Geely’s 4Q24 net profit was a mixed bag with many moving parts. GPM beat in 4Q24, which gives us more confidence in both NEV and ICE margins in FY25E. We are more positive than management in Geely and Galaxy sales volume but more conservative on Zeekr and Lynk & Co. We believe Geely is still well- positioned to withstand the rising competition, aided by its economies of scale.
4Q24 GPM beat. Geely’s 4Q24 revenue was about 6% lower than our prior forecast, mainly due to Viridi’s sales decline. 4Q24 GPM of 17.3% beat our prior forecast by 1.2ppts, leading to an in-line gross profit. Net profit in 4Q24 was mixed, as the forex loss and intangible asset impairment were offset by gains from partial disposal of equity-method entities and fair value change in Horse Powertrain joint venture (JV). Net profit excluding forex loss and fair value gains from Horse Powertrain was about RMB9.2bn in FY24, slightly higher than our prior forecast.
　　FY25 outlook. We raise our FY25E sales volume forecast from 2.46mn units to 2.74mn units, following strong momentum in the first two months of 2025. Unlike management’s guidance, we are more positive about Geely and Galaxy brands with a forecast of 2.13mn units, following the success of the recent new models, but a bit concerned about Zeekr (0.27mn units) and Lynk & Co (0.34mn units). We project FY25E GPMs for Galaxy and Geely brands to widen by 3.2ppts YoY and 0.3ppts YoY, respectively, taking greater economies of scale, lowered export portion and rising competition into consideration. We expect Zeekr’s (incl. Lynk & Co) GPM to fall YoY, as Lynk & Co may drag it down in FY25E during its transition. Therefore, we project Geely’s overall GPM to narrow by 0.4ppts YoY to 15.5% in FY25E, despite management guidance of a YoY improvement. On the other hand, we expect impairment and share-based payment to decline significantly in FY25E. That, along with a possible forex gain, could lift its FY25E net profit.
　　Valuation/Key risks. We raise our FY25E net profit estimates by 7% to RMB14.6bn. We maintain our BUY rating and raise our target price from HK$19.00 to HK$23.00, based on our sum-of-the-parts valuation. We value Zeekr at 0.6x (prior 0.7x) our revised FY25E core revenue, which implies US$8.5bn for Zeekr’s valuation. We lower our multiple to reflect some challenges that Zeekr may face this year, including rising competition and how to turn around Lynk & Co. We value Geely’s all other businesses excluding Zeekr at 12x (unchanged) FY25E P/E. Key risks to our rating and target price include lower sales volume and GPM than we expect, slower catch up in autonomous driving than we expect and a sector de-rating.