CICC: Maintaining Geely Auto's (00175) “Outperform the Industry” rating and raising the target price to HK$13.54

The Zhitong Finance App learned that CICC released a research report stating that it maintains Geely Auto (00175)'s “outperforming the industry” rating and that the profit forecast for 2024/2025 remains unchanged. The target price was raised by 32% to HK$13.54 due to the launch of the company's new models and the recovery of the Hong Kong stock valuation center. The company recently released models such as the Galaxy E5, Extreme Krypton 7X, and Lynk & Co. Z10. The sales volume and order situation exceeded expectations. At the same time, the bank is optimistic that the company's subsequent sales volume will benefit from the trade-in policy, and believes that a strong new product cycle is expected to bring certainty to the company's sales and profits.

CICC's main views are as follows:

A variety of new energy models have started a strong product cycle, with impressive sales and order performance.

At the beginning of August 2024, the company released the first pure electric A-class SUV Galaxy E5, which is highly competitive in the 10-150,000 yuan price range. According to the Passenger Federation data, the Galaxy E5 sold more than 10,000 in the first month. At the same time, the Yueji Krypton 7X was unveiled at the Chengdu Auto Show. The model excelled in smart driving ability and space. According to the press conference of the new Extreme Krypton 7X, pre-sale of the Extreme Krypton 7X began. As of September 21, the number of orders had exceeded 58,000 units. Linker's first pure electric model, the Z10, debuted in Europe in June 2024 and released in Hangzhou in September of the same year. The model is aimed at the global market. The bank believes that as production capacity climbs, the sales potential of Geely's new models is expected to be further unleashed.

The trade-in policy has boosted demand, and the number of scrapping applications has increased rapidly.

The amount of subsidies under the central government's trade-in policy doubled in July 2024, driving a rapid increase in the amount of scrapped renewals. According to the Ministry of Commerce, from January to July 2024, 3.51 million scrapped vehicles were recycled nationwide, +37% [1]. The number of applications for scrapping subsidies in a single month in July/August 2024 was approximately 250,000 vehicles. At the same time, local governments have followed up and increased replacement subsidies. Overall, the amount of bicycle replacement subsidies ranges from 80 to 16,000 yuan, which is slightly higher for new energy; when combined with national and local subsidies, the amount of subsidies for scrapping and replacing new energy bicycles can reach 30,000 to 40,000 yuan. The bank believes that an increase in the trade-in policy is expected to stimulate replacement demand.

Export sales have been strong, and global endowments have accumulated and been underdeveloped.

Geely's export sales volume in August 2024 was +98%/+39% to 45,045 units, respectively; the cumulative export sales volume in January-August was +71% year-on-year to 275,000 units. According to the company's interim report, the company plans to collaborate with Volvo Cars' channel resources to accelerate the development of the European market. The Linker Joint Venture plans to export Lynk & Co compact pure electric SUVs in 2H24 to explore new energy transformation in the global market. Furthermore, the company is expanding its layout in other markets such as Southeast Asia and South Korea through cooperation with joint ventures such as Proton and Renault Korea. The bank believes that the company has benefited from the accumulation of a global layout and is expected to further open up space to go overseas.