Chinese carmaker Geely seen attractive as positive profit alert shows strong earnings

Chinese carmaker Geely Automobile is recommended as a “Buy” by investment banks as its recent positive profit alert suggests better-than-consensus earnings growth.

After the market closed last Friday, the company issued an alert saying it expects net profit for 2016 to increase more than 100 per cent year on year.

“This implies 2016 net profit would be at least 4.52 billion yuan, 6 per cent higher than consensus earnings,” HSBC car industry analyst Carson Ng wrote in a report.

Geely cited a significant increase in overall sales volume and the improvement in product mix as key reasons for the profit growth. “It reaffirmed our view that the 50 per cent year-on-year volume growth in 2016 and rising SUV contribution from 11.8 per cent in 2015 to 30.6 per cent in 2016, has driven the company’s revenue growth and ebit margin improvement,” Ng added.

Lo Ka-leong, an analyst from Kim Eng Securities, also raised estimated earnings and lifted its target price following Geely’s statement.

The strong results were driven by a significant increase in sales and expansion in profit margins due to product-mix improvement and scale benefits, he said.

Kim Eng Securities reiterated its “Buy” rating based on Geely’s strong product cycle and the fact that the market doesn’t “fully appreciate” its solid margin outlook.