Geely Earnings: Gross Margin and Profit Beat; Shares Undervalued

No-moat Geely posted a stronger-than-expected gross margin for the second half last year with a 2-percentage-point gain from a year ago. While revenue was largely in line, the margin beat was impressive, considering last year’s fierce price competition. Dragged by higher selling and marketing expenses and Lynk & Co equity loss, net profit only rose 1% year over year for the second half. However, excluding the one-off gain in 2022, second-half core net profit was up 91% from the same period last year. Still, we reduce our fair value estimate marginally to HKD 14.20 as well as our 2024-25 net profit forecasts, with higher operating costs offsetting gross margin improvement.