GEELY AUTO: Finally Hope to "Turn the Corner"?

$GEELY AUTO(00175.HK)(0175.HK) released the 2023 semi-annual report at noon on August 22, 2023, Beijing time, with the following key points: * * 1. The double increase in sales prices has led to a higher-than-expected increase in auto sales revenue: * * Although Geely series ASP declined slightly due to the boost of high-end krypton models, the overall single-car revenue increased by 10% year-on-year, driving the growth of auto sales revenue to exceed expectations under the condition of known sales volume. * * 2, but the speed of new energy transformation was slow in the first half of the year: * * In the first half of the year, the sales volume of new energy vehicles fell 28% month on month, only 24% of the annual sales volume was completed, and the completion progress was slow. Apart from the fact that the Galaxy Hybrid did not really increase the volume in the first half of the year, it was mainly related to the slowdown in sales volume of pure electricity, Rui Lan and polar krypton brands. * * 3. In the second half of the year, the new model cycle of Galaxy + Polar Krypton will start: * * Benefiting from the blessing of Leishen Electric Hybrid and vast pure electric technology and platform, Galaxy L7 Plug-in Hybrid Series will quickly open the market with 13.9-174000 pricing and excellent product power, resulting in monthly sales of 10,000 explosions. In the second half of the year, the Galaxy series will work together to accelerate the new energy transformation of the new hybrid car L6, pure electric E8 and extremely cost-effective new car X series. * * 4. Geely is also making batteries: * * From the perspective of business structure, the battery pack sales business has the fastest growth, with revenue increasing 253 year on year. The company has stepped up its layout and catch-up in the layout of lithium batteries for new energy vehicles to ensure stable battery supply for electric vehicles in the future Geely's electric transformation, improve supply chain capacity, reduce costs, and drive the proportion of non-vehicle business to further increase to 17.6. 5. Where is Geely's hope for going to sea? In the first half of the year, the proportion of exported car sales increased from 14% in the same period last year to 18%, and overseas exports accelerated. The diversification of business structure and regional structure is expected to bring sustained growth momentum to the company in the future, especially in overseas markets with low base and broad space. 6, gross margin declined slightly but exceeded market expectations: Single-vehicle ASP exceeded expectations to drive gross margin exceeded market expectations, and the small year-on-year decline in gross margin was mainly due to the increase in the proportion of new energy vehicles with lower gross margin and increased market competition. * * 7. Expenses on the expense side continue to increase: * * Channel changes and new car announcements have increased sales expenses, electric intelligence has increased research and development investment, and employee compensation has increased management expenses. The overall three expenses have increased by 21% year-on-year, but the sales volume has increased to dilute the operating expense rate, down 0.5 from the same period last year. * * 8. Net profit of single car declined, but net loss of extreme krypton decreased: * * Net profit of single car fell from 4072 yuan in the same period last year to 3877 yuan in the first half of last year, but it was mainly caused by losses of joint venture brands Ruilan and Lingke. In terms of business, net profit loss of extreme krypton brand decreased and new energy transformation was smooth. * * Overall View: The company's overall performance in the second quarter was stable, with sales volume and unit price rising to bring revenue exceeding expectations, but the transformation speed of new energy vehicles was still slow, with only 24% of the annual target completed in the first half of the year. However, at current prices, 2023 is a year when the opportunities outweigh the risks. **** For vehicle manufacturers, sales volume is always the core driver of performance, followed by profitability, while Geely went to the second half of the year, the key to complete sales volume mainly depends on the volume of Galaxy product line. The focus of the market is also on Geely's new energy transformation speed, and the cost-side drag on profits in the industry transition period is worthy of the market tolerance, so the investment in Geely cars still has to return to models and sales. * * * * But looking at the company's current new energy layout, the business transformation of the joint-venture brand Zhonglan power exchange brand TO C has failed. At present, the sales volume of new energy vehicles is less than 2000 units, and the sales volume of krypton 001 has slowed down, but fortunately, the net profit loss of krypton bicycles has decreased. * * * * But Galaxy L7 has started new car explosions with its excellent product strength and cost performance. In the second half of the year, more attention should be paid to whether Galaxy + Polar Krypton's new model can bring explosion volume, accelerate Geely's new energy transformation, and Polar Krypton's split plan. * ! * * The following is a