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Tuesday,August9,2016CompanyReportChinaMerchantsSecurities(HK)Co.
,Ltd.
HongKongEquityResearchPleaseseepenultimatepageforadditionalimportantdisclosures.
ChinaMerchantsSecurities(CMS)isaforeignbroker-dealerunregisteredintheUSA.
CMSresearchispreparedbyresearchanalystswhoarenotregisteredintheUSA.
CMSresearchisdistributedintheUSApursuanttoRule15a-6oftheSecuritiesExchangeActof1934solelybyRosenblattSecurities,anSECregisteredandFINRA-memberbroker-dealer.
1GeelyAutomobile(175HK)Platformandhigh-endstrategiesmaturing.
2016-18EstrongearningsgrowthJulysalesgrew64%drivenbySUVnewmodels.
Geelyraisedannualsalestargetby10%to660,000unitsSuccessofplatformandhigh-endstrategiesreflectedbystrongsales.
ThefoundationofhighfuturegrowthisnowsetTPraisedtoHK$7.
0.
Ourestimatesare6-19%aboveconsensusJulysalesgrew64%,Geely'sannualsalestargetup10%Geelyrecordedsalesvolumeof49,000unitsinJuly(+64%YoYor4%MoM).
JulyYTDsaleswas329,000units(+17%YoY),equivalentto55%ofitsannualsalestargetof600,000units.
Julysalesgrowthwasmainlydrivenby:(1)thecombinedmonthlysalesgrowthofSUVandcrossoverSUVat411%YoY;(2)thesalesvolumeofXindihaoat16,000units(+41%YoY)andNewVisionat8,200units(+47%YoY);and(3)thesalesvolumeofBoruiat3,400units,basicallyflatMoMandYoYduetothecapacityconstraintofChunxiaoplant.
High-endstrategysuccessful,newproductsalesbeatBoyuesmonthlysalesvolumehasexceeded10,000unitsandweexpect250,000unitswillbesoldnextyear.
ThesalesvolumegrowthofEmgrandGSisfasterthanexpectedandweestimate8,000-10,000unitswillbesoldbythisyearend.
Since2015,Geelysboutique/high-endstrategyhasbeensuccessful,judgingfromitsrapidlyrisingproportionofhigh-endmodels,theextremelyhighsuccessratesofnewproductsandmarketrecognitionPlatformstrategymaturing,newmodelslaunchingfastGeelywilllaunchitsCMAplatformSUVmodelin1H17(presumablyA+grade).
Asnewmodelsarelaunchingfastwithmuchquickerintroductionofnewproductsandmorecomprehensivecoverage(sedan+SUV+MPV),itsplatformR&Dandproductioncapacityareseentobematuring.
Valuationstillattractivedespiterecentrally.
2017E8.
8xP/Ebelowhistoricalaverage(11.
1x)anditspeers(9.
2x)Onthebackofbetter-than-expectedsales,weraisedGeelys2016-18Esalesby6.
9%/14.
5%/14.
2%andNPby20.
8%/33.
8%/36.
0%,aboveconsensusby6.
4%/12.
8%/19.
0%.
WeraisedTPtoHK$7.
0,implying11.
1xFY17EP/E,closetoitshistoricalaverageof11xforwardP/E.
Stockisat8.
8xFY17EP/E,lowerthanitspeersaverageof9.
2xFY17EP/E.
FinancialsRMBmn201420152016E2017E2018ERevenue21,73830,13842,42363,93279,085Growth(%)-24.
3%38.
6%40.
8%50.
7%23.
7%Netprofit1,4312,2613,5434,7265,784Growth(%)-46.
3%58.
0%56.
7%33.
4%22.
4%EPS(RMB)0.
160.
260.
400.
540.
66DPS(RMB)0.
020.
030.
050.
060.
08P/E(x)29.
018.
411.
78.
87.
2P/B(x)2.
42.
11.
91.
61.
3ROE(%)8.
3%11.
6%16.
3%17.
9%18.
2%Sources:Companydata,CMS(HK)estimatesLiangYonghuo+8675582904571liangy6@cmschina.
com.
cnWHAT'SNEWEarningsandTPupgradedBUYPreviousBUYPriceHK$5.
