Geely Automobile 0175

[winston]

I dont like to invest in auto companies but China may be a different due to the long term consumption story. Anyway, it's too late to chase them now. The falling Steel prices in China could be a good catalyst but their stimulus program could be ending ..

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Goldman Fund to Take Geely Stake By RICK CAREW in Hong Kong and NORIHIKO SHIROUZO

A Goldman Sachs Group Inc.-managed private equity fund is investing about $250 million in Geely Holding Group's Hong Kong-listed arm to fund the auto maker's growth ambitious, according to a person familiar with the matter.

http://online.wsj.com/article/SB125336135937225281.html

[eauyong]

Geely Auto (175, $1.79) 6M Target $2.40 BUY

Kevin Yim – [email protected] (852) 2218 2861
GuocoCapital Ltd.
HONG KONG RESEARCH 21 SEPTEMBER 2009

Event: Goldman Sachs Capital Partners may acquire a minority stake in Geely.


According to Wall Street Journal, Goldman Sachs Capital Partners, the private equity arm of Goldman Sachs will purchase a minority stake in Geely for approximately US$250mn (HK$1.94bn) through the acquisition of convertible bonds and warrants to be issued by the company.


The article said Geely would announce the investment on Sep 21 at the earliest. The capital raised will be used as working capital to free up capital for parent company to bid for Ford’s Volvo unit.


The move of Goldman Sachs has reflected international investors’ long-term positive view on Chinese auto industry, characterized by solid organic growth and carmakers’ potential to expand through acquisition of overseas brands. While PRC auto companies consistently become investment targets of large-scale global investors, we could see a meaningful re-rating to their valuations.


Geely reported interim results two weeks ago, with earnings up 145% yoy to RMB 596mn, driven by the acquisition of additional stakes in its five carmaking ex-subsidiaries from 46.8% to 91.0% in July 2008, as well as the 29% yoy growth in car sales in 1H09. Margin remained stable despite the 4% drop in ASP as a result of product mix shifting towards smaller cars.


Being the major beneficiary of a cut in purchasing tax for smaller cars in China, Geely’s car sales during traditional slack season in July and August remained solid, increasing 56% and 62% yoy to 24.6k and 22.9k respectively. Year-to-date car sales represented 74.1% of management’s full year target of 250k units that we think is highly achievable.


We estimate 2009 car sales to reach 265k, up 30% yoy and 2009 EPS to reach $0.2, translating into 2009 PER of 9.0x. Considering government’s stimulus policy to auto industry will continue in 2010, we expect Geely’s earnings to increase 20% yoy, translating into 2010 PER of 7.5x, 31% discount to industry leader Dongfeng Motor (489)’s 10.9x. We believe Geely justifies a 10x 2010 PER, still 23% discount to our targeted PER fo 13x for Dongfeng Motor.


Upgrade Geely to BUY as we roll forward to 2010 earnings, with target price revising up to $2.40.

[winston]

Not vested. From Phillips:-


Risk
Economy decline would cut vehicle demand.
Price war undermines its cost advantages.
Rivals launching competitive models snatches low end market share.
Whether Its new launched brands are widely acknowledged.
Big funding demand may encounters bottleneck limiting its expanding.

Valuation

From a sector view, domestic market continues its rebound backed by the preferential policy of purchasing tax cut in half for engine below 1.6L as well as expectation of a better recovery in economy, with passenger vehicle sales from January to September reaching 7.24million by 41.9%. We expect these positive policies will last due to the need of stimulate consumption for economy recovery.

As for the Company, Geely has a completed production chain with obvious advantages in labor and raw material as well as some R& D strength. The asset acquisition effect will still be embodied in 2009. But the new brand of Emgand marketing will add distribution and sales expenses. Given all these factors, we upgrade its net profit forecast in FY09 and FY2010 to RMB1.341billion and RMB1.6billion, EPS of HK0.205 and HK$0.228.

In valuation, Geely still lag behind the domestic leaders of Dongfeng, FAW and Shanghai Auto. Given the Hong Kong listed peers are traded on 16x PE, we give 12m TP of HK$3.18 on 14x PE of FY09, rating Buy.

[investar]

Anybody thinks this will jump high when the Volvo takeover deal closes?

[winston]

Volvo is a very good name but it depends on whether they over-paid or not.

Market players are very sophisticated nowadays. Maybe the retail investors have not really returned to the market ...

[kennynah]

Same sentiments as when lenovo bought IBM pc

i;m afraid it might be some time to go before the world accepts china products to be synonymous to quality.... it took japan some 2 decades and that's only when they collectively as a people placed quality and pride in their work foremost...

[investar]

Recently, Spyker Cars shares tripled in the week the Saab deal was officialized...

Of course this is a different story. But I do think that it would be bullish for Geely, if the price paid is around 2B$ (as is rumored).
World press will be all over this story.

By the end of this month???

I bought some shares already.

[kennynah]

good luck !!!

i remember when HPQ bought compaq, it cost that woman's job...becos she took all of 4 years and still couldn't breach the 2 companies into 1...

and even now, after acquiring EDS, it still functions like an independent company from HPQ...

merging 2 very large companies are known to be very difficult...and costly...

[iam802]

If it is bullish for Geely, then it should also be bullish for Ford. 'Cos, Ford will continue to supply the engines to Volvo.

[kennynah]

very simply.... we ask ourselves...as soon as Geely takes over Volvo...will Volvo vehicles be still trusted as one of the safest vehicles in the world?

i have problems buying "made in china" canned vegetables...don't talk about cars...