Everbright Securities released a research report stating that maintaining the “buy” rating of Geely Auto (00175), it raised the 2024E-2026E net profit forecast of 3.8%/23.7%/26.2% to RMB 16.31/12.15.93 billion, and raised the target price to HK$18.08 in view of policy support and the upward trend in sales volume. The bank is optimistic about the medium- to long-term NEV transformation prospects of the company's brands.

The main views of Everbright Securities are as follows:

3Q24 performance improved significantly year-on-month:

The company's total revenue for the first three quarters of 2024 was +36.0% to 1,67.68 billion yuan, and net profit to mother +358% year-on-year to 13.05 billion yuan (net profit not after deducting 6.13 billion yuan). Total revenue for 3Q24 was +20.5% YoY/+9.8% YoY to 60.38 billion yuan, and net profit to mother +92% YoY to 2.46 billion yuan (net profit after deducting 2.76 billion yuan). The company's 3Q24 bicycle ASP (after excluding Lynk & Co) was +2.8% month-on-month to 0.111 million yuan, and after deduction, the bicycle profit was <0.006 million yuan.

Structured cost reduction led to improved profits, and for the first time, ZEEKR turned a loss into a profit:

In the first three quarters of 2024, the company's gross margin was +0.5pcts yoy to 15.3%, and 3q24 gross margin was +0.1pcts yoy to 15.6%. The company's SG&A fee rate for the first three quarters of 2024 was -1.3 pcts year-on-year to 11.6%, 3Q24

The SG&A fee rate was -2.3 pcts/month-on-month -2.1 pcts to 10.3%. Reasons for the month-on-month improvement in profitability include: a) the integration of the company's resources to reduce costs and increase efficiency; b) Extreme Krypton achieved profit for the first time in a single quarter, and 3Q24 bicycles made a profit of 152 yuan. Looking ahead, the company's emphasis on resource integration+platformization strategies will contribute to greater profit flexibility.

Lynk & Co plans to merge with ZEEKR to re-optimize the equity structure, and internal restructuring is underway at an accelerated pace:

In the “Taizhou Declaration” issued by the company on 2024/9, it is clear that merger and restructuring will be the main theme of the group adjustments. Subsequent adjustments include the geometric merger of the Galaxy brand and the acquisition of Ningbo passenger cars. On 11/14, the company announced the integration of the GKrypton+Lynk & Co brand. Specific equity adjustments include that the shareholding ratio of listed companies will increase to about 62.8%, GKrypton will hold 51% of Link&K's shares, and the remaining 49% of the shares will continue to be held by Geely Automobile's wholly-owned subsidiary.

According to the bank's judgment, 1) After the merger, Linker & Co will become a holding subsidiary of a listed company (holding ratio of about 81%). Considering Linker's forward-looking layout in Europe and deepening cooperation with Volvo's channel side, it is expected that Linker will reverse losses and contribute more to the listed company's reporting side in the future. 2) The two sides will adopt a cooperative model with relative independence in terms of brand and coordination of internal resources. a) Brand side: Lynk & Co focuses on the middle and high-end market and mainly focuses on small to medium models. Extreme Krypton adheres to the luxury positioning and lays out medium to large models. b) Resource side: The two sides will increase collaboration in production+technical resources, and at the same time, Krypton will also use Linker brand channels to develop a declining market layout. In summary, the company has accumulated extensive development in the technology and product fields, and will later form a clearer product matrix through brand restructuring+focus. It is expected that the scale advantage will be further strengthened under increased competition.