[ET Net News Agency, 11 July 2019] Moody's Investors Service said that Geely Automobile
Holdings Limited's (00175) profit warning for its first half 2019 results is credit
negative, but has no immediate impact on its Baa3 issuer rating.
The rating outlook remains stable.
On 8 July, Geely announced that it expects its first half 2019 consolidated net profit
attributable to the equity holders to decline to about RMB4.0 billion from the RMB6.7
billion achieved in the first half of 2018.
The expected profit decline is attributable to a decrease in overall sales volumes in
the Chinese auto market, and to Geely's lowering of dealer inventories, ahead of the
introduction of a new emission standard in July, that resulted in negative impact on the
company's sales volumes and profit margin.
"Geely's low debt leverage and solid liquidity provide the company with a good buffer
against market volatility," said Gerwin Ho, a Moody's Vice President and Senior Credit
Officer.
The company's top three position in China's passenger vehicle market, as measured by
unit sales by brand, also supports its rating.
Moody's analysis of Geely's key credit metrics accounts for the 50%-owned Lynk & Co
joint venture on a consolidated basis.
Moody's expects the company's debt leverage to remain low at around 0.8x over the next
12-18 months, which remains strong for its rating category.
Moody's expects Geely's unit sales to remain flat or decline by a single-digit
percentage year-over-year in 2019.
Specifically, Moody's expects unit sales growth will improve year-on-year in 2H 2019,
reflecting a low base comparison from the previous year, the company's new model launches,
and improved auto demand following the introduction in July of a new emission standard.
In addition, Moody's forecasts Geely's EBITA margin -- excluding expenses related to the
lowering of dealer inventories associated with the change in emission standard -- will
soften to about 6.5%-7.0% in the next 12-18 months, reflecting lower utilization and
continued investments in research and development.
Geely's liquidity position is solid. At the end of 2018, its reported net cash holdings
- excluding pledged cash - totaled RMB12 billion. The company has maintained a net cash
position since the end of 2012. (KL)