In 2021, Geely Automobile's revenue exceeded 100 billion yuan, but the company's annual profit in the same period was still in a downward trend, only achieving 4.353 billion yuan, a year-on-year decline of 22%
Lu Gong, a researcher at Investment Times
In 2021, it is the third consecutive year that the annual profit of Geely Automobile Holdings Co., Ltd. (hereinafter referred to as Geely Automobile, 00175.HK) has declined continuously.
Recently, Geely Automobile announced the annual results announcement for the year ended December 31, 2021, according to the announcement information, the company's annual revenue in 2021 reversed the trend of continuous decline, an increase of 10% year-on-year to 101.611 billion yuan, back to the scale of 100 billion yuan. However, Geely Automobile's annual profit in the same period continued to show a downward trend, falling by 22% year-on-year to 4.353 billion yuan, and profit attributable to the company's equity holders fell by 12% year-on-year to 4.847 billion yuan.
In the secondary market, since the high of HK$36.25 per share in January 2021, Geely Automobile's stock price has generally shown a downward trend. As of the close of trading on 7 April 2022, the company's share price closed at HK$11.86 per share, which has shrunk by more than 60% compared with the high point at the beginning of 2021, and the current market value of the company of HK$117.043 billion has also evaporated by HK$100 billion from the previous high.
In terms of sales, Geely Automobile achieved a slight increase in 2021, reaching 1.328 million units, with a year-on-year growth rate of 1% outperforming the market. In addition, the sales volume of 1.328 million units only met 87% of the company's annual sales target. It is reported that Geely Automobile has set a total sales target of 1.65 million units in 2022 (including the sales target of Lynk & Co brand cars), and according to existing data, the company has completed 13.63% of the annual sales target in January and February 2022.
For whether the annual sales target can be achieved in 2022, and how to improve the company's current performance of increasing revenue and not increasing profits through the "two blue Geely action plans" in the future, the researchers of the Investment Times recently emailed the communication outline to ask the relevant departments of Geely Automobile, and as of press time, they have not received a reply from the company.
Profits continue to decline
Looking at the operating conditions of Geely Automobile in recent years, the company's revenue increased by 78% year-on-year to 53.722 billion yuan in 2016, and the annual profit rose by 126% to 5.170 billion yuan in the same period. At the same time, the company's profit margin reached 9.6%, an increase of 2.2 percentage points from the same period last year.
In the next two years, Geely Automobile still maintained its previous performance growth trend, and the company's revenue also exceeded the 100 billion yuan mark in 2018, achieving 106.595 billion yuan. Data disclosure, in 2017 and 2018, Geely Automobile's annual profit was 10.735 billion yuan and 12.674 billion yuan, respectively, an increase of 108% and 18% year-on-year, which shows that the growth rate of performance has slowed down significantly.
After entering 2019, Geely Automobile's annual revenue and profit fell both, of which the revenue in 2019 fell by 9% year-on-year to 97.401 billion yuan, and the annual profit shrank by more than 4 billion yuan year-on-year, only achieving 8.261 billion yuan. In 2020, Geely Automobile, which was affected by the epidemic, continued the decline in performance of the previous year, and its revenue and annual profit further fell to 92.114 billion yuan and 5.575 billion yuan respectively.
According to the latest performance disclosed by the company recently, Geely Automobile reversed the trend of continuous decline in revenue in 2021, achieving revenue of 101.611 billion yuan for the whole year, an increase of 10% year-on-year, and returning to the scale of 100 billion yuan. At the same time, Geely Automobile's annual profit in the same period is still in a continuous downward trend, only achieving 4.353 billion yuan, a year-on-year decline of 22%, and the increase in revenue does not increase profits.
For the operating situation of increasing revenue and not increasing profits in 2021, Geely Automobile said in the financial report that the group's financial performance was lower than the original expectations of management, mainly due to the shortage of global chip supply during the year.
