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Company News April 26, 2016 COMPANY NEWS Geely Automobile Holdings Limited [175.HK; HK$4.0 Not Rated] - Key Takeaways from Chunxiao Plant Visit Market Cap: US$4,539m; Free Float: 56.5%; 3-month Average Daily Turnover: US$25.7m Analyst: Nevin Ning [email protected]; Tel: (852) 3698 6321 Mark Po, CFA [email protected]; Tel: (852) 3698 6318 The Company. Geely Automobile Holdings Limited (Geely), through its [Geely Automobile Holdings Limited] subsidiaries, manufactures and sells automobiles and related components. (HK$) (HK$ million) 5 1500 We organized a visit to Geely’s Chunxiao plant in Ningbo, Zhejiang last week. Currently the Geely Chunxiao plant has an annual production 4 capacity of 150,000 cars (roughly 20% of Geely’s current total production 1000 3 capacity). The company’s new compact SUV, the Geely NL3 (吉利博越), is 2 made in the Chunxiao Plant (which also manufactures the flagship Geely 500 GC9 (吉利博瑞), Geely’s mid-high end class B sedan), while production 1 capacity in the Chunxiao plant is evenly split between the Boyue NL-3 and GC9 at present. The GC9 was launched in April 2015 and is manufactured 0 0 Apr15 Jun15 Aug15 Oct15 Dec15 Feb16 on the KC platform (a platform co-developed with Volvo for mid-high-end Turnover (RHS) Price (LHS) cars). It achieved sales volume of ~32,571 last year (6.4% of Geely’s 2015 Key Financials 2014 2015 2016E 2017E auto sales). Geely officially launched the Boyue NL3 towards the end of (in Rmb m) March 2016 and sold 1,018 units in March. Rev enue 21,738.4 30,138.3 37,725.4 46,517.5 The NL3 has several competitive advantages. The NL3 has two petrol Gross Prof it 3,962.6 5,470.7 7,054.7 8,783.4 Gross Margin % 18.2 18.2 18.7 18.9 engine options, a 104kW 2.0 litre or a 120kW turbo 1.8 litre, and two Net Prof it 1,430.6 2,260.5 3,109.0 3,781.6 transmission options, a 6-speed manual (6MT) or 6-speed automatic Net Margin % 6.6 7.5 8.2 8.1 transmission (6AT). The NL3 is priced between RMB94.8k and 151.8k, a EPS (Basic) 0.16 0.26 0.35 0.43 competitive pricing range filled with top-selling domestic SUV brands, such ROE (%) 8.6 12.3 14.7 15.6 as the Haval H6 and Chang’an CS75. After speaking with factory officials, Div idend Yield (%) 0.58 0.96 1.30 1.66 we believe the NL3 has a competitive advantage over both foreign JV and PER (x) 21.42 12.93 9.15 7.49 domestic SUV brands. The NL3 is in the same price range as the domestic PBR (x) 1.77 1.50 1.29 1.10 H6 and CS75 but has more advanced configurations, especially in the high- Capex (m) (1,076.5) (1,602.6) (2,330.1) (2,309.6) end editions. In the low-end version, although they all have the 6MT, the Free cash f low (m) 966.1 5,828.2 1,657.9 3,472.5 NL3’s 2.0L engine outperforms the H6’s 1.5L in torque, and the NL3 has the Net cash/(net debt) (mn) 4,341.8 7,183.5 7,557.2 9,794.0 Bosch Electronic Stability Program (ESP) 9.1. For the 6AT edition, the NL3 Source: Bloomberg, Company Data. has features such as the Tire Pressure Monitor System (TPMS), Hill in 2016. The slower YoY growth may be due to the high base effect Descent Control (HDC), panoramic sunroof and others, and is even cheaper for the New Emgrand sedan in Q1 2015, the lack of upgraded SUV than the CS75, considering the subsidy provided by Geely (to compensate models before the launch of NL3 near end-March and the gradual for not qualifying for cutting the car purchase tax from 10% to 5%, because phase-out of old products. Going forward, the Company’s pipeline in the NL3’s engine is larger than 1.6L). For the high-end SUV version, the NL3 2016 is filled with the SUV Emgrand GS City Cross, a new compact excels against its domestic peers, considering the unparalleled configuration SUV version (maybe named NL4 or new GX7), a