Higher earnings visibility after strong 1Q26

Higher earnings visibility after strong1Q26 Target PriceHK$27.00(Previous TPHK$25.00)Up/Downside20.9%Current PriceHK$22.34 Maintain BUY.Geely’s 1Q26 net profit beat our forecast on strong GPM.Weexpect resilient GPM to continue despite risingraw materialcosts, thanks tohigher overseas sales, better model mix and continuous cost reduction effortsfrom “One Geely” strategy. Overseas sales in 1Q26were stronger than our priorforecast, and thus we revise up FY26E sales volumeforecastto 3.5mn units.We also believe that Zeekr is now better positioned than before, whichcould liftmargins and valuation. China Auto Ji SHI, CFA(852) 3761 8728shiji@cmbi.com.hk 1Q26 earnings beat on GPM.Geely’s 1Q26 revenue was largely in lineamidthe highest sales volume among all the automakers in China.GPM in1Q26 widened by 0.6ppts QoQ to 17.5%, 0.7ppts higher than our priorforecast.SG&A and R&D expenses combined were slightlylower than ourprojection, despite declining capitalization ratio (56% in 1Q26 vs. 64% inFY25). Net profit of RMB4.2bn in 1Q26 was 9% higher than our forecast.Core net profit (excludingforexgain/lossand impairment on non-financialassets) rose 31% YoY, implying a core net profit per vehicle of aboutRMB6,400 in 1Q26. Wenjing DOU, CFA(852) 6939 4751douwenjing@cmbi.com.hk Austin Liang(852) 39000856austinliang@cmbi.com.hk Stock Data More positive outlook for FY26E.We revise up our FY26E sales volumeforecastby 0.1mn units to 3.5mn unitsmainly for exports, as managementhas turned more positive on overseas sales.That also leadsto ourupwardrevision for FY26E GPM (from 17.4% to 17.7%), especially following 1Q26beat. Management expects GPM in 2Q26 to be stable or even rise slightly.Meanwhile, we also revise down R&D capitalization ratioforecastfrom 64%to 58%in FY26E. Accordingly, we revise up FY26E net profit forecast by8% to RMB20.9bn. Source: FactSet Zeekr’s accelerated sales volume growth to provide greater marginsand valuation.We believe that Zeekr is now better positioned in theupscale market than a year ago aftersuccessful rollouts of the9Xand8X.That could give investors more confidencein Geely, not onlybecause of alarger room for growth in the premium segment, but also higher margins andbetter overall company image. Valuation/Key risks.We maintain ourBUY rating and raise our target pricefrom HK$25.00 to HK$27.00, which is still based on 12x our FY26E P/E.Key risks to our rating and target price include lower sales volume and/orGPM than we expect, especially from NEV models, as well as a sector de-rating. Source: FactSet Disclosures& Disclaimers Analyst CertificationThe research analyst who is primary responsible forthe content of this research report, in whole or in part, certifies that with respect to the securities or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about the subject securities or issuer; and (2)no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific views expressed by that analyst in this report.Besides, the analyst confirms that neither the analyst nor his/her associates(as defined in the code of conduct issued by The Hong Kong Securities and Futures Commission) (1) have dealt in or traded in the stock(s) covered in this research report within 30 calendar days prior to thedate of issue of this report; (2) willdeal in ortrade in the stock(s) covered in this research report 3 business days after the date of issue of this report; (3) serve as anofficer of any of the HongKong listed companies covered in this report; and (4) have any financial interests in the Hong Kong listed companies covered in this report. CMBIGM RatingsBUY : Stock with potential return of over 15% over next 12 monthsHOLD: Stock with potential return of +15% to-10% over next 12 monthsSELL: Stock with potential loss of over 10% overnext 12 monthsNOT RATED: Stock is not rated byCMBIGM :Industry expected to outperform the relevant broad market benchmark over next 12 months:Industry expected to perform in-line with therelevant broad market benchmark over next 12 months:Industry expected to underperform the relevant broad market benchmark over next 12 months Address: 45/F, Champion Tower, 3 GardenRoad, Hong Kong, Tel: (852) 3900 0888 Fax: (852) 3900 0800CMB InternationalGlobal MarketsLimited (“CMBIGM”) is a wholly owned subsidiary of CMB International Capital Corporation Limited (a wholly ownedsubsidiary of China Merchants Bank) ImportantDisclosuresThere are risks involved in transacting in any securities. The information contained in this report may not be suitable forthe purposes of all investors.CMBIGM does not provide individually tailored investment advice. This report has been prepared without regard to the individual investment objectives, financial positionor special requirements. Past performance has no indication of future performance, and actual events may differ materially from th