Geely announced that total sales were 151K units in Nov, an increase of 5% YoY. Among them, Lynk&Co sold 22.8K units in Nov, an increase of 61% YoY. We remain optimistic about Geely given its technological strength, brand stretching, and the advancement of the holding company. We revised our 2021E earnings forecast from RMB9.3bn to RMB9.9bn and raised TP to HK$35.0. Reiterate BUY rating.
- Technological strength was gradually manifested in 2H20E. In Nov, the new A+ class sedan, Preface (星瑞), was rolled out to the market, marked as the first ICE with FOTA upgrade in China auto market. Its sales reached 7,017 units in Nov, which is expected to become one of the top-selling models. The release of SEA architecture (浩瀚架构) in Oct suggests Geely achieved a leading position in the intelligent-EV market. It may be equipped on the Volvo X20 in the future, reflecting the competitiveness of SEA. Moreover, Geely is cooperating with Daimler to build the next-generation engine for hybrid vehicles. We believe that the above news reflects that Geely is reaping the fruit of consistent investment in cutting-edge technology.
- Brands stretching proved by the rising sales volume of Lynk&Co. Lynk&Co's sales exceeded 20K units for two consecutive months (+56% YoY in Oct/+61% YoY in Nov). The new Lynk&Co 01 (facelift version) has already been launched in Dec 2020. Lynk&Co Zero Concept, the first product under the SEA architecture, is expected to be launched in 2021E. Its NEDC mile range will exceed 700km while the acceleration time to 100km/h will be less than 4s. In the meanwhile, Lynk&Co 07 which is based on SPA architecture is expected to debut in 2021E. We are optimistic about the brand stretching of Geely driven by Lynk&Co. We expect the sales volume of Lynk&Co will exceed 200K units in 2021E.
- Market sentiment is rising driven by the recent news release. On 28 Sep, its A-share IPO application was approved by SZSE. We believe secondary listing will expand the coverage from both buy-/sell-side with more operation details, boosting the overall valuation and H-share stock price. From onwards, we expect Geely will restart the M&A negotiations with Volvo and will remain at the center of spotlight after the A-share listing. At the same time, with the launch of the SEA platform, we expect the market will have a refreshed understanding of its leading position within the intelligent & EV field, thereby uplifting the overall valuation level further.
- With continuous actions at the holding group level, Geely is getting close to a technology-based transportation aircraft carrier in China step by step. 1) Geely Technology Group has taken over Lifan Industry (601777 CH) and introduced the battery swap NEV into the entity. We believe Geely Technology Group will expand the presence in “BaaS” and seize more opportunities in the related upstream and downstream business. 2) Geely CV Group has taken over Hualing Xingma (600375 CH) to strengthen its CV sector. Hualing Xingma has certain technical accumulation in the ICE engine field, which will provide certain support in the short term. In the long run, Geely CV Group is expected to take advantage of NEV opportunities and make full use of the marketing channels of Hualing Xingma, overtaking the curve in the field of NECV.
- The organizational structure at the group level was with a new "Management Committee", empowering all major sectors. We believe that through the establishment of the "Management Committee", each member in charge will aim at a clear target of each sub-sector while coordinate through a new organizational structure. We believe that PV (Geely, Lynk&Co, Volvo, Polestar, Proton, Lotus), CV, technology group, and financial subsidiaries under the holding company will expand in their respective fields. In the future, we expected synergy and complementarity will form with Geely Automobile (175 HK) in various perspectives such as technology, marketing channels, and business models. Geely is getting close to a technology-based transportation aircraft carrier in China step by step.
- We are optimistic about China's auto sales in 2021E and believe that Geely's sales volume will achieve double-digit growth in 2021E. We expect Geely to achieve a sales volume of 1.45mn units in 2021E, an increase of 10% YoY. Among them, Lynk&Co is expected to achieve a sales volume of 203K units, an increase of 20% YoY. As a result, we raise our earnings forecast to RMB9.9bn to reflect PL sharing from Lynk&Co. Therefore, we raised our TP to HK$35.0 (based on the new 30.5x 2021E P/E) with an upside of 59.0% from initial TP of HK$19.1 (based on initial 17.0x 2021E P/E). Reiterate BUY.
