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Research Report: Stock code:
  22-05-2015 (五)    Geely (175.HK) - New models and low cardinal number stimulated rapid growth in April
  21-05-2015 (四)    China Life (2628.HK) - An industry leader with the sharp growth of investment gains
  20-05-2015 (三)    Singyes Solar (750.HK) - Gear up for Upsurging Installations of PV Capacity
  19-05-2015 (二)    Gemdale Group (600383.SH) - Hopefully the company will enjoy higher valuation with stable operation
  18-05-2015 (一)    ChinaSoft International (354.HK) - Transformation strategy brings higher valuation with rapidly grown traditional businesses
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Geely(0175)
22-05-15
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Recommendation on   22-05-15 
Recommendation Accumulate
Price on Recommendation Date $ 4.190
Suggested purchase price N/A
Target Price $ 4.450
Weekly Special - 293 Cathay Pacific
Written by: Zhang Jing( Research Analyst )
Tel:
+86 21 63512937-104

Email:
zhangjing@phillip.com.cn

Geely (175.HK) - New models and low cardinal number stimulated rapid growth in April

Robust rebound in April

In April, Geely sold 40,120 units, up 13% yoy, but down 17% mom compared with March. In the first 4 months in 2015, the total sales volume amounted to 180,643 units, up 44% compared to the same period last year which reached 40% of the total sales target (450000) for the year. The new models effect and low cardinal number are major causes.

Domestic sales rose sharply by 45% while export continued to drop

Geely maintained the robust sales performance in the domestic market with the sales rising about 45% to 38,648 units. In the first 4 months, the total sales reached 164,980 units, up 60% yoy. Because the major export countries faced great political and economic challenges and the slack season, the export sales continued to drop. In April, the export volume was 1,472, greatly down 84% yoy. The total export in the first 4 months was 15,663 units, down 30% yoy. The proportion of export in the total sales shrunk to less than 9%.

Sedan market was still the major market direction

In terms of the sales of segmented models, the sales volume of the two compact sedans- New Emgrand and New Vision launched in H2 of last year grew rapidly. In April, the sales volume of Emgrand EC7 and New Emgrand reached 14,497 units, up 16% compared to the same period last year. The sales of Vision and its new version amounted to 10,473 units, growing by 14 times compared to the same period last year. The total sales volume of its 3 SUV models (GX7, SX7 and GX9) in April reached 5,616 units, down 21% yoy.

By the end of April, 2015, the company launched its first B-class sedan GC9, whose sales volume reached 839 units in April. According to the company, it received orders of 5,000 GC9 units in May. If the momentum can remain in the future, it will prove that the company has made another successful updating program.

Investment Thesis

We believe the sales target of 450,000 units and 8% yoy sales growth rate for the year made by the management team are too conservative. We predict that the company's sales growth rate for the year can exceed 15%.

It is predicted that, because the cardinal number will start to rise in H2, the yoy growth rate of the company's sales volume will probably slow down. The new auto finance enterprise, a joint venture between Geely and BNP PARIBAS, has been approved and is expected to launch the business at by the end of the year with its service covering the whole world, including Volvo buyers. Because China will probably decrease the deposit reserves and interest rate in the near future, the cost of consumption credit will be lower, which can help Geely sell more higher-price models.

As analyzed above, we revised EPS expectation of the Company to RMB0.261/0.306 of 2015/2016. And we accordingly revised the target price to 4.45, respectively 13.4/11.4x P/E for 2015/2016. We give "Accumulate" rating. (Closing price as at 20 May 2015)

New models efficiency and low cardinal number stimulated rapid growth in April

Geely Automobile released the latest figures of production and sales. In April, Geely sold 40,120 units, up 13% yoy, but down 17% mom compared with March. In the first 4 months in 2015, the total sales volume amounted to 180,643 units, up 44% compared to the same period last year which reached 40% of the total sales target (450000) for the year. The new models effect and low cardinal number are major causes explaining the company's sales increase faster than the average in the industry (+8.6%,+15.4%).

Domestic sales rose sharply by 45% while export continued to drop

About the sales in countries, Geely maintained the robust sales performance in the domestic market with the sales rising about 45% to 38,648 units. In the first 4 months, the total sales reached 164,980 units, up 60% yoy. In terms of export market, because the major export countries faced great political and economic challenges and the slack season, the export sales continued to drop. In April, the export volume was 1,472, greatly down 84% yoy. The total export in the first 4 months was 15,663 units, down 30% yoy. The proportion of export in the total sales shrunk to less than 9%.

Sedan market was still the major market direction

In terms of the sales of segmented models, the sales volume of the two compact sedans- New Emgrand and New Vision launched in H2 of last year grew rapidly. In April, the sales volume of Emgrand EC7 and New Emgrand reached 14,497 units, up 16% compared to the same period last year. The sales of Vision and its new version amounted to 10,473 units, growing by 14 times compared to the same period last year. The company does not have strong competitiveness in SUV models and fails to enjoy the bonus of the booming SUV market in China. The total sales volume of its 3 SUV models (GX7, SX7 and GX9) in April reached 5,616 units, down 21% yoy.

By the end of April, 2015, the company launched its first B-class sedan GC9, whose sales volume reached 839 units in April. According to the company, it received orders of 5,000 GC9 units in May. If the momentum can remain in the future, it will prove that the company has made another successful updating program.

Investment Thesis

We believe the sales target of 450,000 units and 8% yoy sales growth rate for the year made by the management team are too conservative. We predict that the company's sales growth rate for the year can exceed 15%.

It is predicted that, because the cardinal number will start to rise in H2, the yoy growth rate of the company's sales will probably slow down. The new auto finance enterprise, a joint venture between Geely and BNP PARIBAS, has been approved and is expected to launch the business at by the end of the year with its service covering the whole world, including Volvo buyers. Because China will probably decrease the deposit reserves and interest rate in the near future, the cost of consumption credit will be lower, which can help Geely sell more higher-price models.

As analyzed above, we revised EPS expectation of the Company to RMB0.261/0.306 of 2015/2016. And we accordingly revised the target price to 4.45, respectively 13.4/11.4x P/E for 2015/2016. We give "Accumulate" rating.

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