Maintain BUY. Geely’s 2Q25 earnings were in line with our prior forecast and beat market expectation with its QoQ improvement in GPM despite a prolonged price war. We expect its upcoming new models from different brands to be well received, which could lift average selling price and gross margin. There is still enough room for growth for Geely’s NEVs, as its current NEV model line-ups only cover a few sub-segments. We raise our FY25-26E net profit estimates by 0.9%/1.2% to RMB17.7bn/18.6bn, respectively.
　　Solid 2Q25 earnings with GPM beat. Geely’s 2Q25 revenue was about
　　2% higher than our prior forecast. GPM widened by 1.3ppts QoQ to 17.1% despite a merely 0.2% QoQ growth in sales volume, 1ppt higher than our projection. Although we underestimated selling and R&D expenses due to the consolidation of Lynk & Co, Geely’s gross profit beat. This, along with stronger-than-expected equity income from joint ventures and associates, led to a 2Q25 net profit of RMB3.6bn, which was in line with our forecast and stronger than market expectation.
　　Still lots of growth potential for its new NEVs. Geely appears to have
　　found keys to making successful NEV models after the Galaxy E5. We believe that there is still enough room for growth for Geely’s upcoming new NEVs, as the recently launched models (the E5, Starwish, Starship 7 and Xingyao 8) only cover part of the small and compact segments, as well as the medium-to-large sedan market. We expect the Galaxy A7, M9 and Xingyao 6, scheduled for launch in 2H25, to be well received. We raise our FY25E sales volume forecast from 3mn units to 3.02mn units.
　　FY25-26E outlook. We revise up FY25E GPM forecast by 0.7ppts to 16.7% (2H25E: 17.0%), as its cost reduction efforts, especially from the integration synergies, appear to beat our prior expectation. We also raise selling expenses and finance costs to better reflect Lynk & Co integration, which also results in a 0.9% upward revision for our FY25E net profit forecast (RMB17.7bn). We raise our FY26E sales volume slightly to 3.26mn units, but revise up FY26E GPM forecast by 1ppt to 17%. Accordingly, we raise FY26E net profit estimates by 1.2% to RMB18.6bn.
　　Valuation/Key risks. We maintain our BUY rating and raise our target price slightly from HK$24.00 to HK$25.00, based on 13x FY26E (prior 15x FY25E) P/E. Key risks include lower sales volume and/or gross margin than we expect, especially from new NEV models, as well as a sector de-rating.