Launching 10 NEV Models In 2025 Will Expand Global Market Reach

Key Takeaways

• Launching new NEV models and expanding globally will positively impact revenue through increased market penetration and sales volume.
  
• Merging Zeekr and Lynk & Co aims to reduce costs, enhance earnings, and improve efficiency through lower R&D and operational expenses.
  
• Intense market competition and a shift towards NEVs could pressure Geely's pricing, profit margins, and alignment with market trends, affecting overall growth and profitability.

Catalysts

An investment holding company, operates as an automobile manufacturer primarily in the People’s Republic of China.

• Geely's strategy of launching 10 new NEV models in 2025 and continuing global expansion is likely to impact revenue positively by increasing market penetration and sales volume.
  
• The integration of smart driving technologies, including AI applications and autonomous driving features, is expected to enhance the product offering, potentially leading to higher average selling prices and improved net margins.
  
• The merger of Zeekr and Lynk & Co is aimed at reducing R&D expenses and operational costs, which should enhance earnings through improved efficiency and lower cost structures.
  
• Geely's plan to increase exports significantly and to focus on high-growth regions such as the Middle East and Eastern Europe suggests a strong potential for revenue growth from international markets.
  
• The continued emphasis on ESG practices and sustainability may enhance Geely's brand value and appeal to environmentally conscious consumers, which could drive higher revenue and potentially improve net margins by tapping into premium market segments.

Geely Automobile Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Geely Automobile Holdings's revenue will grow by 21.6% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 8.1% today to 4.8% in 3 years time.
• Analysts expect earnings to reach CN¥22.0 billion (and earnings per share of CN¥2.16) by about July 2028, up from CN¥20.6 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting CN¥31.6 billion in earnings, and the most bearish expecting CN¥15.5 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.9x on those 2028 earnings, up from 8.2x today. This future PE is lower than the current PE for the HK Auto industry at 22.9x.
• Analysts expect the number of shares outstanding to grow by 0.12% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.39%, as per the Simply Wall St company report.

Geely Automobile Holdings Future Earnings Per Share Growth

Risks

• Intense competition in the domestic and international markets, especially in new energy vehicles (NEVs), could pressure pricing and profit margins, impacting earnings.
  
• The profitability and success of their autonomous driving initiatives remain uncertain, and any delays or failures could limit revenue growth.
  
• Geely's reliance on expanding exports in regions with fluctuating demand due to macroeconomic factors may affect sales volume and profitability.
  
• The integration of their international operations and brands like Lynk & Co and Zeekr involves execution risk and may not generate the expected cost efficiencies, impacting net margins.
  
• The continued focus on internal combustion engines (ICE) amidst a global shift towards NEVs could result in a mismatch with market trends, potentially impacting revenue growth.

Valuation

• The analysts have a consensus price target of HK$24.875 for Geely Automobile Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of HK$34.97, and the most bearish reporting a price target of just HK$15.03.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CN¥458.1 billion, earnings will come to CN¥22.0 billion, and it would be trading on a PE ratio of 14.9x, assuming you use a discount rate of 12.4%.
• Given the current share price of HK$18.34, the analyst price target of HK$24.87 is 26.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.