FT : Strong SUV sales power Geely to 126% jump in profits

Strong SUV sales power Geely to 126% jump in profits
Chinese automaker has used Volvo acquisition to upgrade its offering

A big bet on sport utility vehicles paid off for Chinese automaker Geely in 2016, as strong sales led to a 126 per cent increase in full-year net profits, to Rmb5.1bn, the company announced on Wednesday. 

Geely shares closed up 5.8 per cent in Hong Kong following the announcement, which beat already high expectations. The median analyst estimate by Bloomberg had forecast profit growth of just above 100 per cent. 

The group rolled out a number of SUV models last year, including the Boyue, GS, and Vision, to capitalise on customer enthusiasm for the larger, higher-margin cars in secondary cities. Geely said the SUVs were the key drivers of 50 per cent sales volume growth year on year and helped offset a fall in exports. Full-year revenues rose 78 per cent to Rmb53.7bn. 

The overall proportion of SUVs in Geely’s total sales by volume jumped from 12 per cent in 2015 to 31 per cent in 2016, as it latched on to a trend across China that has seen SUV sales explode. 

“They have gotten on the bandwagon of SUV demand” said Janet Lewis who covers the Asian automobile market for Macquarie Capital Securities in Tokyo. She added that buyers in cities outside of Beijing, Shanghai and Shenzhen are less concerned with traffic congestion and like larger roomier vehicles. 

China‘s broader auto market has seen sales of SUVs as a percentage of total sales by volume rise to 39 per cent last year from 13 per cent in 2012. “SUVs have become a mainstream product in China” said Yale Zhang of Auto foresight in Shanghai, who added that women are the disproportionately high buyers of SUVs. 

Geely has also benefited from greater domestic acceptance of Chinese brands and improved technology, which have allowed it to push up prices. Average selling prices charged by the automaker rose 22 per cent last year, though they were still below foreign competitors.

“Geely does relatively well on a quality basis versus other domestic producers” said Ms Lewis, noting that the leaders in Chinese SUV sales have been better quality domestic brands such as Geely, Great Wall, and Trumpchi, rather than foreign brands. 

The company has used its 2010 acquisition of Volvo to upgrade its offering and buy parts from a more global array of suppliers.

Xing Lei, chief editor of China Automotive Review said “the acquisition of Volvo has helped Geely get more in line with consumers’ tastes.” Peter Horbury, formerly Volvo’s chief designer, now heads Geely’s design studios. 

Geely also proposed a final dividend of HK$0.12 per share and set its automobile sales target for the 2017 financial year at 1m units, up 31 per cent from 2016. 

(MS) Gemalto - 1st take: Profit warning on U.S.

1st take: Profit warning on U.S. chip card

The €60m downgrade to the 2017 PFO target (at the midpoint) is largely due to US chip card inventory build. We think
new guidance implies a 30%+ decline in U.S. Payments business. There may be some additional caution built in to this revision ahead of the next multi-year plan.

Gemalto has warned on its 2017 PFO target, largely citing U.S. chip card inventory build, as part of the migration to EMV. 
This has been an issue for several peers (CPI Card, Oberthur) during 2016 given a strong ramp in 2015, and
had also been cited by Infineon. Gemalto had until recently said that exposure to different customers - and strength in the debit card portfolio - meant they had not seen the same issues, though that situation now appears to have reversed.
According to our conversation with the company this morning, the vast majority of the €100m revenue downgrade is due to U.S. EMV.

Why such a big profit downgrade? 
Revised guidance for PFO in line with 2016 implies €450m vs previous guidance of €500-520m, or a €60m operating profit downgrade at the mid-point. Gemalto indicates a drop-through margin of 50-60% on incremental revenue, which is high but possible in our view. Total payments revenue in 2016 was ~€1bn, and we think Americas (including Latin
America and Canada) was ~40% of this. Gemalto indicates the U.S. is the only change to previous assumptions, and we think the implication is that the U.S. payments business will decline at least 30% y/y in 2017. Revised guidance for a 7-
9% revenue decline in 1Q is a ~€55m delta from our previous estimates, which could represent a halving of the U.S. business short-term.

Our main unanswered question is how management can have visibility on the U.S. at such an early stage in the year, given the volatility in the market. 
We think this should represent the last reset of guidance, following the downgrade of PFO targets from €660m to €500-520m in late 2016. Certainly the magnitude of the downgrade to the U.S. business suggests the company is taking a cautious view. We are also conscious that 2017 will for the basis for the next multi-year plan announced later this year, so management has an incentive to be cautious. However, visibility is extremely low for the time being given the situation in the U.S.

