野村繼續看好吉利

吉利(0175)仍然是野村的行業首選，要點是 “A balanced product line-up with strong sedans, Lynk upside and untapped overseas markets”。

We reiterate our positive stance on Geely, as its robust 1H18 results (net profits +54% y-y; in line; Fig 1) demonstrated further fundamental strength: sales volume +44% y-y, ASP +0.3% y-y, GPM +1.0pp (better than our assumed +0.6pp), selling expense ratio -0.2pp: none of these was an easy feat in view of the intense price competition in a slowing China auto market, especially within the SUV segment. We have argued that Geely’s balanced product line-up with a strong sedan exposure should help withstand such industry adjustment, which has been reaffirmed by its 1H18 performance metrics (link to our report: SUV vs sedan - Inflection point reached?). We raise our FY18F/19F earnings estimates by 7%/2% to reflect 1% higher ASP (less discounting for sedans) and 0.4pp higher GPM.

What is also reassuring to us is that Lynk posted an in-line profitable result in its maiden half-yearly results (still small at CNY171m attributable to Geely’s 50% stake), which we believe could help dispel investors’ fear of initial losses. Continued new model launches (Fig. 3) should lead to operational leverage.

目前市場應該是對吉利的海外擴張野心還沒有給予任何正面估值的，但野村認為這是一個“真正”和“長期”的機遇。

Overseas markets a real long-term growth opportunity 
Looking beyond the domestic market, investors should also take note of Geely’s long-term growth potential in overseas markets: 1) export volumes returned to a robust 126% y-y growth in 1H18, recovering from a 48% y-y decline in FY17. The start of production of the Boyue SUV (renamed the Atlas for the Russian market) at the new Belarus plant could present further upside surprise for export volumes from 2H18F; 2) Geely has the option to acquire its parent’s 49.9%/51% interests in Proton/Lotus when they turn profitable. Its parent is busy overhauling Proton production facilities in Malaysia and considering increase its investments in Lotus.

Valuation: Trading at 8x FY19F P/E
After factoring in our new earnings estimates but a weaker CNY/HKD forex rate, our TP remains HKD34.4, based on 16.6x FY19F P/E (+1SD above mean; CNY1.80).