Morgan Stanley: Geely Auto (00175) exceeded expectations in the first quarter, benefiting from foreign exchange factors. Target price is 21 Hong Kong dollars.

Morgan Stanley released a research report stating that GEELY AUTO (00175) announced positive earnings overnight on the 10th, with an expected profit of 5.2 to 5.8 billion RMB for the three months ending in March this year after a change in accounting policies, a year-on-year growth of 220% to 270%. The company explained that the increase in profits is mainly due to record high quarterly sales volume, strong growth in new energy business, optimization of product structure, significant improvement in profitability due to economies of scale, and rapid growth in export business. Exchange rate fluctuations resulted in a net income of 2 to 2.3 billion RMB from foreign exchange after reconciliation. Morgan Stanley set a target price of 21 Hong Kong dollars for Geely, giving it a "hold" rating. Morgan Stanley pointed out that the significant foreign exchange gains were mainly attributed to a 36% appreciation of the Russian ruble against the RMB in the first quarter. Excluding this one-time foreign exchange impact, net profit for the first quarter is estimated to be 3.2 to 3.5 billion RMB, a year-on-year increase of 105% to 124%, meaning a net profit per unit of 4500 to 5000 RMB, which is basically in line with market expectations for first-quarter performance. Morgan Stanley predicts that Geely's stock price performance is likely to depend largely on the sales momentum of the "Galaxy" series, which reached approximately 260,000 units in cumulative sales in the first quarter. In addition, Geely recently launched the "Galaxy Star 8EM" plug-in hybrid vehicle, which the bank expects to significantly boost enterprise sales and profits in the second quarter.