4912-monthTargetPrice(Potentialup/downside)HK$7.
00(+28%)PreviousHK$5.
20PricePerformanceSource:Bigdata%1m6m12m175HK28.
084.
874.
3HSI6.
714.
8(9.
7)Auto&AutoPartsHangSengIndex22146HSCEI9132KeyData52-weekrange(HK$)2.
4-5.
69Marketcap(HK$mn)48328Avg.
dailyvolume(mn)58.
32BVPS(HK$)2.
22ShareholdingStructureGeelyHolding42.
62%No.
ofsharesoutstanding(mn)8802Freefloat56%RelatedResearchGeelyAutomobile(175HK)-Sitevisittakeaways:Boyuecapacityrampingup;eyeson7DCT2016/7/5GeelyAutomobile(175HK)-SUVproductstofurthergrowonCMAplatform2016/6/8.
GeelyAutomobile(175HK)-SUVseriesenrichedwiththeadditionofEmgrandGS2016/5/6GeelyAutomobile(175HK)–Forexlossalreadypricedin,focusonSUVstrategy2016/1/19GeelyAutomobile(175HK)-High-endproductlineswellestablished2015/10/13-40-20020406080100Aug/15Nov/15Mar/16Jul/16(%)175HSIIndexTuesday,August9,2016Thisisanextractfrom"吉利汽车(175HK)-平台化战略及高端化路线趋于成熟,2016-18E利润强劲增长"datedAug.
8,20162Figure1:GeelysmonthlysalesvolumeFigure2:Rapidgrowthinnetprofit(RMBmillion)Sources:Companydata,CMS(HK)Sources:Companydata,CMS(HK)Figure3:GrowthinautosalesFigure4:ASPcontinuestoriseSources:Companydata,CMS(HK)Sources:Companydata,CMS(HK)Figure5:Growthinhigh-endautosales(%oftotal)Figure6:GrossandNetprofitmarginSources:Companydata,CMS(HK)Sources:Companydata,CMS(HK)-10%0%10%20%30%40%50%60%70%80%010,00020,00030,00040,00050,00060,00070,000Jan-15Feb-15Mar-15Apr-15May-15Jun-15Jul-15Aug-15Sep-15Oct-15Nov-15Dec-15Jan-16Feb-16Mar-16Apr-16May-16Jun-16Jul-16Monthlysales(units,LHS)Growth(%,RHS)-60%-40%-20%0%20%40%60%80%01,0002,0003,0004,0005,0006,0007,00020122013201420152016E2017E2018ENetprofit(RMBmn,LHS)Growth(%,RHS)-30%-20%-10%0%10%20%30%40%0200,000400,000600,000800,0001,000,0001,200,00020122013201420152016E2017E2018Esalesvolume(units,LHS)Growth(%,RHS)0%2%4%6%8%10%12%14%16%18%20%010203040506070809020122013201420152016E2017E2018EASP(RMBk,LHS)Growth(%,RHS)0%20%40%60%80%100%20122013201420152016E2017E2018EEmgrandGC9SUVEVLowendmodels18.
4%20.
1%18.
2%17.
9%18.
5%18.
9%19.
1%8.
3%9.
3%6.
6%7.
5%8.
4%7.
4%7.
3%0%5%10%15%20%25%20122013201420152016E2017E2018EGPMNPMTuesday,August9,2016ToaccessourresearchreportsontheBloombergterminal,typeCMHK3FinancialSummaryBalancesheetRMBmillion201420152016E2017E2018ECurrentassets25,30325,34834,61351,35065,045Cashandcashequivalents7,2039,16711,92817,21722,850Restrictedbankdeposits4741414141Tradereceivables16,38514,83620,88431,47238,932OtherreceivablesInventories1,6201,2261,7172,5763,179Othercurrentassets4878434444Non-currentassets11,97716,94518,22220,35322,273Property,Plant&Eqt.
