* 2016 net profit doubles to 5.1 bln yuan
* Profit growth is biggest in 8 years
* Geely gearing up for 2018 overseas expansion
(Adds reported earnings figures)
By Jake Spring and Norihiko Shirouzu
BEIJING, March 22 China's Geely Automobile
Holdings Ltd posted its biggest profit growth in eight
years on Wednesday, as improved product design and engineering
following its 2010 purchase of Sweden's Volvo helped propel it
to record sales.
Geely, which also owns the maker of London's black cabs, has
already forecast a 31 percent jump in sales for the current year
as affordable models introduced after the Volvo acquisition,
such as its GC9 sedan and Boyue sport-utility vehicle, exceed
Long seen as a no-frills brand, Geely has transformed itself
into an automaker with up-market aspirations, using its Volvo
research-and-development advantage to climb the sales table in
the world's largest auto market where it ranks around seventh.
Come next year, Geely plans its next phase of expansion as
it aims to become China's first automaker to market its own
brand - new Volvo collaboration Lynk & Co - in developed
markets, beginning with Europe and the United States.
Entering major markets with an unknown Chinese brand is an
expensive risk, analysts say, but investors are unperturbed:
Geely's share price has trebled over the past 12 months.
"It's a total turnaround story," said a fund manager at a
Taiwan-based investment firm that bought a significant amount of
Geely stock last year.
"Before it was just a normal domestic brand, but after
several new product launches it successfully elevated its brand
image," said the person who was not authorised to speak publicly
on the firm's investments and so declined to be identified.
Geely's China sales grew 50 percent last year to 766,000
vehicles, powered by the GC9 and Boyue, as well as small cars
featuring Volvo technology. It aims to top 1 million this year,
though could sell far more depending on market conditions, a
Geely official with direct knowledge of the matter told Reuters.
For 2016, net profit more than doubled to 5.1 billion yuan
($741 million), its strongest growth since 2008. The figure is
set to rise 37 percent to 7 billion yuan in 2017, showed a
Reuters poll of analyst estimates prior to Geely's Wednesday
Geely shares were down 1.2 percent in early afternoon
trading after the earnings release.
To be sure, growth has come at a cost. Geely and parent
Zhejiang Geely Holding Group Co Ltd have spent 10
billion yuan on R&D in each of the past three to four years, or
about 15 percent of current revenue, said spokesman Victor Yang.
That compared with 2 billion yuan in 2015 at domestic rival
BYD Co Ltd, showed Thomson Reuters data.
But Geely's domestic growth spurts could lessen as expansion
in China's overall passenger car market slows following the
reduction of subsidies for small-engine vehicles, adding impetus
to any international push.
"The current focus of our work is firstly the pace of
development in China and increasing our share of the Chinese
auto market, then next we can focus our work abroad," Geely
Chairman Li Shufu told reporters in Beijing earlier this month.
But entering markets where the brand is unknown is a gamble,
and it could take years to gain traction, said James Chao,
Asia-Pacific chief of consultancy IHS Markit Automotive.
As there is plenty of room for growth in China, however,
there is no need to be concerned about the move abroad, said
fund managers at two investment firms that hold Geely stock.
"If they do well abroad it's a bonus, and if they don't then
it's not a big reason to worry," one of the managers said.
($1 = 6.8807 Chinese yuan renminbi)
(Reporting by Jake Spring and Norihiko Shirouzu; Editing by
Adam Jourdan and Christopher Cushing)