Three Major Causes for the Sharp Decline of Sales in February

Recently, Geely Auto has released the latest data of its sales; in February, it sold 33,327 units, up by 1% on a year-on-year basis, while down 45% from the last month. We believe that the sharp decline from last month can be attributed to the following three major factors:

1) There were fewer days in February than in other months;

2) There were fewer work days in February than in January due to the Spring Festival holiday;

3) Under the influence of the Spring Festival holiday in February, people preferred large-space vehicles, such as SUVs, when they travelled back to their hometowns or took trips, but as Geely Auto had sedans as its main models , it was less competitive than its peers in terms of SUVs.

The above 3 points explained why Geely Auto had an unsatisfactory performance in February's month-on-month growth rates, and we have found that this is also a regular pattern for the Geely Auto's data in the previous years. 

Baton Passed to the New "Jingang”, Breaking Domestic Sales Record

In the first two month of 2016, Geely Auto had a cumulative sales volume of 93,420 units, increasing by 2% on year-on-year basis. While its export volume fell by 41% to 4,070 units on year-on-year basis, the domestic sales volume reached the highest level of 89,350 units.

In January and February, the combined sales volume of EC7 and the new Emgrand increased by 2% on year-on-year basis to 36,748 units; the combined sales volumes of SUV models, including GX7, SX7, and GX9, declined by 36% on year-on-year basis to 7,735 units; the combined sales of Yuan Jing and its new version jumped by 22% to 23,025 units; the combined sales volume of Jingang and its new version received a facelift rose by 35% to 15,565 units. In last April, Geely Auto unveiled its first B-level sedan, GC9, and the sales of the model increased month by month. In January and February this year, 6,001 and 2,615 units were sold, respectively.

In late March this year, we will introduce Bo Yue, a new SUV model. Besides, a small SUV will be brought to the public in the second half of this year, which will help Geely Auto to gain more profits from the prosperous SUV market in China. Jingang with a facelift is expected to get the baton from Emgrand and bring a new driving power for the 2016 sales.

Investment Thesis

We shall maintain the rating of "Accumulate" but lift the company's target price at HK$ 4.05, equivalent to 11x estimated P/E ratio of 2016. (Closing price as at 23 March 2016)

Financials

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