detailed analysis: * * * I. Auto sales business: ASP promotion becomes the main revenue driver * * In the first half of 2023, the company's vehicle sales business achieved revenue of 60.3 billion yuan, up 23% year-on-year, exceeding market expectations by 10.8. Under the condition that the sales volume (excluding LinkedIn and Ruilan) increased by 12% year-on-year but the sales volume data are known in the market, the bicycle ASP exceeded the market expectation by 13.3, driving the vehicle sales business to exceed the expectation by a large margin.! * * 1) Bicycle ASP increased 10% year on year, and the product structure was upgraded obviously * * According to Dolphin Jun's calculation, it increased 10% year on year, exceeding the market expectation of 92000 yuan.! Source: Company Financial Report, Dolphin Investment Research From the perspective of model structure, the improvement of ASP is mainly due to the volume of high-end car extreme krypton models, with sales up 124 percent year-on-year. The sales volume of polar 001 plus polar 009 increased the 465000 of polar cycling revenue (excluding other revenue) from the first half of 2022 to 499000 in the first half of 2023. Although Geely series ASP declined slightly, from 80000 in the first half of 2022 to 73000 in the first half of 2023, mainly due to the slowdown in sales of Chinese star and geometry series with higher unit price, bicycle ASP (excluding LinkedIn and Ruilan) increased 10% to 104000 yuan year on year due to the boost effect of extreme krypton high-end series sales volume on ASP. * * 2) Galaxy + Polar Krypton New Model Cycle Opens, Accelerating Geely's New Energy Transformation * * * 2.1) New Energy Vehicle Progress Slower than Annual Target * * In the first half of 2023, the company sold 680000 vehicles, up 10% year-on-year, 1.65 million vehicles in 2023, and 41% of the annual sales target in the first half of 2023. From the perspective of new energy vehicle business, the company sold 158000 new energy vehicles in the first half of 2023, an increase of 44% year-on-year, but a decrease of 28% from the previous month. The sales target of new energy vehicles in 2023 is 650000, and only 24% of the annual sales target has been completed in the first half of the year. The slow completion progress is related to the slowdown in sales of Ruilan and Krypton brands. The sales volume of the extreme krypton brand in the first half of the year was mainly contributed by the extreme krypton 001. In December last year, the monthly sales volume of krypton 001 reached 11300 vehicles. This year, due to the iteration of krypton 001 models, the monthly sales volume dropped sharply in the middle. Recently, driven by the increment of krypton X, it gradually returned to 12000. At that time, the company said that due to the shutdown of the polar krypton factory for 21 days in January for upgrading, the recovery rate of its sales volume was not obvious since then. The average monthly sales of polar krypton 001 from February to July also reached only 5700 vehicles, which was far less popular than that in the second half of last year. In August, Krypton announced that it would reduce the price of the 001 model by 30000-37000 to 269000 to boost weak sales. Ruilan brand is also facing difficulties. Ruilan sold only 16000 vehicles in the first half of the year, down 58% from the previous month. With the gradual saturation of the B- end market, maple leaf series and other models are unsalable and encounter bottlenecks in the development of the B- end market. However, Ruilan still sold less than 100 units in July this year in the face of the C- terminal transformation. Due to poor sales, Ruilan 9 had to start a price reduction less than half a year after its listing. As a sub-brand of Geely Group's main power exchange technology, Geely's layout in the field of power exchange may be on the verge of failure.! * * 2.2) Galaxy and extreme krypton new models are expected to produce explosive effect * * Looking forward to the second half of the year, Geely's new car cycle will start, Galaxy and extreme krypton new models are expected to create explosive models, driving the sales of new energy vehicles to increase. Geely Galaxy L7 quickly opened up the market with a price of 13.9-174000. In the second month of sales alone, it sold more than 10,000 vehicles a month. It has already demonstrated the potential of explosion. It overlaps with BYD's Song DM-I and is expected to snatch DM-I sales. At the same time, Galaxy L6 will be launched in September, with a price of only 100000-150000. Qin Plus will be accurately positioned. It is expected that L6 will have a high probability of becoming another model of Galaxy series. At the same time, the Galaxy brand will launch E8-neutral pure electric car, electric process accelerated. Pole krypton series pricing 190000-230000 pure electric model pole krypton X has been delivered in June, climbing progress is smooth, July sales increased 82% month-on-month, is expected to become another star model after pole krypton 001. * * 2. gross profit margin: slightly reduced by the acceleration of new energy transformation * * The company's overall gross profit margin in the first half of 2023 was 14.4 percent, down slightly 0.2 percent year-on-year, but 13 percent higher than market expectations, mainly due to the