Geely (175 HK) Undergoing the period of transformation April 28, 2023 200

PSR Recommendation: BUY Status: Upgraded
Target Price: HKD12.90

Company Profile
Geely is one of the leading enterprises in China’s self-brand passenger vehicles
manufacturers. The Company’s products include six major brands: Geely, Geometry, Lynk,
Zeekr, Livan, and Galaxy, covering the A0 to B-class passenger vehicles market.
Investment Summary
The High Revenue Growth Is Attributed to the Rise in Single Vehicle Prices of Zeekr
According to the recently released FR2022 result, Geely reported a gross revenue of
RMB148 billion, up 45.6% yoy, exceeding market expectation of RMB132.4 billion
(Bloomberg consensus). It recorded a net profit attributable to shareholders of RMB5.26
billion, up 8.5% yoy, higher than market expectation of RMB4.82 billion. The EPS was
RMB0.505, slightly lower than our previous estimate of RMB0.53. The dividend per share
was HK$0.21, unchanged from the previous year.
In 2022, Geely’s sales volume totalled 1,430 thousand units, up 8% yoy. Specifically, the
sales volume in the domestic market increased 2% to 1,230 thousand units, while the export
sales volume surged 72% to 198 thousand units. Benefiting from the average sales price of
Zeekr exceeding RMB336 thousand, the average sales revenue from single vehicles grew by
30% year-on-year, reaching RMB103 thousand (excluding Ruilan Auto and Lynk & Co),
driving the Company’s overall revenue growth to be much higher than the sales volume
The Profitability Is Largely Affected by Only the New Energy Transformation Cost
Total gross margin decreased by 3 ppts to 14.1%, mainly due to rising raw material costs and
higher new energy transformation cost in the initial stage. The Company’s NEV sales volume
increased by 300% year-on-year to 329 thousand units, and the proportion climbed by 16.7
ppts to 22.9% from 6.2% in the same period last year. The low gross profit of new energy
vehicles in the initial transformation affected the overall gross margin. In 2022, Zeekr
contributed to revenue of approximately RMB31.8 billion and a consolidated loss of
RMB1.38 billion.
In terms of expenses, the administrative expense ratio and sales expense ratio decreased by
0.8 ppts and 0.6 ppts, respectively. Due to the increased R&D investment in
intelligentisation and electrification, the R&D expenses increased by 22.6% to RMB6.77
billion, of which RMB1.97 billion or 29% was expensed. Capital expenses in 2022 were
RMB10.3 billion (RMB6.1 billion in 2021), exceeding the RMB9.2 billion budgeted at the
beginning of the year, mainly due to higher R&D investment to accelerate the
transformation to new energy and intelligentisation. The Company’s capital expense budget
for 2023 is RMB14 billion. With the Company’s comprehensive transformation to new
energy, R&D investment will continue to increase. Amid the new energy and
intelligentisation, the competition in the industry will continue to intensify. It is expected
that the Company’s R&D expenses will continue to grow rapidly in the next few years.

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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