Geely Automobile Holdings Ltd (0175.HK) is one of the top three automakers in China. The company manufactures passenger vehicles, automobile parts and related components primarily for the Chinese market. It is currently one of the fastest growing car manufacturer in the world with a sales volume reaching 1.5m units in 2018,[mepr-active membership=”1734″ ifallowed=”show” unauth=”message” unauth_message=”Please login or purchase a membership to view full text.”] an increase of over 20 percent from the previous year. The company is targeting to reach 2m units by 2020. Geely Automobile is one of the five sub-groups of Zhejiang Geely Holding Group, whose brand portfolio also includes Swedish luxury carmaker Volvo, the British Taxi maker London Electric Vehicle Company and the British sports and racing car brand Lotus among others. Geely Automobile is on Forbes’ Asia Fab 50 list, Growth Champions list, and among Forbes’ Global 2000 list. The company manufactures its cars in nine plants and has over a thousand dealers in China.
Latest developments have been a joint venture with CATL, a Chinese battery manufacturer, as Geely Automobile intends to launch 40 new electric vehicles by 2020. A joint venture with Germany’s Daimler Mobility Services will set up a ride-hailing platform with premium vehicles in several Chinese cities in response to the dominance of market leader Didi.
Geely Automobile was established in 1997 and is headquartered in the city of Hangzhou, in China’s Zhejiang province. The company is listed on the main board of Hong Kong’s stock exchange since 2005 and became a constituent of the Hang Seng Index in February 2017. Its shares can also be traded in Germany, UK, Austria, and the US. Major shareholder is Zhejiang Geely Holding Group, the private investment vehicle of the founder and chairman, Mr. Li Shu Fu, with ownership of around 44 percent. Fifty-five percent of the shares are in public hand.
With a workforce of about 47,500 employees, Geely Automobile reported revenues of 53.7bn RMB (7.9bn USD) and profits before tax of 7.98bn RMB (1.2bn USD) during the first six months of 2018. This is an increase of 36 and 50 percent respectively compared to the same period a year ago. In 2017, revenues and profits increased by 73 and 106 percent respectively. The operating margin of 14 percent is well above the industry average.
Geely Automobile’s cash reserves increased by 21 percent to 16.2bn RMB (2.4bn USD), while debts also increased by 154 percent, due to the issuance of bonds, to 3.3bn RMB (486m USD) over the first half year of 2018. The company shows a solid balance sheet with good profitability and financial strength. The equity ratio is at 44 percent and the gearing, defined here as total liabilities to total equity, at still acceptable 126 percent. Moody’s current rating of Geely Automobile is Ba1 with a positive outlook. Next results will be announced on 21. March.
Geely Automobile’s shares have been in a downtrend from November 2017 to January this year and lost two third in value. Since then the stock shows signs of a recovery and is trading close to its 200 moving average line. The company is priced at nine times earnings, three times book value and at eight times cash flow. The latest dividend yielded around 2 percent. 29 out of 40 analysts have currently a ‘buy’ or ‘outperform’ recommendation on the stock.
Our conclusion: The company shows a healthy balance sheet with excellent profitability and financial strength. The valuation is reasonable. Revenues and profits grew by 57 and 89 percent respectively over the last three years. The company is well positioned in a strong competitive environment. Its market share in China’s passenger vehicle market increased from 5 to 6.4 percent during the first half of 2018, making the Geely Automobile the third largest passenger vehicle manufacturer in China only after Volkswagen and General Motors in terms of sales volume. Given an even stronger new products pipeline ahead, the company should be in an excellent position to secure a higher market share in China’s passenger vehicle market soon. Assuming a stable global economy, we expect the share price to increase 20 to 30 percent until the end of this year.
AIS Rating: ★★★★☆
| 2013 | 2014 | 2015 | 2016 | 2017 | 2018 H1 only |
|
|---|---|---|---|---|---|---|
| EPS (RMB) | 0.3 | 0.2 | 0.3 | 0.6 | 1.2 | 0.7 |
| Change | 15% | -47% | 58% | 123% | 102% | 52% |
| P/E | P/E SECTOR |
P/B | P/CF | Equity Ratio* |
ROE | LIAB./ Equity** |
Div YLD |
|---|---|---|---|---|---|---|---|
| 9 | 18 | 3 | 8 | 44% | 39% | 126% | 1.9% |
* Equity / Total Assets, ** Total Liabilities / Equity
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