5,8618,0347,8128,7009,513Leasehold&landuserights1,1311,5381,1291,1311,133Intangibleassets4,2085,2607,1908,4319,536InvestmentsinJVs4391,7091,7091,7091,709Othernon-currentassets338403381381381Totalassets37,28042,29252,83571,70387,318Currentliabilities17,84520,44928,69442,95553,004Tradepayables17,01720,11428,16942,25552,147Otherpayables&accrualsCurrentincometaxliabilities137335525700857Short-termloans6920000Othercurrentliabilities-000-00Non-currentliabilities1,9692,1042,1042,1042,104BorrowingsDeferredincometaxliabilities149175175175175Othercurrentliabilities1,8201,9291,9291,9291,929Totalliabilities19,81422,55330,79845,05955,108Issuedsharecapital161161161161161Otherreserves17,12719,36221,63526,19131,697RetainedearningsEquityattrtoshareholders17,28819,52421,79626,35331,858MinorityInterests178216241291352Totalequity17,46619,74022,03726,64432,210Totalliabilitiesandequity37,28042,29252,83571,70387,318StatementofcashflowRMBmillion201420152016E2017E2018ECashflowfromOA2,0337,4096,8069,53610,070Profitbeforetax1,9432,8754,5066,0117,356Deprec&Amort8741,1431,6351,8692,080Changesinworkingcapital2,5307,8327,46910,42111,152Others-3,314-4,441-6,804-8,764-10,518CashflowfromIA-1,468-4,534-3,703-3,753-3,803Capitalexpenditure-2,185-3,677-3,965-3,965-3,965Acquisitionofassets00000Changesininvestment0-720000Others718-138262212162CashflowfromFA1,172-931-342-494-634IssueofnewsharesNetborrowings-274-692000Dividendpaid-320-174-267-419-559Otherfinancingactivities1,766-65-75-75-75Netincreaseincash1,7371,9442,7615,2895,633Endingcash&equivalents7,2039,16711,92817,21722,850StatementofprofitRMBmillion201420152016E2017E2018ESalesrevenue21,73830,13842,42363,93279,085Costofsales-17,776-24,668-34,545-51,820-63,951Grossprofit3,9635,4717,87712,11215,134Distributioncosts-1,250-1,568-2,333-3,580-4,429Administrativeexpenses-1,772-2,176-2,437-3,836-4,745Otherincome1,0551,0661,2731,2791,344Operatingprofit1,9112,7254,3095,8997,226FinanceincomeFinancecostsNetfinancecosts-24-6-9-14-17AVsinvestmentincome942444851JVsinvestmentincome231081536479PBT1,9432,8754,5066,0117,356Incometaxpayable-494-586-919-1,225-1,500Profitfortheyear1,4492,2893,5874,7855,856Minorityinterest1928445972Profitattrtoshareholders1,4312,2613,5434,7265,784EPS(RMB)0.
160.
260.
400.
540.
66Keyratios201420152016E2017E2018EYoYGrowthOperatingrevenue-24.
3%38.
6%40.
8%50.
7%23.
7%Operatingprofit-42.
3%42.
6%58.
1%36.
9%22.
5%Netprofit-46.
3%58.
0%56.
7%33.
4%22.
4%ProfitabilityGrossprofitmargin18.
2%18.
2%18.
6%18.
9%19.
1%Operatingprofitmargin8.
8%9.
0%10.
2%9.
2%9.
1%Netprofitmargin6.
6%7.
5%8.
4%7.
4%7.
3%ROE8.
3%11.
6%16.
3%17.
9%18.
2%ROA3.
8%5.
3%6.
7%6.
6%6.
6%SolvencyDebttoasset53.
1%53.
3%58.
3%62.
8%63.
1%Netdebtratio-37.
7%-47.
0%-54.
7%-65.
3%-71.
7%Currentratio1.
421.
241.
211.
201.
23Quickratio1.
331.
181.
151.
141.
17OperationalcapacityAssetsturnoverdays224276326375363Inventoryturnoverdays3521161516Receivablesturnoverdays262189154149162Payablesturnoverdays340275255248269Pershareratio(RMB)EPS0.
160.
260.
400.
540.
66CFPS0.
821.
041.
361.
962.
60BVPS1.
962.
222.
482.
993.
