Morgan Stanley: Geely Auto's Record Shipments Offset by Margin Pressure and Higher Tax Expenses, Overweight Rating and HK$27 Target Maintained

Deep News10-30 15:20

Morgan Stanley has issued a research report stating that GEELY AUTO (HK: 175) currently trades at approximately 5 times forward price-to-earnings for fiscal year 2026, offering an attractive risk-reward profile, with improving domestic sales momentum expected to effectively support volume and contain discounts, while a rising mix of overseas and premium models should help safeguard earnings resilience amid intensifying industry challenges. The investment bank maintained its Overweight rating and HK$27 target price on the company.

Morgan Stanley's analysis pointed out that GEELY AUTO's record-breaking third-quarter shipment performance was partially offset by narrower gross margins and increased tax expenses. Quarterly profit came in at RMB 4.84 billion, up 31% year-on-year but down 2% quarter-on-quarter, slightly below Morgan Stanley's expectation of RMB 5.1 billion, mainly due to higher share-based payment expenses and tax burdens; quarterly core profit was RMB 5.2 billion, with quarter-on-quarter revenue growth flattened by declining gross margins and rising tax rates.

On the profitability front, third-quarter gross margin rose 1.4 percentage points year-on-year to 18% but narrowed 0.4 percentage points quarter-on-quarter, reflecting the erosion from terminal retail discounts even as the share of high-margin sales from Zeekr and overseas markets expanded. In terms of operational control and per-vehicle profitability, GEELY AUTO demonstrated strong expense containment capabilities. Third-quarter operating expenses rose 11% year-on-year and 6% quarter-on-quarter, with the operating expense ratio held steady at 12.5% quarter-on-quarter, while the operating margin was maintained at 5.5%. Additionally, affected by exchange rate fluctuations, foreign exchange losses for the quarter widened to RMB 453 million from RMB 176 million in the second quarter. Overall, GEELY AUTO's third-quarter core profit per vehicle came in at RMB 6,400, down 11% quarter-on-quarter but still achieving a notable 23% increase year-on-year.

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