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Likes ReceivedGEELY AUTO: Upside Potential Hinges on Whether the Transition to New Energy Exceeds Expectations
GEELY AUTO (0175.HK) released its 2023 annual report during the midday trading session on March 20, 2024, Beijing time, with the following key points:
1. Overall revenue fell short, but automotive business performance exceeded expectations: In the second half of 23, total revenue was 106 billion, below the market expectation of 111.1 billion, mainly due to the slower growth of non-core businesses outside of automotive sales.
2. Increase in sales volume and prices led to automotive sales revenue exceeding expectations: With the strong sales of high-end ZEEKR models and higher unit prices for GEELY AUTO series, the ASP per vehicle (excluding Lynk & Co and Geometry) increased by 0.6 thousand yuan compared to the previous period, driving automotive sales revenue beyond expectations with known sales volume.
3. Accelerated pace of new energy transformation led by Galaxy, ZEEKR, and Lynk & Co new models in the second half: Sales of new energy vehicles in the second half increased by 109% driven by popular models such as Galaxy L6/L7, ZEEKR, and Lynk & Co 08, with the proportion of new energy vehicles increasing from 23% in the first half to 33% in the second half, accelerating the pace of new energy transformation.
4. Continued increase in gross profit margin exceeded market expectations: With the increase in ASP per vehicle, economies of scale from high sales volume, and natural cost reduction in battery materials, the gross profit margin continued to increase by 1.5% to 15.9%, surpassing the market expectation of 15.4%.
5. Research and development and sales expenses exceeded expectations, while management expenses were reasonably controlled: Actual research and development expenditure for the quarter was 7.1 billion (including capitalized portion), an increase of 2 billion compared to the previous quarter's 5.1 billion, possibly due to increased research and development investment in the ZEEKR brand and new energy vehicle models. Sales expenses for the quarter were 7.06 billion, mainly due to the accelerated expansion of Galaxy and ZEEKR stores.
6. Increase in net profit per vehicle, ZEEKR and Lynk & Co both achieved reduced losses: Net profit per vehicle increased from 2263 yuan in the first half to 3766 yuan in the second half, with both ZEEKR and Lynk & Co achieving reduced losses in the context of increased gross profit margin. ZEEKR's net profit margin improved from -6.1% in the first half to -1.4% in the second half (ZEEKR's full-year gross profit margin reached 15%), while Lynk & Co's net profit margin improved from -5.3% in the first half to -2% in the second half.
Overall view:
The company's overall performance in the second half of the year remained stable, with the main automotive sales business exceeding market expectations in terms of sales volume and unit price under the smooth transition of new energy vehicles, and the gross profit margin slightly exceeding market expectations.
For automakers, sales volume is always the core driving factor of performance, followed by profitability. The market's focus is also on the speed of GEELY AUTO's new energy transformation, and the drag on profits from expenses is tolerable during the industry transformation period. Therefore, investment in GEELY AUTO still needs to focus on models and sales volume.However, looking at the company's current layout in the new energy sector, the joint venture brand Rui Blue's battery swapping TO C business transformation has failed. However, Lynk & Co, ZEEKR, and Galaxy have successfully created popular models, achieving a reduction in single-car net profit losses.
Looking towards 2024, the company has set a sales target of 1.9 million vehicles, higher than the market's expected 1.8 million vehicles, but only a 13% increase compared to the total sales in 2023. Currently, the stock price corresponds to only 10 times PE (24E), although relatively cheap, mainly dragged down by the valuation of the traditional fuel vehicle sector. If the 9 new energy vehicle models launched by the three major brands this year can significantly accelerate the penetration of new energy and drive sales beyond the target for the whole year, there is still room for the stock price to rise.
Dolphin GEELY AUTO (0175.HK) historical articles:
August 22, 2023, "[GEELY AUTO: Is there finally hope to 'get ahead'?"(https://longportapp.cn/zh-CN/topics/9246627?channel=t9246627&invite-code=4NOXYT&app_id=longbridge&utm_source=longbridge_app_share)"
September 6, 2021, "[GEELY AUTO (Part 1): Under heavy pressure, the king returns?"(https://longbridgeapp.com/news/44757039)"
September 9, 2021, "[GEELY AUTO (Part 2): The rise of domestic brands in the automotive industry, is it finally GEELY AUTO's turn for good luck?"(https://longbridgeapp.com/news/45196978)"
November 3, 2021, "[The 'Thunder God' emerges, will next year's GEELY AUTO be this year's BYD?"(https://longbridgeapp.com/news/49232106)"
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