Geely Automobile plans to go public in science and technology innovation board to ease the dilemma of lack of money？

Text | Daily Financial Report Wei Wen

At present, it is a general trend for domestic independent automobile brands to return to A-shares. After BYD and Great Wall Motor are determined to return to A-shares, Geely Automobile has also taken a key step to sprint to A-shares.

On the evening of June 17th, the news that Geely Automobile planned to list in science and technology innovation board on the Shanghai Stock Exchange was released, which quickly seized the screen. This means that the layout of Geely Automobile in the capital market has formed a strategic intention of keeping pace with A shares and Hong Kong stocks. Affected by this announcement, the opening price of Geely Automobile (00175.HK) rose by nearly 5% in the morning of June 18th, which led to the collective rise of Geely Automobile-related concept stocks. The market was optimistic to the outside world and aroused widespread concern in the industry.

In fact, in February this year, Geely Automobile has been planning in the capital market. For example, it will merge with Volvo’s automobile business and land in Hong Kong and Stockholm. This time, it is planned that RMB shares will enter science and technology innovation board, which is undoubtedly the positive exploration of Geely Automobile under the overall downturn of industry capital, highlighting that Geely is also facing the challenge of financial pressure, which has added strength to its expansion of financing channels.

According to the data, Geely Automobile is an automobile manufacturer under Zhejiang Geely Holding Group, which focuses on R&D, manufacturing and sales of passenger cars. It was listed in Hong Kong in 2004. In 2019, Geely Automobile sold 1.362 million new cars, with revenue of 97.4 billion yuan and net profit of 8.26 billion yuan. In the list of "Top Ten Automobile Groups with the Highest Global Brand Portfolio Value in 2020" published by British brand evaluation agency Brand Finance, Geely Group, which owns Geely Automobile and Volvo Automobile, ranks ninth, which is also the only China automobile brand on the list.

Trapped in the dilemma of "lack of money", planning to return to A-share listing

In the eyes of investors, if Geely can get through the capital market financing channels of domestic A-shares, it will help to further broaden its diversified financing methods, optimize its capital structure and effectively enhance the company’s financial strength.

Since the current valuation of A-share auto stocks is about 65% higher than that of H-share auto stocks, Geely’s return to the mainland with independent research and development and international leading technology will also enhance the overall valuation of the market.

The research report of CICC believes that Geely’s return to A shares will help improve the quality of listed companies in the domestic auto sector, expand the market value of the A-share auto sector, and make the funds more rationally distributed. For Geely itself, expanding the A-share financing platform can enjoy a higher level of valuation center in the sector, increase liquidity and increase the participation of domestic investors.

However, it is worth noting that, affected by the epidemic situation and economic downturn, global car companies have fallen into the dilemma of "lack of money" to varying degrees, and Geely is no exception. On May 29th this year, Geely Automobile announced that Geely had signed an agreement with the placing agent, agreeing to appoint the placing agent as the company’s agent to urge the transferee to subscribe for 600 million placing shares at the placing price of HK$ 10.8 per share, and the estimated proceeds were about HK$ 6.447 billion.

To put it simply, Geely Automobile raised a net capital of HK$ 6.447 billion through a rights issue at a discount of about 7.85%. After the placement is completed, the shareholding of Li Shufu and his concerted parties will be diluted from 43.88% to 41.2%.

Not only that, the "Daily Financial Report" combed and found that the share price of Geely Automobile has been declining in the past two years. Since the high point in November 2017, the company’s share price has fallen by more than 50%, and its market value has shrunk by about HK$ 150 billion. In terms of performance, Geely Automobile’s net profit also suffered the first decline in four years. According to Geely Automobile’s 2019 report, the net profit (profit attributable to shareholders) in 2019 dropped by 35% year-on-year to 8.19 billion yuan, compared with 12.553 billion yuan in the same period last year.

With the global spread of the COVID-19 epidemic, the continuous decline of car sales in the stock market, the increasing economic turmoil and the decline of net profit, Geely Automobile has made a big move at this time and plans to return to science and technology innovation board for listing. On the one hand, it has injected new vitality into the domestic A-share capital market, enhanced financing, and is also conducive to Geely’s transformation and development to an international technology company.

Transforming into an international technology company, the total investment in R&D is nearly 100 billion yuan.

The Daily Financial Report notes that Geely’s plan for science and technology innovation board is also related to the favorable policies promoted by the state not long ago, which can be said to create favorable conditions for Geely’s return to the A-share market.

On April 30 this year, the Announcement on Relevant Arrangements for Innovative Pilot Red-chip Enterprises to List in China issued by the CSRC adjusted the market value requirements of overseas listed red-chip enterprises to "two choices", or the market value was not less than 200 billion yuan; Either the market value is more than 20 billion yuan, and it has independent research and development, international leading technology, strong scientific and technological innovation ability, and is in a comparative advantage position in the same industry competition. Geely automobile has all the conditions in this respect and meets this standard.

Judging from the latest market value of Geely Automobile, as of June 18th, the total market value of Geely Automobile was HK$ 123.247 billion, and it was far ahead in technology research and development and innovation. According to the financial report data, in 2019, Geely Holding Group invested more than 20 billion yuan in R&D, accounting for about 6% of sales, and was in a leading position in the whole industry. In addition, Geely Automobile has been the company with the largest sales volume of its own brand for three consecutive years, with a market share of 6.9% from January to May this year, all of which meet the policy requirements in the above announcement.

In fact, since 2007, Geely has continuously increased its investment in R&D, playing a big technical card, and kept R&D expenditure in the range of 5%-7% of revenue. According to Li Shufu’s previous investment meeting, Geely Holding Group announced that the R&D investment of the whole group has accumulated nearly 100 billion yuan in the past decade.

Based on this, Geely Holding Group has owned a large number of invention and innovation patents and complete intellectual property rights in technological achievements. In terms of intelligent networking, Geely Holding Group has applied for more than 100 intellectual property rights, mainly covering autonomous driving and AI speech recognition. According to Geely, under the wave of "new four modernizations", Geely Automobile will also increase R&D investment in new energy fields and intelligent networking. At the same time, Geely Holding has also made a deep layout in the global R&D system, with five engineering R&D centers and five styling design centers, with a total of 20,000 R&D personnel.

At the same time, Geely Automobile is also striving for an international automobile group through acquisition and layout in recent years. According to public information, in 2017, Geely Holding Group acquired Proton Automobile and Lotus Automobile; In 2018, Geely Holding acquired 9.69% of Daimler’s voting shares for about 9 billion US dollars, becoming its first shareholder; In 2010, Volvo, a Swedish luxury car brand with difficult capital turnover, was pocketed for $1.8 billion. These mergers and acquisitions have made the Geely brand, both in technology and technological innovation, lay a firm foundation for transforming into an international technology enterprise.

There is no road in life in vain, and every step counts. Obviously, with the listing in science and technology innovation board, Geely Automobile has further established its image as an international technology company.

Disclaimer: For the purpose of conveying more information, the content of this article is for reference only and does not constitute investment advice. Investors operate accordingly at their own risk.?