UPDATE 2-China Geely H1 net beats f’cast, warns of competition

* H1 net record 804.85 mln yuan vs consensus 756.4 mln yuan

* Warns of rising competition at home and overseas

* Confident of achieving 2010 sales target of 400,000 units

* No China production for Volvo seen in the near future
(Adds details, chairman comments)

By Alison Leung

HONG KONG, Aug 25 (BestGrowthStock) – China’s Geely Automobile
Holdings (0175.HK: ), whose parent bought Ford’s (F.N: ) Volvo unit
this month, warned of tougher competition and slower sales
after its record first-half earnings beat forecasts on
Wednesday.

China overtook the United States last year to become the
world’s biggest car market, as Beijing rolled out incentives to
boost spending during the global downturn.

But that growth is expected to wane in the second half as
the government presses the brakes to keep the economy from
overheating.

“The headline is positive but investors will continue to
focus on what is going to happen in the next 12 months,” said
Steve Man, an analyst at Samsung Securities. “We believe that
earnings growth will moderate during that period because of
lower sales and lower utilisation.”

Competition is rising in China as some auto makers cut
prices to boost sales, which have been slowing from last year’s
breakneck pace.

Founded by Chairman Li Shufu, dubbed the Henry Ford of
China, Geely said it will launch new and higher end car models
this year and focus on building its export business to making
it less vulnerable to China’s volatile domestic market.

But exports won’t provide boost the car maker’s revenue
just yet. Exports should make up 3.5 percent of Geely’s total
sales this year, down from about 6 percent in 2009 and would
not be a major contributor during the period, Executive
Director Lawrence Ang told repoters in Hong Kong.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

For Geely SPECIAL REPORT: http://r.reuters.com/feb98m

For a graphic on monthly China car sales:

http://link.reuters.com/neq96n

For TABLE on China July auto sales: [ID:nTOE67907M]

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

A PROFIT FOR VOLVO

Despite the dimming outlook for China’s auto market, there
is a potential bright spot for the carmaker — its parent’s new
Volvo unit.

If the Geely’s parent, Zhejiang Geely, can turn Volvo
around, that could allow Geely to benefit from technology
transfers and eventually take over the premium brand, said Man.

Volvo has been profitable since the start of the year, said
Li Shufu, speaking in Hong Kong after the results, a big change
for the luxury brand, which posted a $653 million pretax loss
last year.

“Geely and Volvo are just like brothers,” said Li. But he
played down expectations that the listed-Geely would see quick
benefits from the Volvo buy.

While the company has the right to use Volvo’s more
advanced production technology, Geely is unlikely to use it
extensively soon as it will inflate production cost, said Li.
Further, while the company hopes to begin producing Volvo cars
in China for the domestic market, new production won’t begin in
the near term.

“I am very anxious about this, but there needs detailed
study and research by Volvo, which has not started yet, and the
board and government approvals,” he added.

Geely, which has been trying to move up the value chain by
launching bigger and better quality cars in China, posted a
804.85 million yuan ($118.4 million) net profit for the first
six months of this year against 595.91 million yuan a year
earlier.

The record profit topped an average forecast of 756.4
million yuan from four analysts polled by Reuters.

The company sold 195,734 cars in the first six months, up
42 percent from a year earlier. But its July sales growth
turned negative, falling 12 percent to 21,684 year on year.

But Li said Geely was confident that it could achieve its
2010 sales target of 400,000 units, up 22 percent from 2009.

Geely’s domestic rival BYD (1211.HK: ), backed by U.S.
billionaire Warren Buffett, reported disappointing
second-quarter earnings on Monday and said it would launch new
models to lessen the impact of a slowdown in the home market.
[ID:nTOE67M04S]

Weakening sales have hurt Geely shares, which are down 39
percent this year against a 6 percent fall in the main index.

The stock surged nearly seven-fold last year on bullishness
about the Volvo purchase and an investment in the company by
Goldman Sachs (GS.N: ).
($1=6.796 Yuan)
(Editing by Don Durfee and Lincoln Feast)

UPDATE 2-China Geely H1 net beats f’cast, warns of competition