62DPS0.
020.
030.
050.
060.
08ValuationratiosP/E29.
018.
411.
78.
87.
2P/B2.
42.
11.
91.
61.
3Sources:Companydata,CMS(HK)estimatesTuesday,August9,2016ToaccessourresearchreportsontheBloombergterminal,typeCMHK4InvestmentRatingsIndustryRatingDefinitionOVERWEIGHTExpectsectortooutperformthemarketoverthenext12monthsNEUTRALExpectsectortoperformin-linewiththemarketoverthenext12monthsUNDERWEIGHTExpectsectortounderperformthemarketoverthenext12monthsCompanyRatingDefinitionBUYExpectstocktogenerate10%+returnoverthenext12monthsNEUTRALExpectstocktogenerate+10%to-10%overthenext12monthsSELLExpectstocktogeneratelossof10%+overthenext12monthsAnalystDisclosureTheanalystsprimarilyresponsibleforthepreparationofallorpartoftheresearchreportcontainedhereinherebycertifythat:(i)theviewsexpressedinthisresearchreportaccuratelyreflectthepersonalviewsofeachsuchanalystaboutthesubjectsecuritiesandissuers;and(ii)nopartoftheanalystscompensationwas,is,orwillbedirectlyorindirectly,relatedtothespecificrecommendationsorviewsexpressedinthisresearchreport.
RegulatoryDisclosurePleaserefertotheimportantdisclosuresonourwebsitehttp://www.
newone.
com.
hk/cmshk/en/disclosure.
html.
DisclaimerThisdocumentispreparedbyChinaMerchantsSecurities(HK)Co.
,Limited("CMSHK").
CMSHKisalicensedcorporationtocarryonType1(dealinginsecurities),Type2(dealinginfutures),Type4(advisingonsecurities),Type6(advisingoncorporatefinance)andType9(assetmanagement)regulatedactivitiesundertheSecuritiesandFuturesOrdinance(Chapter571).
Thisdocumentisforinformationpurposeonly.
Neithertheinformationnoropinionexpressedshallbeconstrued,expresslyorimpliedly,asanadvice,offerorsolicitationofanoffer,invitation,advertisement,inducement,recommendationorrepresentationofanykindorformwhatsoevertobuyorsellanysecurity,financialinstrumentoranyinvestmentorotherspecificproduct.
Thesecurities,instrumentsorstrategiesdiscussedinthisdocumentmaynotbesuitableforallinvestors,andcertaininvestorsmaynotbeeligibletoparticipateinsomeorallofthem.
Certainservicesandproductsaresubjecttolegalrestrictionsandcannotbeofferedworldwideonanunrestrictedbasisand/ormaynotbeeligibleforsaletoallinvestors.
CMSHKisnotregisteredasabroker-dealerintheUnitedStatesanditsproductsandservicesarenotavailabletoU.
S.
personsexceptaspermittedunderSECRule15a-6.
Theinformationandopinions,andassociatedestimatesandforecasts,containedhereinhavebeenobtainedfromorarebasedonsourcesbelievedtobereliable.
CMSHK,itsholdingoraffiliatedcompanies,oranyofitsortheirdirectors,officersoremployees("CMSGroup")donotrepresentorwarrant,expresslyorimpliedly,thatitisaccurate,correctorcompleteanditshouldnotbereliedupon.
CMSGroupwillnotacceptanyresponsibilityorliabilitywhatsoeverforanyuseoforrelianceuponthisdocumentoranyofthecontentthereof.
Thecontentsandinformationinthisdocumentareonlycurrentasofthedateoftheirpublicationandwillbesubjecttochangewithoutpriornotice.
Pastperformanceisnotindicativeoffutureperformance.
Estimatesoffutureperformancearebasedonassumptionsthatmaynotberealized.
Theanalysiscontainedhereinisbasedonnumerousassumptions.
Differentassumptionscouldresultinmateriallydifferentresults.
OpinionsexpressedhereinmaydifferorbecontrarytothoseexpressedbyotherbusinessdivisionsorothermembersofCMSGroupasaresultofusingdifferentassumptionsand/orcriteria.
