2Q26 in-line; export, margin traction to continue

2Q26 in-line; export, margintraction to continue Maintain BUY.Following Geely’s in-line 2Q26 earningsprint, we viewthecompany as well-positioned to unlockfurther structural cost optimization.Wealso believe Geely’s global expansion model may carry a lower regulatory riskprofile, while maintaining high efficiency. We also view its valuation as attractive. Target PriceHK$27.00Up/Downside44.6%Current PriceHK$18.67 In-line 2Q26 earnings.Geely’s 2Q26 revenue was about 3% lower thanour prior forecast, probably due to its lower-than-expected income fromR&Dservices,IP licensing and collaborative manufacturing.GPMexpanded by 0.9pptsQoQto 18.4%, in line with our projection. SG&A andR&D expenses combined were about 2% higher than our forecast. Core netprofit (excl. forex and impairment onnon-financial assets)surged about61% YoY to RMB5.1bn in 2Q26, or about RMB0.1bn higher than our priorforecast, implying a core net profit per vehicle of about RMB7,200. China Auto JiSHI, CFA(852) 3761 8728shiji@cmbi.com.hk Wenjing DOU, CFA(852) 6939 4751douwenjing@cmbi.com.hk Further room for cost optimization.We believequite a few Chinesecarmakers, including Geely,havedemonstrated the technicalcapabilitiesrequired to move upmarket,unlockinglargertotaladdressable marketthanbefore.As technological gap narrows, cost reduction capabilities couldbecome a key differentiator. WeviewGeelyas well-positioned to drivecontinuedcost optimization,leveraged by deepening synergies fromrestructuring,richer model portfolio and strategic peer partnerships.Reflectingthese operational efficiencies, management expects GPM towiden sequentially in 2H26E. Austin Liang(852) 3900 0856austinliang@cmbi.com.hk Source: FactSet Overseas expansion inthefast lane.Weraise our FY26E overseas salesvolumeforecastby 17% to 1.17mn units. Managementtargetsoverseassales tohit 2mn units within three years, with long-term internationaldeliveries expected to account for 2/3 of Geely’s total sales volume. Wereiterateour structural thesis that Geely’s partnership-oriented,multi-powertrain global strategy could be aless risky,more sustainable expansionmodeloverthe long runcompared with peers. Earnings/Valuation.We maintain our FY26-27E sales volume forecasts at3.28mn/3.70mn units, respectively, with higher overseas volume projection.We also maintain our FY26-27E GPMforecastsat18.3%/18.3%. Followingminor fine-tuning of SG&A, other income and share-based payment, we trimFY26-27E net profit estimates by 0.6%/1.1% to RMB21.5bn/RMB25.6bn,respectively. We maintain our BUY rating and target price of HK$27.00,nowrolled over to 10xFY27EP/E(from 11x FY26E P/E). Key risks to our ratingand target price include lower sales volume and/or GPM than we expect, aswell as a sector de-rating. Source: FactSet Disclosures& Disclaimers AnalystCertificationThe research analyst who is primary responsible for the content of this research report, in whole or in part, certifies thatwith 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, theanalyst 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 the date of issue of this report; (2) willdeal in or trade in the stock(s) covered in this research report 3 business days after the date of issue of this report; (3)serve as an officer of any of the HongKong listed companies covered in thisreport; 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% overnext 12 monthsSELL: Stock with potential loss of over 10% over next 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 the relevant broad market benchmark over next 12 months:Industry expected to underperform the relevant broad market benchmark over next 12 months OUTPERFORMMARKET-PERFORMUNDERPERFORMCMB InternationalGlobal MarketsLimited Address: 45/F, Champion Tower, 3 Garden Road, Hong Kong, Tel: (852) 3900 0888 Fax: (852) 3900 0800CMB InternationalGlobal MarketsLimited (“CMBIGM”) is a wholly owned subsidiary of CMB International CapitalCorporation Limited (a wholly ownedsubsidiary of China Merchants Bank) Important DisclosuresThere are risks involved in transacting in any securities. The information contained in this report may not be suitable forthe purposes of all investors.CMBIGM doe