EB SECURITIES maintains "buy" rating on GEELY AUTO (00175) with target price raised to HK$18.08.

EB SECURITIES released a research report stating that it maintains a "buy" rating for GEELY AUTO (00175), citing policy support and the launch of multiple high-performance cost-effective models by the company as factors that are expected to drive sales growth. The forecasted net profit attributable to shareholders for 2024E-2026E has been increased by 3.8%/23.7%/26.2% to RMB 16.31/12.61/15.93 billion, and the target price has been raised to HKD 18.08. The company is optimistic about the long-term prospects of the company's transformation into new energy vehicles. EB SECURITIES' main points are as follows: Significant improvement in 3Q24 performance year-on-year and quarter-on-quarter: In the first three quarters of 2024, the company's total revenue increased by 36.0% year-on-year to RMB 167.68 billion, and net profit attributable to shareholders increased by 358% to RMB 13.5 billion (non-GAAP net profit attributable to shareholders was RMB 6.13 billion). In 3Q24, total revenue increased by 20.5% year-on-year and 9.8% quarter-on-quarter to RMB 60.38 billion, and net profit attributable to shareholders increased by 92% to RMB 2.46 billion (non-GAAP net profit attributable to shareholders was RMB 2.76 billion). The ASP per vehicle in 3Q24 increased by 2.8% quarter-on-quarter to RMB 11,100 per vehicle, with non-GAAP profit per vehicle being less than RMB 600. Cost reduction driving profit improvement, Ji Ke turning a profit for the first time: In the first three quarters of 2024, the company's gross profit margin increased by 0.5 percentage points to 15.3% year-on-year, and in 3Q24, it increased by 0.1 percentage points to 15.6%. The company's SG&A expense ratio decreased by 1.3 percentage points to 11.6% year-on-year in the first three quarters of 2024, and by 2.3 percentage points quarter-on-quarter to 10.3% in 3Q24. The improvement in profitability is due to a) cost reduction and efficiency improvement from resource integration; b) Ji Ke turning a profit for the first time in a quarter, with a per vehicle profit of RMB 152 in 3Q24. Looking ahead, the company's emphasis on resource integration and platform strategy is expected to contribute to greater profit flexibility. Integration of Lingke into Ji Ke to optimize the ownership structure, internal restructuring accelerated: In a press release on September 2024, the company clearly stated that merger and restructuring would be the main theme of the group's adjustment, including the integration of Geo into Galaxy brand and the acquisition of Ningbo passenger cars. On November 14th, the company announced the integration of Ji Ke and Lingke brands, with specific ownership adjustments, including an increase in the stake of the listed company in Ji Ke to approximately 62.8%, Ji Ke holding 51% of Lingke's shares, while the remaining 49% of shares will continue to be held by a wholly-owned subsidiary of GEELY AUTO. The bank predicts that 1) after the merger, Lingke will be the controlling subsidiary of the listed company (with a stake of approximately 81%), considering Lingke's forward-looking layout in Europe and deepening cooperation with Volvo's distribution end, it is expected that Lingke will turn a profit in the future and contribute incremental value to the listed company. 2) Both parties will adopt a cooperation model with relative independence on the brand side and internal resource synergy. a) Brand side: Lingke focuses on the middle to high-end market with a focus on small and medium-sized models, while Ji Ke maintains a luxury positioning and focuses on large and medium-sized models. b) Resource side: Both parties will increase collaboration in production and technology resources, while Ji Ke will also utilize Lingke's distribution channels for market expansion. Overall, the company has made solid progress in technology and product areas, and is expected to further strengthen its competitive advantage through brand restructuring and focus to form a clearer product matrix.