Thisdocumenthasbeenpreparedwithoutregardtotheindividualfinancialcircumstancesandinvestmentobjectivesofthepersonswhoreceiveit.
Useofanyinformationhereinshallbeatthesolediscretionandriskoftheuser.
Investorsareadvisedtoindependentlyevaluateparticularinvestmentsandstrategies,takefinancialand/ortaxadviceastotheimplications(includingtax)ofinvestinginanyofthesecuritiesorproductsmentionedinthisdocument,andmaketheirowninvestmentdecisionswithoutrelyingonthispublication.
CMSGroupmayhavealongorshortposition,makemarkets,actasprincipaloragent,orengageintransactionsinsecuritiesofcompaniesreferredtointhisdocumentandmayalsoperformorseektoperforminvestmentbankingservicesorprovideadvisoryorotherservicesforthosecompanies.
Thisdocumentisfortheuseofintendedrecipientsonlyandthisdocumentmaynotbereproduced,distributedorpublishedinwholeorinpartforanypurposewithoutthepriorconsentofCMSGroup.
CMSGroupwillnotbeliableforanyclaimsorlawsuitsfromanythirdpartiesarisingfromtheuseordistributionofthisdocument.
Thisdocumentisfordistributiononlyundersuchcircumstancesasmaybepermittedbyapplicablelaw.
ThisdocumentisnotdirectedatyouifCMSGroupisprohibitedorrestrictedbyanylegislationorregulationinanyjurisdictionfrommakingitavailabletoyou.
Inparticular,thisdocumentisonlymadeavailabletocertainUSpersonstowhomCMSGroupispermittedtomakeavailableaccordingtoUSsecuritieslaws,butcannototherwisebemadeavailable,distributedortransmitted,whetherdirectlyorindirectly,intotheUSortoanyUSperson.
Thisdocumentalsocannotbedistributedortransmitted,whetherdirectlyorindirectly,intoJapanandCanadaandnottothegeneralpublicinthePeoplesRepublicofChina(forthepurposeofthisdocument,excludingHongKong,MacauandTaiwan).
Tuesday,August9,2016ToaccessourresearchreportsontheBloombergterminal,typeCMHK5ImportantDisclosuresforU.
S.
PersonsThisresearchreportwaspreparedbyCMSHK,acompanyauthorizedtoengageinsecuritiesactivitiesinHongKong.
CMSHKisnotaregisteredbroker-dealerintheUnitedStatesand,therefore,isnotsubjecttoU.
S.
rulesregardingthepreparationofresearchreportsandtheindependenceofresearchanalysts.
Thisresearchreportisprovidedfordistributionsolelyto"majorU.
S.
institutionalinvestors"inrelianceontheexemptionfromregistrationprovidedbyRule15a-6oftheU.
S.
SecuritiesExchangeActof1934,asamended(the"ExchangeAct").
AnyU.
S.
recipientofthisresearchreportwishingtoeffectanytransactiontobuyorsellsecuritiesorrelatedfinancialinstrumentsbasedontheinformationprovidedinthisresearchreportshoulddosoonlythroughRosenblattSecuritiesInc,20BroadStreet26thFloor,NewYorkNY10005,aregisteredbrokerdealerintheUnitedStates.
UndernocircumstancesshouldanyrecipientofthisresearchreporteffectanytransactiontobuyorsellsecuritiesorrelatedfinancialinstrumentsthroughCMSHK.
RosenblattSecuritiesInc.
acceptsresponsibilityforthecontentsofthisresearchreport,subjecttothetermssetoutbelow.
TheanalystwhosenameappearsinthisresearchreportisnotregisteredorqualifiedasaresearchanalystwiththeFinancialIndustryRegulatoryAuthority("FINRA")andmaynotbeanassociatedpersonofRosenblattSecuritiesInc.
and,therefore,maynotbesubjecttoapplicablerestrictionsunderFINRARulesoncommunicationswithasubjectcompany,publicappearancesandtradingsecuritiesheldbyaresearchanalystaccount.
