On Monday, Citi expressed a positive outlook on Geely Automotive Holdings Ltd. (175:HK) (OTC: GELYF (OTC:GELYF)), maintaining a Buy rating and a price target of HK$11.35. The firm initiated a 90-day positive catalyst watch, anticipating a potential earnings beat and robust sales volume for the first quarter of 2024.
Citi forecasts a net profit of Rmb4.5-5 billion for the fiscal year 2023 and suggests that the market might adjust its 2024 net profit expectations to Rmb7.5-8 billion, exceeding the current consensus of around Rmb6.8 billion. This adjustment is based on anticipated improvements in sales mix, export growth, and cost reductions.
Geely is expected to deliver 480,000 units in the first quarter of 2024, a 49% year-over-year increase, which would account for 26% of Citi's full-year volume forecast. The firm anticipates that Geely's strong new energy vehicle (NEV) model cycles will enhance the company's full-year 2024 volume visibility and contribute to an upward margin trend. Geely's market share gains in NEVs and exports are also a focal point, as the company plans to ramp up production of the upgraded Zeekr 001 model starting in March 2024, followed by the launch of the Zeekr 007/009 in April and several new electric vehicle (EV) models under the Galaxy brand continuing into May. Citi maintains its forecast of 1.88 million units for Geely's 2024 volume, with a 57%/43% internal combustion engine (ICE)/NEV mix at the product level, and projects 357,000 units in exports, marking a 30% year-over-year increase.
In the first two months of 2024, Geely achieved a notable increase in NEV retail market share, growing by 3.1 percentage points year-over-year to 7.4%, outpacing Great Wall Motors' (GWM) 2.3 percentage point increase to 3.7%. Geely's export volume also saw a 55% year-over-year rise to 50.6 thousand units, slightly higher than GWM's 50.0 thousand units.
The broader market context includes potential production cuts from major international automakers. Nissan (OTC:NSANY) is reportedly planning to reduce its production capacity in China by 30%, equivalent to 500,000 units, according to Nikkei on March 12, while Honda (NYSE:HMC) may cut its production capacity in China by 20%. Despite these potential production cuts, Citi believes that competitive pressure from Chinese original equipment manufacturers (OEMs) will intensify. Additionally, as per a Bloomberg report on March 13, Volkswagen (ETR:VOWG_p) may concede market share in China over the next two years. Citi maintains its forecast for domestic retail sales of battery electric vehicles (BEVs) to increase by 6% year-over-year in the fiscal year 2024 and continues to hold a Sell rating on Xpeng (NYSE:XPEV), citing a less favorable demand/supply relationship for BEVs compared to plug-in hybrid electric vehicles (PHEVs) and extended-range electric vehicles (EREVs) in China for the current year.
InvestingPro Insights
As Geely Automotive Holdings Ltd. (OTC: GELYF) captures investor interest with its robust sales forecasts and competitive edge in the NEV market, insights from InvestingPro provide a deeper financial perspective on the company's performance and valuation. According to the latest data, Geely holds a market capitalization of approximately $11.39 billion USD, reflecting its significant presence in the automobile industry. The company's P/E ratio stands at 15.62, suggesting that its shares might be trading at a reasonable valuation relative to current earnings.
InvestingPro Tips highlight Geely's financial prudence, noting that the company holds more cash than debt on its balance sheet, which may offer it flexibility and stability in a dynamic economic environment. Moreover, Geely has been identified as trading at a low revenue valuation multiple, indicating potential undervaluation by the market when considering its revenue streams. The company's commitment to shareholder value is further evidenced by its history of maintaining dividend payments for 19 consecutive years, a testament to its financial discipline and investor-friendly approach.
For investors seeking more comprehensive analysis and additional insights on Geely, InvestingPro offers a range of tips, including details on the company's low P/E ratio relative to near-term earnings growth and its position as a prominent player in the Automobiles industry. With more tips available, investors can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking valuable information that could inform investment decisions.
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