Deutsche Markets Research

Rating Company Date 12 January 2016 Hold Auto Alert Company Update Asia China Reuters Bloomberg Exchange Ticker Price at 12 Jan 2016 (HKD) 3.33 Automobiles & 0175.HK 175 HK HKG 0175 Price target - 12mth (HKD) 4.40 Components ADR Ticker ISIN 52-week range (HKD) 4.67 - 2.51 GELYY US36847Q1031 HANG SENG INDEX 19,888

Access China conference highlights Vincent Ha, CFA Fei Sun, CFA 2016 Research Analyst Research Associate Geely attended our Access China Conference on 11-12 January. The following (+852) 2203 6247 (+852) 2203 6130 are the key takeaways from investor meetings: [email protected] [email protected]

- Geely expects the China auto sector to recover from last year's slow growth with the purchase tax cut stimulus. Meanwhile, with the ramp-up of GC9 and Stock data New Emgrand sedans, Geely is confident that its 2016E sales target of 600,000 Market cap (HKDm) 29,310 units, implying about 18% YoY growth, is attainable. Market cap (USDm) 3,776 - Regarding 2016E new model pipeline, the company will launch 4 new models, including Boyue (NL-3) SUV and a smaller size SUV (NL-4), which are Shares outstanding (m) 8,801.7 expected to launch at late 1Q16 and 3Q16, respectively; a new Emgrand cross- Major shareholders Zhejiang Geely over to be launched in 2Q16; and the 2nd generation of EC7 sedan to be Hldg (45%) launched in 3Q16. Free float (%) 56 - Geely thinks the SUV segment will continue to outperform overall China auto Avg daily value traded 30.4 sales in 2016E with double-digit growth, but with margin pressure. Meanwhile, (USDm) management thinks that local brands would still outperform foreign brands as Source: Deutsche Bank they would benefit more from the small-engine car tax cut. As for Geely itself, the company also expects to see double-digit sales volume growth in the SUV Key data segment. FYE 12/31 2014A 2015E 2016E - Geely recently announced its “Blue Geely Action” EV blueprint and has Sales (CNYm) 21,738 28,625 33,526 launched an Emgrand pure EV with competitive pricing. Future products will Net Profit 1,430.6 2,773.2 3,229.4 also include plug-in hybrid vehicles. (CNYm) - Geely guided for about RMB3bn of FY16E capex for R&D, production line DB EPS (CNY) 0.24 0.31 0.36 establishment and capacity expansion. In order to be cost efficient, the PER (x) 10.2 9.0 7.8 company solely focuses on design/R&D/marketing of its core products and Yield (net) (%) 0.8 1.2 1.4 parts, and outsources most of other components (include the transmission) to Source: Deutsche Bank

3rd party manufacturers. - The company admits that FX risk still exists due to uncertainties in Russian rubles, and currently they have not done any hedgings against Russian rubles yet. Deutsche Bank view We have a Hold rating on Geely. We think that the FY15E FX loss appears to be one-off in nature and the company’s upbeat 2016 growth target is already in the price. While we have a long-term positive stance on Geely’s technology tie-up with Volvo, we think company’s current P/E valuation is fair. Key upside risks include a stronger-than-expected reception for its new models. Key downside risks include a weak reception for its new models, intensifying competition from local peers and weaker-than-expected margins.

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