OwnershipandMaterialConflictsofInterestRosenblattSecuritiesInc.
oritsaffiliatesdoesnotbeneficiallyown,asdeterminedinaccordancewithSection13(d)oftheExchangeAct,1%ormoreofanyoftheequitysecuritiesmentionedinthereport.
RosenblattSecuritiesInc,itsaffiliatesand/ortheirrespectiveofficers,directorsoremployeesmayhaveinterests,orlongorshortpositions,andmayatanytimemakepurchasesorsalesasaprincipaloragentofthesecuritiesreferredtoherein.
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isnotawareofanymaterialconflictofinterestasofthedateofthispublication.
CompensationandInvestmentBankingActivitiesRosenblattSecuritiesInc.
oranyaffiliatehasnotmanagedorco-managedapublicofferingofsecuritiesforthesubjectcompanyinthepast12months,norreceivedcompensationforinvestmentbankingservicesfromthesubjectcompanyinthepast12months,neitherdoesitoranyaffiliateexpecttoreceive,orintendstoseekcompensationforinvestmentbankingservicesfromthesubjectcompanyinthenext3months.
AdditionalDisclosuresThisresearchreportisfordistributiononlyundersuchcircumstancesasmaybepermittedbyapplicablelaw.
Thisresearchreporthasnoregardtothespecificinvestmentobjectives,financialsituationorparticularneedsofanyspecificrecipient,evenifsentonlytoasinglerecipient.
Thisresearchreportisnotguaranteedtobeacompletestatementorsummaryofanysecurities,markets,reportsordevelopmentsreferredtointhisresearchreport.
NeitherCMSHKnoranyofitsdirectors,officers,employeesoragentsshallhaveanyliability,howeverarising,foranyerror,inaccuracyorincompletenessoffactoropinioninthisresearchreportorlackofcareinthisresearchreportspreparationorpublication,oranylossesordamageswhichmayarisefromtheuseofthisresearchreport.
CMSHKmayrelyoninformationbarriers,suchas"ChineseWalls"tocontroltheflowofinformationwithintheareas,units,divisions,groups,oraffiliatesofCMSHK.
Investinginanynon-U.
S.
securitiesorrelatedfinancialinstruments(includingADRs)discussedinthisresearchreportmaypresentcertainrisks.
Thesecuritiesofnon-U.
S.
issuersmaynotberegisteredwith,orbesubjecttotheregulationsof,theU.
S.
SecuritiesandExchangeCommission.
Informationonsuchnon-U.
S.
securitiesorrelatedfinancialinstrumentsmaybelimited.
ForeigncompaniesmaynotbesubjecttoauditandreportingstandardsandregulatoryrequirementscomparabletothoseineffectwithintheUnitedStates.
ThevalueofanyinvestmentorincomefromanysecuritiesorrelatedfinancialinstrumentsdiscussedinthisresearchreportdenominatedinacurrencyotherthanU.
S.
dollarsissubjecttoexchangeratefluctuationsthatmayhaveapositiveoradverseeffectonthevalueoforincomefromsuchsecuritiesorrelatedfinancialinstruments.
Pastperformanceisnotnecessarilyaguidetofutureperformanceandnorepresentationorwarranty,expressorimplied,ismadebyCMSHKwithrespecttofutureperformance.
Incomefrominvestmentsmayfluctuate.
Thepriceorvalueoftheinvestmentstowhichthisresearchreportrelates,eitherdirectlyorindirectly,mayfallorriseagainsttheinterestofinvestors.
Anyrecommendationoropinioncontainedinthisresearchreportmaybecomeoutdatedasaconsequenceofchangesintheenvironmentinwhichtheissuerofthesecuritiesunderanalysisoperates,inadditiontochangesintheestimatesandforecasts,assumptionsandvaluationmethodologyusedherein.
Nopartofthecontentofthisresearchreportmaybecopied,forwardedorduplicatedinanyformorbyanymeanswithoutthepriorconsentofCMSHKandCMSHKacceptsnoliabilitywhatsoeverfortheactionsofthirdpartiesinthisrespect.
HongKongChinaMerchantsSecurities(HK)Co.
,Ltd.
Address:48/F,OneExchangeSquare,Central,HongKongTel:+85231896888Fax:+85231010828