Geely (175 HK) Looking Forward to Bailing the Results out of Slump Driven by New Brand and New Vehicle-Cycle April 28, 2021 204

PSR Recommendation: BUY Status: Maintained
Target Price: HKDHKD26

Investment Summary
FY20 Results Significantly Fall Short of Expectations and Profitability Is under Pressure
Geely’s total revenue in 2020 fell to RMB92.11 billion, down by 5% Y-o-Y. The profit
attributable to shareholders was RMB5.53 billion, down by 32% Y-o-Y. The gross margin was
16%, down by 1.4 ppts over the same period last year. The EPS was RMB0.56. The DPS was
proposed to be HK$0.20, with a dividend payout ratio of approximately 30%.
The results significantly fell short of market /our expectations by approximately 23% and
26%, respectively. The main reasons include not only 1) the COVID-19 pandemic, but also 2)
the increase in depreciation and amortization expense ratio due to the overall decline in
sales volume, 3) the gross profit margin being eroded by the rising costs of some raw
materials, 4) the price-off promotion as some old models are approaching the end of their
lifecycle, and 5) large investment of R&D expenses and sales and administration expenses in
the new car cycle of the 4.0 era. As a result, the Company’s annual gross margin was 1.2 ppts
lower than our expectation, while the sales and administration expense ratio was 1.5 ppts
higher than we expected. Finally, the profitability was under pressure. The net profit margin
dropped by 2.4 ppts to 6.0%, hitting a low since the Company’s overall listing.
In 2020, Geely sold 1,320,200 units accumulatively, down by 3% Y-o-Y. From a regional
perspective, the Chinese market contributed 94.5% of sales volume, with a total of
1,247,500 units, down by 4% Y-o-Y. The Chinese market contributed RMB85,597 million in
sales revenue, down by 7.6% Y-o-Y. On the other hand, overseas markets have achieved
positive returns after several years of cultivation. Last year, 73,000 units were sold
accumulatively, up by 25% Y-o-Y. Overseas markets contributed RMB6,517 million in
revenue, up by 37% Y-o-Y. However, the overall proportion remained small, which was less
than 10%.
For the overall sales volume, the brand LYNK&CO has become a bright spot. It sold 175,000
units accumulatively throughout the year, up by approximately 37% Y-o-Y. It contributed
RMB260 million to investment return; in addition, Genius Auto Finance Co., Ltd. contributed
RMB580 million to return, driving the Company’s investment return to a substantial increase
by 32 % to RMB875 million, which partially offset the adverse effects.
Operating cash flow was under pressure in H1, mainly due to the financial support for
suppliers to extend the billing period during the pandemic. As the billing period returned to
normal in H2, the operating cash flow was turned from negative to positive. The Company
recorded a net inflow of RMB1.6 billion in the year. The cash balance at the end of the
reporting period was RMB19 billion. The Company had abundant cash in hand, laying a solid
foundation for the next stage of development.

About the author

Profile photo of Zhang Jing

Zhang Jing
Phillip Securities (HK)

Bachelor Degree in Tongji University of Engineering; Master Degree in East China Normal University of finance. Currently covering the automobile and air sectors. She has years of experience in investment research and is good at combining analysis for the companies with industry prospects.

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