higher-than-expected ASP for bicycles. The slight decline in gross profit was mainly due to the impact of new energy transformation and increased competition in the automotive market. From the cost side, the main reason is that the increase in the price of single cars has not overshadowed the increase in the cost of single cars. Although the decline in the price of lithium carbonate in the first half of the year has reduced the price of batteries and has a positive impact on the cost of new energy vehicles, the gross profit margin is still lower than that of traditional fuel vehicles (the proportion of new energy vehicles in the first half of 2023 is about 23%, up about 5pcts compared with the same period last year), and the gross profit margin decreased by 0.2.! Source: Company Financial Report, Dolphin Investment Research * * 3. Revenue Side: Up 26% YoY, Revenue 73.2 billion in the First Half of 2023 due to Growth in Main Auto Sales and Battery Pack Sales, Up 26% YoY, but Below Market Expectation 76.8 billion. The company's multi-business diversification, non-vehicle sales business from 15.4 in the same period last year to 17.6 in the first half of the year, while the company has added processing revenue, but the business is currently contributing less. In terms of business structure, the company's sales of automobiles and related services accounted for 82.4 percent, up 23 percent year-on-year, significantly exceeding expectations. In the non-vehicle sales business, the revenue from R & D and related technology licensing services was significantly lower than expected, contributing only 1.88 billion revenue, which was 4.44 billion yuan lower than market expectations, resulting in lower-than-expected overall operating income.The fastest growing non-vehicle sales business is the battery pack sales business, contributing 5.96 billion revenue, with revenue increasing by 253 year-on-year, reflecting Geely's intensified layout and catch-up in the power lithium batteries of new energy vehicles, ensuring stable battery supply for electric vehicles in the future Geely's electric transformation, improving supply chain capacity and reducing costs.! ! * * 4. expense side: rigid expenses such as research and development and sales continue to increase * * In Geely's transformation to electric and intelligent, it is mixed with the sorting and reform of Geely's fuel and electric channels. The operating expenses are too rigid and can only be diluted by sales release. Geely's rigid expenses such as research and development and sales continue to increase this quarter, but they are in line with Dolphin Jun's expectations. * * 1) R & D expenditure: capitalized R & D expenditure increases, and subsequent R & D investment continues to increase. * * The company's R & D expenditure is divided into the amortization value of the current expense part and the capitalization part. Both the expense part and the capitalization amortization value are deducted as expenses when calculating the net profit and are accounted for under the administrative expenses item in the income statement. The company's research and development expenditure in the first half of 2023 totaled 3 billion yuan, down 8%/15% YoY/YoY, respectively, and research and development expenditure accounted for 4.1 percent of revenue. However, the main reason for the decline in R & D revenue in this half year is that most of the ongoing R & D projects are aimed at new models that have not yet been listed, so most of the related expenditures have been capitalized. The actual capitalized R & D investment increased by 87% to 5.1 billion yuan year on year, which is included in the gradual expense amortization of intangible assets after the models are put on the market. The actual research and development expenditure is higher, mainly due to the expenditure brought about by the development of new models, powertrain research and development, electric and intelligent technology research and development. In terms of powertrain, 2023's newly upgraded Raytheon hybrid 8848 is equipped with a new generation of Raytheon electric hybrid engine BHE 15 Plus, the maximum thermal efficiency of mass production is increased to 44.26, and the energy saving rate is increased by 15%. At the same time, Geely opened the vast (SEA) car-building platform architecture, carrying a new generation of pure electric models, in the Raytheon electric hybrid and vast pure electric technology and platform blessing, 23 years will launch a total of 10 pure electric + hybrid new models, Geely new energy transformation accelerated. In the critical period of electrification and intelligent reform of the automobile industry, more R & D expenditure is the key to win the future. The company also said that it will continue to increase R & D investment. Although it will form a significant drag on the company's profits in the short term, the tolerance of the capital market for this area is relatively high.! Source: Company Financial Report, Dolphin Investment Research * * 2) Sales Expenses: The Company's Sales Expenses in the First Half of 2023 were 4.77 billion yuan, up 44% year-on-year, but down 3% month-on-month, higher than the market expectation of 4.36 billion yuan, but Dolphin Jun believed that it was basically within a reasonable level. Geely's previous problem was to share