Geely announced its 1H20 results. Total sales volume in 1H20 recorded 530K units, down 19% YoY. 1H20 top-line declined by 23% YoY to RMB36.8bn while bottom-line dropped by 43% YoY to RMB2.3bn. The Company adjusts down its full-year sales volume target to 1.32mn from the initial target of 1.41mn.
- Affected by COVID-19, total sales volume recorded 530K units in 1H20, a 19% YoY decrease (Geely brand -20% YoY / Lynk&Co -2% YoY). Given 1) overall NEV subsidies retreat and 2) the increase in dealer rebates, ASP dropped 6% YoY to RMB71K. In the meanwhile, GPM fell by 0.7ppt to 17.1% in 1H20. Due to the increase in marketing expenses brought by the launch of new models in 1H20, the S&D expense ratio increased by 1.2ppt to 6.0%. The consistent R&D investment and increased D&A caused the admin expense ratio to rise by 2.1ppt to 7.3% in 1H20.
- We maintain our sales forecast at 1.31mn units (1.17mn Geely brand / 140K Lynk&Co) in 2020E, a decrease of 3% YoY. It implies Geely will post a 10% YoY increase in 2H20E (Geely brands +9% YoY / Lynk&Co +19% YoY). Notably, Lynk&Co 05 (based on CMA platform) was launched in May while Lynk&Co 06 (based on BMA platform) will roll out in Aug. We observed that Lynk&Co has achieved the YoY growth rate of 12%/41%/53%/78% in Apr/May/Jun/Jul respectively. We believe Lynk&Co will maintain its growth momentum in 2H20E.
- We adjust down our bottom-line forecast by 18% in 2020E at RMB7.2bn while maintaining our estimate in 2021E. We expect both ASP and GPM will improve marginally in 2H20E given 1) the increase in operating leverage; 2) better product mix; 3) the decline in part & component costs. The shared profit from Genius AFC and Lynk&Co Group will also underpin the bottom-line performance in 2H20E. Based on our 2020E forecast, the implied bottom-line growth rate for Geely will be 17% YoY in 2H20E. In 2021E, Geely will launch two BEV models based on the PMA platform together with three PHEV models. We expect the Company will reap the fruits on its platform advantage and will have a turnaround performance in 2H20E/2021E given its strong product pipeline based on PMA/CMA platforms.
- Although 1H20 performance disappointed the market, we believe that Geely still has re-rating potential given 1) the secondary listing on STAR board which will boost market sentiments and 2) strong performance recovery in 2H20E. Therefore, we raise our TP to HK$19.1 (based on new 17.0x 2021E P/E) with an upside of 21.9% from initial TP HK$13.1 (based on initial 12.0x 2020E P/E). Reiterate BUY.
