CICC: Maintaining Geely Auto's (00175) “Outperform the Industry” rating target price of HK$21.06

The Zhitong Finance App learned that CICC released a research report stating that it will keep Geely Auto (00175)'s profit forecast unchanged for 2025 and 2026. The current stock price corresponds to the 2025/2026 price-earnings ratio of 11.4 times/9.4 times. Maintaining an outperforming industry rating and a target price of HK$21.06, corresponding to 14.3 times the 2025 price-earnings ratio and 11.8 times the 2026 price-earnings ratio, with 25.5% upside compared to the current stock price.

CICC's main views are as follows:

The company's recent situation

The company issued an announcement stating that it intends to privatize Extreme Krypton and plans to acquire all issued and previously issued Extreme Krypton shares and American Depositary Shares (with the exception of beneficial owners of the Group). The company suggests using $2.566 per share or $25.66 per American Depositary Share as the valuation of Extreme Krypton, a 13.6% premium over the latest closing price of $22.59.

The “Taizhou Declaration” is one more city, and “One Geely” completes key steps

Since the release of the “Taizhou Declaration” in September 2024, Geely Group has completed important measures such as brand and product line integration, smart driving smart cabin technology and R&D system integration, and optimization of the supply chain and procurement system around the core goal of “strategic integration and focus on the main business”. The bank believes that the privatization of Krypton is a further deepening implementation of the “Taizhou Declaration” to face the current competitive pressure in the passenger car market with a more competitive combination. Geely has strong manufacturing, R&D and supply chain group advantages. The bank believes that the “Taizhou Declaration” is expected to make better use of the Group's advantages Lean brand Market share is more guaranteed.

Geely's medium- to long-term benefits may gradually be realized, and short-term financial pressure is manageable

As far as Geely Group is concerned, the bank believes that the privatization of Krypton will avoid repeated investment by the group and reduce questions about internal brand positioning and resource allocation due to slight overlap in price segments. The image of “One Geely” will be strengthened, and a clearer management organization structure can further gain the trust of the capital market. The bank expects that listed companies may face some financial pressure in the short term. Currently, Geely Auto holds about 65.7% of Geely Krypton's shares. Based on the calculation of 2.566 US dollars/share, the consideration to be paid is about 2.24 billion US dollars, about 16.2 billion yuan. The company's cash and equivalent at the end of the 2024 period will exceed 40 billion yuan, and the financial pressure on the company is still within a manageable range.

Far from the noise of the capital market, Krypton is expected to focus more on cutting-edge technology

The bank believes that the privatization of Extreme Krypton itself will also bring great benefits, away from the capital market's concern about short-term fluctuations in Krypton, and may enable Krypton to focus more on the research and development of cutting-edge smart electric technology. Previously, there were many questions in the market about the product positioning of GKrypton, Lynk & Co, and Galaxy, and the group's resource allocation issues, all of which were reflected in GKrypton's stock price fluctuations. After privatization, the bank believed that Extreme Krypton would be expected to stay away from noise, focus on the main business, and establish a leading position in high-end smart electric vehicles.