In 1Q25, total revenue rose by 24.5% YoY, lower than sales volume increase of 48% YoY on temporary weakened product mix across all brands. But thanks to better OPEX efficiency from ongoing synergies effect, core earnings (excl. after-tax FX gains impact of RMB2.2bn) more than doubled to RMB3.5bn in 1Q25. Given YTD sales volume completion ahead of schedule and stronger new product launches in coming quarters, we deem Geely is likely to raise full-year target around mid-year results. Now we raise our sales estimates for 2025-26 to 2.85m/3.25m units, and net income forecasts to RMB15bn/17.8bn, respectively. We anticipate the valuation discount vs. existing NEV giant set to narrow as the privatisation of ZEEKR brings all core assets back to listco entity and the integration will contribute to the upcoming profit release. Maintain BUY with higher TP of HK$29.00, based on unchanged 18x 2025E P/E.
Key Factors for Rating
1Q25 revenue slightly missed on temporary weaker product mix,
which is expected to improve in 2H25 with premium new launches. In 1Q25, total revenue rose by 24.5% YoY to RMB72.5bn, lower than the consolidated sales volume increase of 47.9% YoY, which implied 16% YoY drop in revenue per vehicle, primarily due to the skewing of sales mix toward low- price products across all brands, which could be telegraphed by i) larger Geely brand sales mix in consolidated sales volume (84% vs. 80% in 1Q24); ii) escalated sales proportion of entry-level StarWish that dragged revenue per vehicle for Geely main brand down 10% YoY to RMB85,580 in 1Q25; iii) higher sales contribution of low-price Lynk&Co Z20/ZEEKR 7X that eroded the revenue per vehicle for new ZEEKR by 17% YoY to below RMB200k in 1Q25. Going forward, we expect to see an upscale shift in Geely’s product offerings aided by the addition and delivery ramp up of premium new launches, represented by ZEEKR 9X/Lynk&Co 900 for new ZEEKR, and StarShip 9 for Geely Galaxy.
1Q25 gross margin slightly improved while OPEX optimised
substantially thanks to synergies effect from ongoing integration. 1Q25 gross margin added 0.2ppt YoY to 15.8%. For new ZEEKR, the gross margin grew by 2.9ppts YoY to 19.1% in 1Q25, above expectations, driven by continuing cost-cut savings and enhanced scale effect post integration with Lynk&Co since 4Q24. For Geely and Galaxy segment, the gross margin moderately dipped 0.9ppt YoY to 14.3% in 1Q25, essentially owing to the lower sales mix of high-margin exports and persistent end-user incentives for volume boost domestically, though we estimate the gross margin for Geely Galaxy has well expanded to low-teens level in 1Q25 against negative gross margin in 1Q24. Coupled with much better OPEX efficiency, the core earnings (excl. after- tax FX gains impact of RMB2.2bn) surged to RMB3.48bn in 1Q25, lifting core net margin up by 2.1ppts YoY to 4.8%.
YTD sales completion ahead of schedule with full-year target set for an increase. The company posted a record-breaking quarter sales volume of 703,824 units in 1Q25, achieving c.27% of full-year sales target (2.71m units). During the earnings release, the mgmt. conveyed confidence to continuously rewrite delivery record in subsequent quarters with the intensive launches and sales ramp up of flagship models. Given the robust new model cycle for all brands ahead, we believe it is highly likely for Geely to raise full-year sales target post interim results as it did last year. By region, Geely’s 1Q25 exports volume of 89,953 units roughly stayed on par with that in 1Q24, with the increasing shipments to non-eastern European markets (i.e. Latin America, Southeast Asia, Middle East) entirely offset the weaker demand in eastern European market (-40% YoY). At the earnings call, the mgmt. has acknowledged the shortcomings in overseas market and is taking steps to improve. For instance, the company will quicken the product certification duration, accelerate the product launches and new market entries, expecting the rising demand from broader addressable new market to give a lift to export in coming quarters. With the strategical focus switchover from domestic market towards overseas market, we believe that Geely is likely to see a rapid rise in overseas sales starting next year. By brand, Geely/Galaxy brand sold 589,813 units in 1Q25, up 54.6% YoY and nicely completed c.30% of full-year target (2m units). Yet, ZEEKR/Lynk&Co brand shipped 41,403/72,608 units in 1Q25, both lagging behind scheduled annual sales target of 320k/390k units. Overall, we expect the Geely/Galaxy brand to continue strong sales momentum propelled by robust Galaxy new model cycle underway, which is able to more than compensate the demand insufficiency for ZEEKR/Lynk&Co amid heightened competition.
The changes in management team after Geely consolidates and privatises ZEEKR. After the privatisation of ZEEKR, the former CEO and Executive Director Gan Jiayue of Geely Auto will assume the role of CEO of the new Geely Auto Group. At the same time, new Geely Auto Group will establish two divisions, Geely Galaxy Business Unit and ZEEKR Technology Business Unit. The former CEO of ZEEKR, An Conghui, will take on the role of CEO of Geely Holding Group. The former CEO of Geely Holding Group, Li Donghui, will be appointed as Vice Chairman of Geely Holding Group. Meanwhile, the former COO of Geely Holding Group, Dai Qing, will assume the position of Rotating President of Geely Holding Group.
Valuation
To reflect stronger-than-anticipated sales performance of Geely/Galaxy brand which more than offset lower ZEEKR and Lynk&Co sales volume, we lift our sales volume forecasts for 2025-26 to 2.85m/3.25m units, respectively. Given the lower ASP assumption and the consolidation of Lynk&Co, we nudge up our revenue forecasts by 4%-6% to RMB335.8bn/390.3bn for 2025-26. Combined with better-than-expected OPEX optimisation backed by increasing synergies effect from ongoing integration, we raise our 2025-26 net income forecasts by 5%-8% to RMB15.0bn/17.8bn.
Currently, its shares are trading at 12x 2025E P/E and 10x 2026E P/E with substantial valuation discounts against direct NEV rivals and seems not fairly reflect its success in electric migration ahead of legacy carmakers and potential tech catch-up in vehicle intelligence race with the large-scale rollouts of advanced smart driving specs for affordable Galaxy models from 2H25 onwards.
Besides, as the privatisation of ZEEKR brings all core assets back to listco entity,
we are of the view that “One Geely” synergy will help strengthen the company’s brand awareness, market competitiveness as well as corresponding profit release upside. This is set to narrow the valuation discount between Geely Auto and existing NEV leader towards a valuation parity. Maintain BUY rating with higher TP of HK$29.00 by adopting 18x 2025E P/E unchanged.