Geely Automobile's recent revenue and annual profit
Source: Company earnings
Sales growth outperformed the broader market
In the earnings report, Geely Automobile said, "In the face of the challenge of chip shortage, in 2021, the Group will continue to consolidate its leading position in the Chinese passenger car market, maintaining the Group's position as the largest self-owned brand automobile manufacturer and the third largest passenger car brand in China in terms of sales." ”
According to the data disclosure, Geely Automobile sold a total of 1.328 million vehicles in 2021, a slight increase of 1% over the same period of the previous year. Among them, the company's wholesale volume in China in the same year (including sales of Lynk & Co brand vehicles sold by the Group's 50% joint venture) fell by 3% year-on-year to 1.213 million units, and export sales continued to grow by 58% year-on-year to 115,000 units, mainly due to the rapid recovery of demand in the export market.
At the same time, Geely Automobile also said that the company will enter the high-end intelligent electric vehicle market through its new subsidiary, Extreme Kr Holdings, in 2021. The establishment of Extreme Kr Holdings will accelerate the company's transformation into a new technology company in response to the rapidly changing automotive industry. In 2021, a total of 6,009 units have been delivered since its first delivery of the first model, the Krypton 001 in October 2021.
"Investment Times" researchers put the sales situation of Geely Automobile in the mainland automobile market to observe that in fact, Geely Automobile's 1% growth in automobile sales in 2021 has outperformed the market.
The first is wholesale sales, the data discloses that Geely Automobile's total sales volume in 2021 is 1.328 million units, only 87% of the annual sales target (1.53 million units). According to the data of the Association of Passenger Vehicles, the annual wholesale sales of domestic narrow passenger cars in 2021 were 21.098 million units, an increase of 6.7% year-on-year.
Let's look at retail sales. As a manufacturer that has entered the top 20 retail rankings, Geely Automobile's retail sales have fallen into a downward trend since 2019, from 1.4733 million units in 2018 to 1.3036 million units in 2019 and 1.2475 million units in 2020, and only 1.213 million units in the whole year to 2021, which is the third consecutive year of negative year-on-year growth in Geely Automobile's annual retail sales.
In contrast, by 2021, the mainland passenger car market ended the overall decline in retail sales in the past three years, with a year-on-year increase of 4.4% to 20.146 million units.
In the financial report, Geely Automobile set its total sales target for 2022 at 1.65 million units (including the sales target of Lynk & Co brand cars). According to the available data, Geely Automobile achieved a total of 13.63% of the sales target in January and February 2022, and if this trend develops, there are still certain challenges for the company to achieve the target for the whole year.
Can the transformation succeed?
In February 2021, Li Shufu, chairman of Geely Automobile, said in an internal employee sharing exchange that "Geely Automobile has formed a 'two blue Geely action plan' program on the basis of summarizing the past, one is mainly focused on energy-saving and new energy vehicles, 90% is new energy hybrid vehicles, about 10% are traditional energy-saving small-displacement vehicles; the second is to focus on pure electric intelligent vehicles, form a new pure electric vehicle company, and actively participate in the competition of the intelligent pure electric vehicle market", which said, "Two blue Geely action plans" It is a new plan based on the changes in the global automotive industry and the application environment.
It is worth noting that as early as 2015, Geely Automobile planned to enter the new energy vehicle market, and released the new energy vehicle development strategy - "Blue Geely Action", when the target of "by 2020, new energy vehicle sales accounted for more than 90% of the company's overall sales" was not completed as scheduled.
In this regard, Geely Automobile said that this is not a mistake in strategic direction, nor a failure in strategic implementation, but that the historical timing is not ripe and external strategic conditions have not been formed.
So, can the newly formulated "Two Blue Geely Action Plans" succeed? Can this bring many benefits to the improvement of Geely Automobile's current performance of increasing revenue without increasing profits and the company's subsequent layout in the field of new energy vehicles? Time verification is also required.