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April 12, 2010

HONG KONG: Geely shares dip after earnings fall

Shares in Geely Automobile Holdings , the listed arm of China's largest private carmaker, fell over 5% after it posted a worse than expected 8% fall in second-half earnings. Geely's parent company last month signed a definitive agreement to buy Volvo Car from Ford.

Shares in Geely Automobile Holdings , the listed arm of China’s largest private carmaker, fell over 5% after it posted a worse than expected 8% fall in second-half earnings. Geely’s parent company last month signed a definitive agreement to buy Volvo Car from Ford.

By early afternoon today, the shares had fallen HK$0.22 to HK$3.95 following the results which showed that Geely posted a CNY587m (US$86m) net profit for the second half of last year, down from CNY636m a year earlier on higher than expected costs, according to Reuters calculations based on a company statement.

Geely blamed increased costs but said it was targeting 22% growth in sales this year with help from government incentives for new vehicle buyers.

After three years of large-scale restructuring … the group’s overall competitiveness has strengthened significantly,” the company statement said. “The successful implementation of a ‘multi-brand strategy’ in the area of product marketing has helped to improve the group’s image in China’s sedan market, thus putting the group in a strong position to meet new market challenges in the future.”

Analyst had expected a second-half profit of CNY804m, according to the average of forecasts compiled by Thomson Reuters I/B/E/S.

Geely’s shares are down 2.3% this year, trailing the broader market’s 2% rise, after advancing nearly seven-fold last year on optimism about its parent’s plans to purchase Volvo and an investment in the company by Goldman Sachs, Reuters noted.

Despite the second-half profit drop, revenue for the full year more than tripled to CNY14bn as vehicle sales in China expanded thanks to the government economic stimulus measures.

Analysts told Reuters Geely would continue to report solid sales in 2010, although the growth rate might slow because of a much higher comparative base in 2009.

“Like other Chinese automakers, Geely’s sales will remain healthy this year, but it’s just unrealistic to repeat last year’s breakneck growth,” Zhang Xin, a Beijing-based analyst with Guotai Junan Securities, said.

In a stock exchange filing, Geely said its staffing costs more than doubled in 2009 to CNY563m while its cost of inventories recognised as expense more than tripled to CNY11.5bn.

Geely sold 326,710 sedans last year, up 60% from 2008, lifting its marekt share to over 4%.

“Despite the group’s strong sales performance in the first few months of 2010, the group’s board of directors decided to take a more conservative stance and set our 2010 sales volume target at 400,000 units, up 22% from 2009,” the company said in the statement.

Geely’s parent and Ford have both said they hoped to complete the Volvo deal the in first quarter.

Owning a global brand like Volvo will give Geely a chance to build its profile in China, where it is known for small, inexpensive cars, and to catch up with bigger state-owned rivals that have partnered with the likes of GM and Volkswagen.

Geely has said it plans to build a plant in China to make Volvo models [the S40 and S80 are currently assembled in a Mazda-Ford local joint venture plant – ed] but has made no decision on the site of the facility.

Volvo will give Geely crack at government sales

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