>>> AkzoNobel : Rejects second proposal from PPG valued at €88.72/shr (€56.22 ca

Rejects second proposal from PPG valued at €88.72/shr (€56.22 cash, 0.331 PPG shares) 

AkzoNobel today announces it has rejected a second unsolicited, non-binding and conditional proposal of 20 March from PPG Industries Inc. for all of the issued and outstanding ordinary shares in the capital of AkzoNobel. The proposal not only fails to reflect the current and future value of AkzoNobel, it also neglects to address the significant uncertainties and risks for shareholders and other stakeholders.

The Management Board and Supervisory Board of AkzoNobel, together with their financial and legal advisors, have thoroughly reviewed the second proposal taking into consideration the interests of AkzoNobel's shareholders, customers, employees and other stakeholders. 

The revised proposal represents a value of €88.72 (adjusted for final dividend) consisting of €56.22 (adjusted for final dividend) in cash and 0.331 PPG shares, as at 20 March 2017, per AkzoNobel share.

The unsolicited proposal does not warrant AkzoNobel's engagement with PPG. The Boards unanimously reject PPG's revised proposal.

The proposal does not address the concerns expressed by the Boards in their initial rejection of 9 March 2017. The revised proposal: 
1. Is not in the best interests of shareholders. It substantially undervalues AkzoNobel and fails to reflect the value creating opportunities of the new strategic direction and focus for both the Specialty Chemicals and the Paints and Coatings businesses, allowing them to build further on their respective leadership positions. 
2. Contains significant risks related to the increased stock component and the high leverage of the proposed combined businesses. 
3. Would result in a large number of substantial divestitures due to the major geographical and segment overlap of both companies across Decorative Paints and Performance Coatings, bringing into question value leakage. It does not address the significant risk and uncertainty, including timing, of deal completion due to extensive anti-trust concerns. These anti-trust issues would have a significant negative impact on employees and customers which will affect the integrity of AkzoNobel. 
4. Will lead to significant job cuts. It includes synergies which can be expected to result in the restructuring of the combined employee base, leading to job losses. PPG provides no substantive commitments to employees, creating potential uncertainty for thousands of jobs worldwide. 
5. Does not address fundamental stakeholder concerns and uncertainties, nor does it substantiate any tangible solutions in relation to, among others, R&D, pensions and employees. 
6. Does not meaningfully address our concerns regarding community contribution and sustainability and the significant culture gap between both companies, including how any issues arising from this would be addressed.

>>> What to look at today - 22nd of March 2017

Dow -1.14% S&P -1.24% Nasdaq -1.83% Russell -2.71%
US Market Closed lower. Financial -2.90%, The reversal of fortune had its roots in the inverse relationship between the yield curve and the banks. The former is flattening in a contradiction of the pro-growth narrative that has driven the stock market to record highs in the post-election period; meanwhile, the banks are getting flattened as investors re-think the high earnings expectations related to a widening yield spread that have driven many bank stocks sharply higher since the election. cyclical sectors absorbed the worst of the selling pressure with the consumer discretionary, industrials, materials, and technology sectors closing lower between 1.2% and 1.7%. Countercyclical groups outperformed amid the day's risk-off sentiment with the rate-sensitive utilities sector (+1.4%) closing atop the day's leaderboard. US After Hours DLTH +19% and FDX +2% following earnings/guidance, BEBE +9% rebounding... NKE -3.8% following earnings. Asian equity markets are down significantly, tracking the biggest loss of the year on Wall St where political risk has become increasingly amplified. Nikkei225 is the worst performing index in Asia, with added headwinds from overall decline in USD boosting JPY, as Financials is also the worst segment in Japan. conomic data centered around Japan, where Feb Trade Balance recovered from last month's multi-month lows.

