Strong Momentum Continues in January
Geely Automobile released its sales volume for January of 2017: The total sales volume soared by 71% yoy to 103,000 vehicles. Among them, the domestic sales volume soared by 75% yoy to 102,000 vehicles, accounting for a larger proportion of 99.03% of the total sales volume, while the export volume reached 994 vehicles, fell by 51% yoy. Geely's sales growth rate was much higher than the industry average and also higher than its several major industry counterparts.
Compared with the 60,000-odd-vehicle sales in the same period last year, the growth in January mainly owes to the sales of several new SUVs, with the sales of Boyue, Vision SUV and Emgrand GS amounting to 20,147, 10,226, and 10,333 vehicles, respectively. In addition, the robust sale of sedans of the new Emgrand, Vision and Emgrand GL contributed to the overall growth with 26,314, 14,716 and 10,208 vehicles, respectively.
The 2017 Target May be Outperformed Again
As noted in the 2017 sales target guidelines provided by the company's management, the annual sales will increase by 30% to 1 million vehicles. We therefore anticipate according to the current sales momentum that the company is very likely to exceed its target again with the annual growth rate rising to 50%. The reasons are as follows:
1) The main models have maintained robust sales. Last year, the demand of several popular models exceeded supply, and it will take at least several months to handle the order backlog.
2) The CMA platform, a product line which the company co-established with Volvo, will launch three new models under the brand-new high-end brand LYNK & CO this year, including a compact, slightly smaller SUV than Boyue in size, a sedan and a crossover model. It is expected that their selling prices will continue to climb.
Investment Thesis
We believe the new brand's release marks the official launch of Geely Automobile's advancing strategy, and the follow-up brand management and operation will bring both challenges and opportunities to the company. As the positive effect of acquiring Volvo began to emerge, Geely Auto's overall strength has been elevated to a new high. We are optimistic about its steady growth in medium and long term sales.
Considering the better-than-expected Jan sales we lift our forecast EPS and therefore we raise the target price to HK$ 13.35, equivalent to 13.2x/9.5 estimated P/E ratio of 2017/2018. (Closing price as at 20 Feb 2017)
Financials
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