HONG KONG (Nikkei Markets) -- Shares of Geely Automobile Holdings on Tuesday suffered their steepest fall in more than three years after the Chinese automaker gave a tepid sales forecast for 2019 that invited multiple earnings downgrades, although analysts at Nomura saw the prediction as too conservative.
The stock tumbled 11.6% to HK$10.18 ($1.30) by the noon break in Hong Kong on Tuesday, taking losses so far this year to 26.2% and making it the worst performer among the Hang Seng Index’s 50 constituents. The losses come on top of a 49% slump in 2018, its weakest annual performance in seven years, and a stark contrast to the year before, when it more than tripled.
Dongfeng Motor Group, which also reported a 14.6% decrease in December sales volume on Monday, saw its shares slip 0.4%. The Hang Seng Index had risen 0.3%.
Geely, which is controlled by Li Shufu, one of China’s wealthiest billionaires, late on Monday reported a 39% tumble in December sales that helped contain its full-year shipments at 1.50 million units, lower than its own sales target of 1.58 million units. The company said that despite the low sales at the wholesale level, its retail sales “remained sound, reflecting the management’s determination to proactively manage the aggregate inventories at dealers at a healthy level.”
The company also set its 2019 sales target at a “conservative level” of 1.51 million units. Brokerages including Credit Suisse, J.P. Morgan, Nomura and Bernstein Research either cut their earnings forecasts or investment ratings for Geely following the release of its new sales target. Daiwa and Nomura are among those with a buy rating on the stock as of Tuesday.
Analysts at Credit Suisse, who downgraded their rating on the stock to neutral from outperform, said they also saw downward pressure on Geely’s margins after the company launched certain tax cut subsidies over November and December. Their neutral rating reflects the “promising future” of the company’s high-end vehicle brand of Lynk & Co. and fading earnings power of its “Geely” brand of mass-market products amid competitive pressures, they added.
Geely’s missed forecast for 2018, as well as the weaker-than-expected sales estimate for 2019, follow a downturn for demand in China, the world’s largest market by vehicle sales. Industry sales in the mainland last year saw their first annual decline since 1990, according to reports in state media.
The deepening effect of Sino-American trade frictions, weakened consumer spending amid restrictive domestic policies and a high base for sales in the previous years are all believed by analysts to have played a role in sapping demand.
For Geely – whose parent group also owns the Volvo and Proton brands – the 2019 forecast reflects how things have changed in a short period of time. In 2017, the company achieved sales of about 1.25 million units, handily beating an upwardly revised annual target of 1.1 million units, before setting its 2018 goal at 1.58 million units. Its strong performance in 2017 led Standard & Poor’s to take its credit rating to “BBB-” in the so-called investment grade category, from BB+ earlier. S&P still has a BBB- rating on the company.
Nomura, which has a “structurally cautious view” on Chinese auto industry sales and says its earnings forecasts for the sector are below consensus, estimates Geely’s sales at almost 1.70 million units for 2019 and 1.88 million units for 2020.
Although the Japanese brokerage cut its earnings forecasts for the three years between 2018 and 2020, it noted that Geely “remains the likely industry consolidator as most other competitors struggle for growth.”
-- Benny Kung & Amy Lam