Nikkei -2.13% Hang Seng -1.30% CSI -0.47% Shanghai -0.50%

Eur$ 1.0803 CNH 6.8658 CNY 6.8845 JPY 111.48 GBP 1.2479 CHF 0.9927 RUB 575822 WTI$ 48.02 -0.46%

S&P -0.23% EuroStoxx -0.33% Dax -0.60% SMI -0.52% FTSE -0.52%


Macro :
- Oil Closes at Lowest Since November as U.S. Supply Seen Rising
- Lazard Sees Risk for Europe Banks as Rules Ease for U.S. Rivals

Keep an eye on :
- ADS GY :  Nike 3Q EPS Beats Highest Est., Nike Falls After Revenue and Gross Margin Miss Estimates
- ATC NA : Altice CEO: Sees Ad Sales at Several Billion Euros in Few Years
- BAYN GY : Bayer Seen Notifying EC on Monsanto in Mid-April: CTFN
- BMW GY : BMW Aims to Sell 100,000 Electrified Vehicles in 2017
- CAI AV : CA Immobilien FY FFO I of EU91.7m 14% Above Previous Year
- AFX GY : Carl Zeiss Meditec Will Increase Share Capital by Up to 10%, Carl Zeiss Raises Around EU317m in Capital Increase
- CSGN VX : Credit Suisse Old Liabilities to Drop Significantly by 2018: FuW
- CSGN VX : Credit Suisse May Move ~1k Jobs to N.C.: Triangle Biz Journal
- DELB BB : Delhaize Belgium Reaches Deal to Halt Brussels Walkouts: Belga
- DDC US : Dominion Diamond Should Start Sales Process, M&G Tells Reuters
- EI FP : Gucci Owner Partners With Cartier in Luxury Eyewear Union (1)
- FCA IM : French Prosecutor Said to Open Probe on Fiat Emissions: Reuters
- GTO NA : Gemalto ‘Dead Money’ for Some Time After Warning, Natixis Says
- RMS FP : Hermes 2016 Net Income Matches Estimate; Outlook Confirmed
- KER FP : Cartier Owner Richemont to Buy Minority Stake in Kering Eyewear
- KU2 GY : Kuka Sees 2017 Sales Rev of Around EU3.1b, Proposes EU0.50 Div.
- SKB GY : Koenig & Bauer Sees 2017 Rev. as Much as EU1.25b
- MAERSKB DC : Maersk, Hapag Subpoenaed Last Week in Price-Fixing Probe: WSJ
- ORA FP : Orange in Exclusive Deal for HBO Content in France: CEO
- PLT IM : Lactalis Failure Indicates Parmalat Offer Price Too Low: Amber, Lactalis Fails to Reach 90% of Parmalat as Buyout Offer Ends
- PLT IM : Lactalis Reopens Offer Period for Parmalat for March 29-April 4
- RBI AV : Immigon Sells Up to 9.92m Raiffeisen Shares, 3% of Capital, Orders Below EU21 Likely to Miss: Terms
- CFR VX : Cartier Owner Richemont to Buy Minority Stake in Kering Eyewear
- SAN FP : Sanofi Sues Amgen Over Eczema Drug in Preemptive Patent Case
- TMG NA : De Mol Loses Court Case Push in Takeover Fight for Telegraaf
- UBG VX : UBS Applies Deposit Charge to Cash Balances Over 1 Million Euros

>>> Europe : Brokers Upgrades & Downgrades - 22nd of March 2017

>>> Up
*BBVA Raised to Overweight at Barclays
*Fraport Raised to Buy at DZ Bank, PT EU72
*Fraport Raised to Reduce at AlphaValue
*Hunting Raised to Overweight at Barclays
*Vallourec Raised to Buy at Goldman, PT EU7.40
*Wacker Chemie Raised to Overweight at JPMorgan, PT EU115
*William Hill Raised to Hold at Investec, PT 279p

>>> Down
*Aurubis Cut to Hold at Berenberg, PT EU62
*Bechtle Cut to Hold at Baader-Helvea
*Berendsen Cut to Underperform at Credit Suisse, PT 700p
*Bourbon Cut to Sell at SocGen, PT EU6
*Centrica Cut to Sell at Investec, PT 195p
*Fingerprint Cards Cut to Hold at Pareto Securities, PT SEK35
*Fingerprint Cards Cut to Hold at SEB Equities, PT SEK40
*Gemalto Cut to Neutral at Natixis
*Merlin Cut to Hold at Kepler Cheuvreux, PT EU11.30
*Peab Cut to Hold at DNB Markets, PT SEK90
*PSP Swiss Cut to Sell at Baader-Helvea, PT CHF86
*Raiffeisen Cut to Hold at Commerzbank, PT EU21
*Schroders Cut to Sector Perform at RBC, PT 3300p
*Talanx Cut to Sell at DZ Bank, PT EU31.20
*Wood Group Cut to Underperform at Jefferies, PT 650p
*Zodiac Aerospace Cut to Sell at AlphaValue

>>> Initiation
*Casino Guichard Reinstated Overweight at JPMorgan, PT EU60

>>> Call