In 4Q24, Geely’s total revenue rose by 20.1% QoQ to RMB72.5bn, below the sales volume growth of 28.6% QoQ at the consolidated level, due to decreased non-vehicle revenue contribution and product mix changes under ZEEKR and Galaxy. If excluding several non-recurring factors, 4Q24 adjusted net profit would be RMB3.7bn (vs. RMB 3.0bn in 3Q24), beyond our prior anticipation. To reflect stronger profitability for Galaxy NEV models and higher OPEX savings post new ZEEKR integration, we raise our net profit forecasts for 2025-26E by 6-12% to RMB14.0bn/16.9bn. We deem its current valuation (12x 2025E P/E) has yet to reflect its earnings potential and late-comer edges to catch up in vehicle intelligence race underway. We anticipate the robust earnings growth in coming quarters and intensive new launches with upgraded AD specs powered by self-developed Qianli Haohan smart driving suites in 2H25 is likely to further drive Geely’s stock rerating process. Hence, by adopting higher P/E multiples of 18x (vs.15x previously) 2025E P/E, we lift our TP to HK$27.00. Reiterate BUY.
　　Key Factors for Rating
　　4Q24 core earnings beat expectations. In 4Q24, total revenue rose by 20.1% QoQ to RMB72.5bn, below the sales volume growth of 28.6% QoQ at the consolidated level, due to (i) both decreases in ZEEKR’s vehicle ASP and non-vehicle revenue contribution, and (ii) softer product mix for non-ZEEKR models as the delivery ramp up of cheaper StarWish dragged the blended ASP down RMB6.6k from 3Q24. Gross margin expanded 1.7ppts QoQ to 17.3%, thanks to scale of economics and improved profitability of Galaxy. If excluding non-recurring factors that contain additional gains on deemed disposal of Horse Powertrain (RMB1.6bn), impairment loss (c.RMB800m) and after-tax FX losses primarily caused by Rubble depreciation (c.RMB1.2bn), the adjusted net income would be RMB3.7bn (vs RMB 3.0bn in 3Q24), above our prior anticipation.
　　4Q24 gross margin well expanded QoQ driven by improving NEV profitability under Galaxy brand and stronger profit contribution from ZEEKR’s non-vehicle business. For ZEEKR brand, 4Q24 gross margin trended 3ppts up QoQ to 19.0%, smashing our forecasts on stronger gross margin from non-vehicle business which surged from 17.4% in 3Q24 to 28% in 4Q24. The gross margin for non-ZEEKR segment (mainly Geely-brand + Galaxy brand) added 1.2ppts QoQ to 16.6%, supported by better scale effect and improving NEV profitability. During the earnings call, the mgmt. indicated that the GEA3.0 platform models have already presented decent profitability in 4Q24 with gross margin on par with ICE (vs. single-digit in 9M24). Moving forward, despite stiffer pricing competition, the mgmt. expected the full-year gross margin to continue expansion from 15.9% in 2024, driven by enhanced economies of scale, improving sales structure (by models/regions), as well as supply-chain cost savings, which we deem attainable.
　　Set to lead the popularisation of smart driving techs with full-scope AI ecosystem deployment. In terms of computational power, Geely has upgraded its Cloud-Data-Intelligent Integration Super Smart Computing Center and the Xingrui Intelligent Computing Center 2.0 via the alliance with ecosystem sister companies Qianli Technology and StepFun, and topped domestic carmakers ranking with richest AI computational power of 23.5EFLOPS. In terms of smart driving algorithms, Geely has launched the world's first full- scenario AI large model in the automotive industry - the Geely Xingrui AI Large Model, which has been deeply integrated with DeepSeek R1 to provide industry- leading vehicle intelligence functions. In terms of training data, Geely accumulatively owns more than 7.5m vehicles with L2 and above smart driving capability on road, with the real-world driving data surpassing 10bn kilometers. In terms of AI applications, Geely has released unified smart driving suites Qianli Haohan platform (incl. H1/H3/H5/H7/H9 solution) to empower Geely/ZEEKR/Lynk&Co models with competitive AD specs in different sub- segments, aiming to promote the popularisation of advanced smart driving with reliable driving safety. We deem the full-scope AI ecosystem deployment and fruitful outcome have well evidenced the company’s visionary move and dedicated efforts to defend the tech leadership in on-going vehicle intelligence race. With the rich new model pipelines and effective product upgrades powered by full-scope AI technologies (i.e. Qianli Haohan AD system), we render Geely is poised to enhance brand awareness and long-term tech leadership.
　　Valuation
　　We have yet to factor into the consolidation of Lynk&Co under ZEEKR and temporarily maintained our revenue forecast for 2025-26E at RMB320.6bn/369.7bn unchanged. To reflect stronger-than-anticipated profitability of Geely Galaxy models in 4Q24 and OPEX savings post the new ZEEKR integration, we raise our net profit forecasts for 2025-26E by 6-12% to RMB14.0bn/16.9bn, respectively.
　　With the leapfrog NEV market expansion and faster-than-expected profit release of Galaxy brand since 4Q24 alongside the launch of a series of GEA 3.0- platform NEV models, we reckon Geely has successfully regained its market presence in the affordable segment amid industry-wide electric migration. From 2025 onwards, with NEV penetration surpassing 50%, we notice China automotive industry has ushered into a new era of vehicle intelligence race. Again, through its visionary in-house AI ecosystem deployment over the past several years, we deem Geely has been well prepared to lead the popularisation of smart driving techs in mass market, bringing cost-competitive and high- performance vehicle intelligence specs across fleets in coming quarters.
　　Now Geely’s share prices are trading at 12.2x 2025E P/E and 10.1x 2026E P/E, which is much cheaper than peers and yet to reflect Geely’s potential and latercomer’s advantage to catch up in the vehicle intelligence race underway in our view. Hence, along with profit release under Galaxy brand and intensive new launches with upgraded AD specs powered by self-developed Qianli Haohan smart driving suites from 2H25 onwards, we anticipate Geely’s stock price to continue re-rating process. With higher P/E multiples of 18x 2025E P/E (vs. 15x 2025P/E previously), we raise our TP from HK$21.00 to HK$27.00.