20180810-广发证券_香港_-吉利汽车-00175.HK-Another_month_of_double-digit_growth_despite_sector-wide_headwinds_6页_602kb

Geely Auto (175 HK) Equity Research Summary

Core Content Overview

This equity research report provides an analysis of Geely Auto's performance and outlook as of August 2018. The report maintains a "Buy" rating with a target price of HK$33.29, based on a 15x 2018E P/E multiple, which is 1SD above its three-year historical average of 12x. The analysis highlights Geely's strong sales growth, strategic product launches, and expansion plans, while also addressing valuation and risks.

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Key Performance Highlights

• July Sales:
  • Total units sold: 120,277
  • +32% YoY growth, -6% MoM decline
  • 7M18 sales: +43% YoY to 886,907 units, completing 56% of the annual target
• SUV Sales:
  • +51% YoY to 70,428 units
• Sedan Sales:
  • +12.1% YoY to 49,849 units
• Lynk & Co 01:
  • July sales: 9,260 units
  • 2Q18 sales: +47% QoQ to 28,000 units
  • 7M18 sales: 56,000 units
• Lynk & Co 02:
  • July sales: 3,040 units
  • Expected to ramp up over the next 3-6 months
• Waiting Periods:
  • 01 models: 2-3 months
  • 02 models: 1-2 weeks in some third/fourth-tier cities

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Strategic Initiatives and Future Outlook

• BMA Modular Architecture:
  • Launched in July 2018
  • Designed for compact models with wheelbases of 2550mm-2700mm
  • Expected to reduce new model development time to 18-24 months
  • Decrease R&D expenses
• Capacity Expansion:
  • Acquired three production facilities from parent company
  • Expected to reach ~2 million units per year by 2019
• New Models:
  • 3Q18: Binrui sedan, Boyue Coupe
  • 4Q18: Xingyue compact SUV, Lynk & Co 03 sedan, first MPV
• Growth Expectations:
  • 34% YoY sales growth in 2018
  • GPM and NPM improvements due to operating leverage and economies of scale

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Valuation and Financials

Year	Revenue (Rmb m)	Net Profit (Rmb m)	EPS (Rmb)	P/E	Yield	BPS (Rmb)	P/B	ROE (%)
2016	53,722	5,114	0.580	25.4	0.5	2.8	4.7	20.4
2017	92,761	10,634	1.190	11.0	1.8	3.9	3.4	35.7
2018E	136,409	16,750	1.867	7.0	4.2	4.4	3.0	45.2
2019E	188,496	25,448	2.836	4.6	6.4	5.2	2.5	59.0
2020E	235,154	34,131	3.803	3.2	8.5	6.4	2.0	65.3

• P/E Ratio:
  • Current: 8.9x 2018E EPS, considered undervalued
• Projected P/E:
  • 15x 2018E P/E, suggesting potential for share price rebound

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Risks

• Monthly sales missing expectations
• Market downside risk

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Analyst Rating Definitions

Rating	Definition
Buy	Expected to outperform benchmark by more than 15%
Accumulate	Expected to outperform benchmark by more than 5% but not more than 15%
Hold	Expected relative performance between -5% and 5%
Underperform	Expected to underperform benchmark by more than 5%

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Sector Outlook

• Sector Rating: Positive (expected to outperform benchmark by more than 10%)
• Geely's Competitive Edge:
  • Blue Geely Initiative
  • Shared Modular Strategy with Volvo and Lynk & Co
  • Brand Premium advantage over local peers
  • Cost Reduction through joint procurement and R&D sharing

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Disclosure and Disclaimer

• Analyst Certification:
  • Views expressed reflect personal opinions
  • No direct or indirect remuneration linked to recommendations
• Disclosure of Interests:
  • GF Securities (Hong Kong) and its affiliates do not hold shares or have investment banking relationships with the mentioned companies
• Disclaimer:
  • The report is for informational purposes only
  • Does not constitute an offer to buy or sell securities
  • No liability accepted for losses arising from use of the report
  • Past performance does not guarantee future results

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Conclusion

Geely Auto is positioned for strong full-year sales growth, supported by a robust product cycle, capacity expansion, and the BMA modular architecture. Despite sector-wide challenges, the company has demonstrated resilience in sales and is expected to benefit from its strategic initiatives and economies of scale. The current valuation is seen as undervalued, and the report recommends maintaining the Buy rating with a target price of HK$33.29.