3Q24 results are in line with our expectations

The company announced 3Q24 results: 3Q24 revenue was 60.38 billion yuan, +20% YoY, +10% month-on-month; net profit to mother was 2.46 billion yuan, +92% YoY, -73% month-on-month (+57% month-on-month after excluding the impact of 2Q24 one-time revenue), 3Q24 results are in line with our expectations.

Development trends

Strong sales of new energy and exports are driving revenue growth, and the new vehicle cycle has begun. Thanks to the rise in sales of new models such as Galaxy E5, ZEEKR 7X, Xingyuan, and Lynk & Co Z10, 3Q24 Geely (including Lynk & Co) sales volume increased by +19%/+12% to 533,960 units, outperforming the industry in sales growth. Among them, the sales volume of the Gickrypton/Galaxy/Linker brand was 55,003 units, 72,261 vehicles, and 69,603 vehicles, respectively, and increased the share of new energy sales to +51%/21% year-on-year respectively. A record high. The export business remained steady, with export sales volume +60%/6% year-on-month to 116,610 units in 3Q24. We expect annual export sales to exceed 0.4 million vehicles. Looking ahead, with new models such as the Galaxy Starship 7 being released one after another, we are optimistic that Geely's strong new product cycle will have a driving effect on the company's sales and revenue growth.

The adjustment of accounting standards affected gross profit margins, and after deducting non-net profit, hit a quarterly high in recent years. The 3Q24 company's gross margin was 15.6%, the same as the previous year, or -1ppt. It was mainly due to adjustments in accounting standards, and the calculated warranty was included in the cost item. Under the same caliber, the company's gross margin was stable, moderate and positive. The holding subsidiary's consolidated net profit is close to break-even, driving the company's profitability to improve. We expect the company's new energy sector to gradually cross the break-even point. As the scale effect is gradually unleashed, profit performance is expected to continue to increase. The 3Q24 sales management cost ratio was -2pp/ -2ppt to 10% compared to the same period last month, demonstrating lean management capabilities.

Geely's equity structure is strategically integrated, and the brand collaborates to enhance business development. The company announced that it plans to acquire ZEEKR's shares. After the acquisition is completed, the holding of ZEEKR's shares increased from 51.5% to 62.8%. At the same time, ZEEKR achieved a controlling interest in Lynk & Co., by acquiring and subscribing for additional shares, with a holding ratio of 51%. We believe that this strategic integration of the equity structure is an important step for Geely Group's multi-brand resource integration to achieve collaboration between GKrypton and Linker in various aspects such as product structure, technology development, supply chain, production, and overseas sales to improve efficiency and reduce costs. We expect that after the integration is completed, GKrypton and Lynk & Co's product plans will be more clear, and multi-brand collaboration is expected to further increase profits.

Profit forecasting and valuation

The profit forecast for 2024 and 2025 remains unchanged. The current stock price corresponds to the 2024/2025 price-earnings ratio of 8.0 times/11.9 times. Maintaining an outperforming industry rating and a target price of HK$18.60, corresponding to 10.7 times the price-earnings ratio of 2024 and 15.9 times the price-earnings ratio of 2025, with 33.8% upside compared to the current stock price.

risks

Risk of trade friction; increased market competition; new energy business development falls short of expectations.