KEY HIGHLIGHT: On 21 Aug 2019, Geely announced its 2019 interim results. Revenue achieved RMB47.6bn in 1H19, a decline of 11% YoY, beat on the consensus estimate of RMB45.9bn. Profit attributable to the equity holders of company was RMB4.01bn, a decline of 40%, in line with the estimate of RMB4.04bn. The 40% decline in bottom line has been fully reflected in the current price as the Company has already given a profit alert on 8 Jul, 2019. We expect no significant price movement.
- In 1H19, total sales volume was 651,680 units including Lynk&Co, a decline of 15% YoY. The sales volume consists of 591,668 units of the local brands, 4,135 units of Geometry A, and 55,877 units of Lynk&Co. The unit price was RMB75,493 for the local brand (including Geometry) in 1H19 compared to RMB74,362 in 2018, representing an increase of 1.52%. Under the price war market condition in 1H19, Geely has a moderate increase in unit price reflecting its product structural change, brands upgrading strategy and great market In terms of retail sales volume, Geely has expanded its domestic market share in 1H19 to 6.52% compared to 6.28% in 1H18.
- In 1H19, GPM declined by 2.37 ppt YoY to 17.81% as a result of active destocking for its downstream dealers. We expect a price recovery in 2H19 leading to a moderate rebound of GPM as destocking task completed. In 1H19, investment income from JVs increased by 26% YoY to 306mn. Specifically, the total investment income from Lynk&Co was RMB266mn, representing a 22% decline YoY whereas Genius AFC had a total net income of RMB233mn, an increase of 159% YoY. We expect the financial service will continue to grow at high speed in 2H19.
- NEV sales and export grow at an unprecedented rate. In 1H19, NEV sales volume has reached 57,600 units, an increase of 301% YoY. The export sales volume was 38,619 units, representing an increase of 344% YoY. The export sales volume accounted for 5.9% of total sales in 1H19 compared to 1.1% in 1H18.
- Management team emphasizes its platform technology as its technical strength. The four platforms, namely CMA, BMA, SPA (under Volvo), and PMA, form the core technical strength and its competitive advantage. As production capacity further releases both by collaborating with other OEMs and by its own structural change, Geely will create economies of scale and bring down the unit cost in the future.