the sales channels of new energy-related models with the existing sales channels of fuel vehicles, and the channels were not well prepared for the sales and publicity of new energy vehicles. At the same time, the original product name (such as emgrand L PHEV), leading consumers to mistakenly take the same name but lower price of fuel vehicles as competition, more inclined to choose lower price fuel vehicle models, although the technology and product strength is superior, not its short board, but sales have been lower than expected. Geely is also aware of this problem and has promoted channel reform, using new products and new sequences of pure new energy (Galaxy, Krypton)+ new sales channels of pure new energy to solve the above problems. The year-on-year increase in sales expenses in the first half of 2023 was also mainly affected by the marketing costs of pushing new models and the construction and operation of direct channels. Galaxy series to take the agent and direct two models, self-built channels. As of July, 400 Geely Galaxy exclusive stores have been opened nationwide. It is expected that the channel scale of 700 exclusive stores will be realized this year, accelerating the volume of new models in the Galaxy series. The extreme krypton series opened 24 new direct stores in the first half of the year, and currently has more than 300 direct stores, covering 75 cities. * * The overall channel combing and new construction increased the overall sales cost by 44% year-on-year. * * * * 3) management expenses * : * * driven by the increase in employee salaries * * in the first half of 2023, the company's management expenses were 1.88 billion yuan (dolphin king excluded research and development expenses from administrative expenses), with a management expense rate of 2.6, up 35% year-on-year, but down 12% month-on-month. The year-on-year increase in management expenses may come from the increase in employee compensation caused by the increase in the number of employees. Salary and salary increased 2.79 billion from the same period last year to 3.56 billion in the first half of this year. In the first half of this year, the number of employees reached 53000, an increase of 6000 over the same period last year. In the industry change period, the industry talent competition phenomenon is obvious, Geely in order to accelerate the transformation of new energy began to expand, the company's management costs rise is normal.! Source: Company Financial Report, Dolphin Investment Research * * 5. Profit: Net Profit of Single Vehicle Declines, But Net Loss of Extreme Krypton Reduces * * In the First Half of 2023, Geely Auto Realized Net Profit of 1.57 billion Yuan, Up About 1% Year-on-Year, Slightly Exceeding Market Expectations of 1.51 billion Yuan. But net interest rates fell from 2.7 per cent in the first half of 2022 to 2.2 per cent in the first half of 2023, and net profit on a single vehicle fell from $2529 to $2317. In terms of dismantling, although the gross profit margin in the first half of the year fell by 0.2 year-on-year, the operating expense ratio also fell by 0.5 year-on-year, and the company's operating profit increased by 0.3 year-on-year. The decline in net interest rate is mainly due to the decrease in the profit and loss of the joint venture company, from 0.62 billion in the same period last year to only 0.012 billion in the first half of this year, mainly due to the sharp decline in profit caused by the failure of the power exchange layout of the Ruilan brand and the operating losses of the LinkedIn brand. LinkedIn currently sells less than 2000 new energy vehicles, and will completely stop the investment of fuel vehicles in the second half of the year to accelerate the new energy transformation. By business, the decline in net profit on bicycles came mainly from the decline in Geely. Geely's net profit on bicycles fell from 4072 yuan in the same period last year to 3877 yuan in the first half of 2023. However, on the whole, the company's new energy transformation is smooth. With the release of sales volume of polar krypton, the net profit loss of polar krypton bicycles has decreased, from 40000 yuan in the same period last year to only 19000 yuan in the first half of this year.! Source: company earnings, Dolphin Investment Research! Source: Company Financial Report, Dolphin Investment Research Dolphin Jun Geely Auto (0175.HK) Historical Article: Interpretation of Financial Report on August 18, 2022 "Geely: Constantly Expecting, Constantly Disappointing, Is There Still Hope for the Story of Rise?" Interpretation of Financial Report on March 23, 2022 "Geely Fractures Again After Fracture, Darkness Before Dawn Is the Most Difficult" Telephone Conference on March 23, 2022 "Can Geely Rise with Two Legs Mixed with Pure Electricity and Platform Blessing?" November 3, 2021 "" Thor "out of the mountain, next year's Geely is this year's BYD?" September 6, 2021 "Geely Automobile (Part I): Under Heavy Pressure, the Return of the King?" September 9, 2021 "Geely Automobile (Part II): It's finally Geely's turn to" Fu "when the wind rises in the automobile industry?" November 3, 2021 "" Thor "out of the mountain, next year's Geely is this year's BYD? Risk Disclosures and Statements for this article: **** Dolphin Investment Research Disclaimer and General Disclosures **