compact A+ new with Auto Emergency Braking (AEB), Forward Collision Warning (FCW) and generation Emgrand (C7) sedan and a new version of Vision sedan. Lane Departure Warning (LDW), with very competitive pricing — only We believe a series of new model launches will help the Company ~RMB150k. What’s more, the NL3 is roughly 50% cheaper than its foreign excel in the model renewal cycle and accelerate sales growth. JV competitors, such as the Volkswagen Tiguan. So far, the order book for the Geely NL3 is better than management’s initial expectations. Geely Our view. We share the view that the slow growth in Q1 is temporary previously expected the NL3 to generate monthly sales of ~20,000 units due to the high base effect and gap for new models, and that Geely after a ramp-up period of roughly six months after its launch. With the is on track to regain growth momentum with the gradual ramp up of commencement of new Baoji plant in Q4 2016E, there will be additional the recently launched NL3 and a fairly full new-model pipeline within capacity for NL3 SUV production. the year. We believe market consensus of 37.6% net profit growth this year is still achievable, taking into account 18% volume growth Growth may catch up with gradual pipeline delivery. As management and an FX loss of RMB472m last year. Meanwhile, Geely previously highlighted in the 2015 annual results presentation, 2016 is recognized as launched its NEV strategy with a clear roadmap in platform, product, the start of the strongest new model renewal cycle. With proven execution and technology development, which will also help the Company to capability in delivering quality products and services after recent large-scale capture the growth potential of the EV market in China. restructuring, the Company set an annual sales volume target of 600,000 units (+18% YoY). Geely’s total sales volume for Q1 was 143,323 units, up Catalysts. Monthly shipment figures, new model market reception about 2% YoY, achieving ~24% of the full-year sales target of 600,000 units and delivery, and government policy for the sector. Figure 1: Chunxiao Plant Figure 2: Geely GC9 Source: CGIS Research Source: CGIS Research Figure 3: Geely GC9 Figure 4: Boyue NL3 Source: CGIS Research Source: CGIS Research Figure 5: Peer Comparison Ticker Company PE EV/EBITDA P/B ROE ROA Div yield Price Market Cap 2016F 2017F 2018F 2016F 2017F 2018F 2015 2016F 2015 2016F 2015 2016F 2015 2016F Lcy US$m x x x x x x x x % % % % % % 175 HK Geely 4.00 4,539 9.2 7.5 6.7 4.4 3.7 3.3 1.5 1.3 12.3 14.7 5.7 6.8 1.0 1.3 2333 HK Great Wall Motor 6.23 10,482 5.9 5.7 6.0 5.8 5.5 5.8 1.2 1.1 26.2 19.9 12.1 10.9 5.2 5.4 1958 HK BAIC Motor 5.61 5,493 7.6 6.5 6.3 5.0 4.2 3.6 1.0 0.9 15.8 12.5 2.8 4.2 3.2 4.8 489 HK Dongfeng Motor 8.84 9,819 5.0 4.8 5.0 17.2 15.4 14.2 0.8 0.7 18.8 13.9 7.5 6.4 2.7 2.9 1211 HK BYD 43.45 19,729 29.3 23.4 18.9 14.3 12.5 11.5 2.8 2.3 1.8 8.8 2.7 3.1 0.0 0.1 1114 HK Brilliance China 8.1 5,260 9.2 7.6 6.4 n.a. n.a. n.a. 1.7 1.5 36.1 17.7 13.9 13.1 1.3 1.2 2238 HK Guangzhou Automobile 8.7 16,999 8.8 7.7 7.1 48.1 40.1 31.5 1.2 1.1 9.3 13.1 6.5 7.4 n.a. 3.3 3808 HK Sinotruk Hong Kong 3.89 1,385 18.8 15.0 15.3 4.0 3.8 3.9 0.5 0.5 2.1 2.6 0.5 1.7 0.8 1.8 2338 HK Weichai Pow er 9.89 5,015 16.4 13.7 11.8 5.3 4.8 3.9 1.0 1.0 16.6 6.0 1.2 2.2 1.8 1.6 Average 12.6 10.5 9.6 14.2 12.3 10.7 1.3 1.1 15.8 11.8 5.9 6.1 2.2 2.7 881 HK Zhongsheng Group 3.97 1,099 9.6 8.2 8.0 7.5 6.8 6.3 0.6 0.6 7.7 6.5 1.2 2.4 n.a. 2.0 3836 HK China Harmony New Energy Auto 5.14 1,044 9.2 8.0 6.5 5.0 4.3 3.7 1.1 0.9 22.0 10.9 5.8 5.8 2.3 2.7 1293 HK Baoxin Auto Group 4.82 1,589 14.4 12.0 12.5 9.3 8.3 8.5 2.1 1.7 14.5 11.4 1.1 3.6 0.0 1.5 1268 HK China Meidong Auto 0.95 133 n.a.
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