Xiaomo: It is expected that the privatization of Geely Auto (00175) will help enhance collaboration and cost competitiveness, target price of HK$23, rating “increase in holdings”

The Zhitong Finance App learned that J.P. Morgan Chase released a research report saying that Geely Auto (00175) announced plans to privatize ZK.US (ZK.US) yesterday, believing that this move is consistent with the group's overall strategy and aims to enhance the business synergy effects of Geely, Kyocrypton, and Lynk & Co and improve cost competitiveness. Geely also carried out a similar integration last year, making Lynk & Co a subsidiary of Extreme Krypton to avoid overlapping products. The Group also had a profit earlier. It is expected to make a profit of about 5.5 billion yuan in the first quarter of this year, including foreign exchange earnings of nearly 2 billion yuan due to the devaluation of the RMB. The bank now gives Geely a target price of HK$23 and an “plus” rating.

The bank expects most Krypton shareholders to choose to convert their shares into Geely shares, hoping to enjoy Geely's long-term growth potential in domestic and foreign markets. Assuming that all Krypton shareholders choose to exchange shares, the maximum dilution of shares is about 10%. However, the bank believes that the cost savings from the integration of Geely and Krypton businesses, as well as the impact of commercial synergy effects, will exceed the impact of equity dilution in the long run.