 11,193 Net profit to Shareholders 10,634 12,553 8,952 11,256 13,155 Total assets 84,981 91,461 105,079 118,153 133,383 EBITDA 14,142 16,849 13,446 16,838 19,839 Current liabilities 49,902 43,760 46,554 51,219 56,597 EBIT 12,204 14,435 9,844 12,339 14,356 Trade, bills and other payables 47,533 41,438 44,016 48,577 53,806 EPS (RMB) 1.190 1.398 0.978 1.215 1.423 Loan and borrowings 1,296 1,375 1,375 1,375 1,375 DPS (RMB) 0.074 0.342 0.245 0.308 0.360 Income tax payable 1,073 947 1,162 1,266 1,415 Non-current liabilities 268 2,326 2,839 2,839 2,839 Cash flow (consolidated) Deferred tax liabilities 268 278 278 278 278 FY-end Dec (RMB mn) 2017 2018 2019E 2020E 2021E Bond payable - 2,048 2,561 2,561 2,561 Pre-tax profit 12,774 14,959 10,668 13,413 15,676 Total liabilities 50,170 46,086 49,393 54,058 59,436 Taxes paid (2,039) (2,285) (1,629) (2,048) (2,394) Share capital 164 164 164 164 164 Depreciation and amortization 1,938 2,413 3,602 4,499 5,483 Reserves 34,303 44,780 51,482 59,783 69,508 Change in working capital 354 6,449 1,779 1,522 1,732 Perpetual Securities - - 3,522 3,522 3,522 Others (1,034) (7,611) 1,299 286 403 Shareholder's Equity 34,467 44,944 55,168 63,469 73,194 Operating cash flow 11,994 13,925 15,718 17,671 20,900 Non-controlling interests 344 431 517 626 753 CAPEX (11,555) (9,974) (10,294) (9,246) (7,275) Total equity 34,811 45,375 55,685 64,095 73,947 Disposals 2,897 305 1,145 1,457 1,767 Total liabilities & equity 84,981 91,461 105,079 118,153 133,383 Investments (4,663) (8,905) (6,290) (7,296) (7,240) Net cash/(debt) 12,118 12,314 13,219 12,718 17,308 Others 1,410 7,255 0 0 0 Change in Working capital 354 6,449 1,779 1,522 1,732 Investing cash flow (11,911) (11,319) (15,439) (15,084) (12,748) Total capital employed 35,079 47,701 58,524 66,934 76,786 Change in bank borrowings (946) 2,006 0 0 0 Net gearing (%) NC NC NC NC NC Dividends paid (960) (2,197) (2,238) (2,814) (3,289) BVPS (RMB) 3.765 4.899 6.032 6.940 8.003 Interest paid (162) (114) (145) (274) (274) Others 384 (2) 3,522 0 0 Key ratios Financing cash flow (1,685) (306) 1,139 (3,088) (3,563) Free cash flow 438 3,951 5,423 8,426 13,625 FY-end Dec 2017 2018 2019E 2020E 2021E Net cash flow (1,602) 2,300 1,418 (501) 4,590 Growth (%) Effect on exchange difference (29) 23 0 0 0 Revenue 73 15 (8) 11 11 Year-end cash 13,415 15,737 17,155 16,655 21,244 Gross profit 83 20 (18) 14 14 EBITDA 88 19 (20) 25 18 Semi-annual breakdown EBIT 108 18 (32) 25 16 Net profit 108 18 (29) 26 17 FY-end Dec (RMB mn) 2H17 1H18 2H18 1H19 2H19E EPS 105 17 (30) 24 17 Revenue 53,337 53,709 52,887 47,559 50,039 DPS 15 361 (28) 26 17 Gross profit 10,427 10,837 10,676 8,469 9,098 Margins (%) Operating profit 6,921 7,720 6,716 4,367 5,477 Gross 19.4 20.2 18.0 18.5 19.0 Pre-tax profit 7,464 7,975 6,984 4,765 5,903 EBITDA 15.2 15.8 13.8 15.5 16.4 Tax (1,115) (1,239) (1,045) (718) (912) EBIT 13.2 13.5 10.1 11.4 11.9 Net profit 6,290 6,670 5,883 4,009 4,943 Net Profit 11.5 11.8 9.2 10.4 10.9 Gross margin (%) 19.5 20.2 20.2 17.8 18.2 Others (%) Operating margin (%) 13.0 14.4 12.7 9.2 10.9 Effective tax rate 17 16 15 15 15 Effective tax rate (%) 14.9 15.5 15.0 15.1 15.4 Dividend payout ratio 6 25 25 25 25 Net margin (%) 11.8 12.4 11.1 8.4 9.9 RoCE 30 26 15 17 17 EPS (RMB ) 0.704 0.743 0.643 0.444 0.534 Average RoE 31 28 16 18 18 DPS (RMB ) 0.076 - 0.242 - 0.360 Average RoA 13 14 9 10 10 Source: Company data, Orient Securities (Hong Kong) Interest cover (x) 75 127 74 93 108
Key Assumptions FY-end Dec 2017 2018 2019E 2020E 2021E Sales Volume (Mn units) 1.25 1.50 1.35 1.52 1.67 YoY Growth 63% 20% -10% 12% 10%
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Hong Kong Equity | Automobile Company in-depth
Analyst Certification I, Alison Ho (Tsz Ying Ho), being the person primarily responsible for the content of this research report, in whole or in part, hereby certify that: (1) all of the views expressed in this report accurately reflect my personal view about the subject company(ies) and its (or their) securities; (2) no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report, or our Investment Banking Department; (3) I am not, directly or indirectly, supervised by or reporting to our Investment Banking Department; (4) the subject company(ies) do(es) not fall into the restriction of the quiet period as defined in paragraph 16.5(g) of SFC Code of Conduct; (5) I and my associates do not deal in or trade in the stock(s) covered in this report within 30 calendar days prior to the date of issue of the report; (6) I and my associates do not serve as an officer(s) of the listed company(ies) covered in this report; and (7) I and my associates have no financial interests in relation to the listed company (ies) covered in this report.
Meanings of Orient Securities Ratings Buy – Describes stocks that we expect to provide a total return of >10% within a 12-month period. Accumulate – Describes stocks that we expect to provide a total return of >0% within a 12-month period. Hold – Describes stocks that we expect to provide a total return of between -20% and +20% within a 12-month period. Sell – Describes stocks that we expect to provide a total return of <0% within a 12-month period.
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