FY21 could be the bottom
- FY21 adjusted core net earnings grew 9%
- To optimize product mix; Leishen, Zeekr, Geometry to boost new model launches to 13 in 2022
- Higher vehicle ASP to mitigate cost pressure
- Maintain BUY; new HK$20 TP pegged to 18x FY22F PE
FY21 net earnings disappoint but could be the trough. Higher product ASP lifted automobile sales revenue by c.5% to Rmb88bn despite a shortage of auto chips and flat volume sales at about 1.32m units. Growth of auto related businesses lifted total revenue by 10% to Rmb101bn. GP margin was higher by 1.1ppts to 17%. Looking at the two halves of the year, GP margin was stable despite the sharp spike in commodity prices. Net earnings fell c.12% to Rmb4.8bn and excluding non-cash share-based payments, adjusted net earnings would have increased by c.9% to Rmb6.1bn, but still below market expectations. Geely raised its dividend payout to 35% (HK$0.21final DPS) vs 30% (HK$0.20 DPS) in FY20.
2022 outlook to improve especially in electrified vehicle development. Better product mix is expected to lead to higher GP margins in 2022. Last year was a challenging year on tight chip supply, initial technical problems of its Zeekr brand and rising raw material prices. With the new vehicle platforms ready to support a richer new model pipeline, modular development should accelerate the new model launch pace. In FY22, Geely intends to launch 13 new models, covering PHEV, HEV and BEV developments, with the launch of Leishen Power hybrid system to support Zeekr, Geometry and Lynk brands. In FY21, total electrified vehicle volume sales increased 60% y-o-y to about 104k units. The strong technology backing could potentially double its NEV sales in FY22. The high crude oil price is expected to speed up Leishen Power hybrid technology adoption rate.
Since the launch of Zeekr brand in 4Q21, total EV sales have reached about 15,000 units by end Feb-22. Zeekr is expanding its R&D capability by adding more software engineers (from initial 35% of total R&D staff count to 65% currently) to strengthen the product quality. Vehicle sales momentum is expected to pick up from 2Q22 this should support 70,000 units of sales in FY22, at ASP range of Rmb300-350k/car.
Lynk has also entered the European market and continues to move up the value chain with product ASP above Rmb300,00/car. Lynk plans to roll out two each new and upgrade models every year to broaden its customer reach. With the latest Lynk 09 model in the market, the company target to achieve 30%+ increase in sales to 300,000 units this year.
In FY21, technology services and licensing income surged c.245% to Rmb4.5bn. This segment offers decent growth in the coming years, as Geely continues to ride on its parent’s autonomous vehicle development and IP outsourcing arrangement.
Going global is reaping strong sales. Export sales is an important growth driver, leveraging on Lynk brand to penetrate Europe and Asian markets. Share of export sales rose from 4% in FY19 to 9% in FY21. For 2M22, volume sales expanded by a robust 35%.
Cut TP but maintain BUY. The auto sector has been sold down since the Russia-Ukraine conflict started. Concerns of supply chain disruption and commodity inflation have hit the auto sector performance. We reduced FY22/23F earnings by 15%/10% to factor in higher cost assumptions. Our new TP of HK$20 is pegged to lower target PE of 18x FY22F (prev: 23x). We believe the current valuation should have largely factored in the concerns.