Geely eyes Volvo break even in Q4, own H2 net falls

Chinese carmaker, Geely Automobile Holdings said Volvo, which it is in the process of buying, could break even as early as the fourth quarter, after posting a surprise drop in its own second-half earnings.

Hong Kong-listed Geely shares fell 6 percent in their biggest drop in more than two months, hitting a 5-week low, before closing down 5.3 percent to HK$3.95.

"The market was expecting growth, so to see a fall in profit is disappointing for some funds," said Peter Lai, director at DBS Vickers, adding the stock still remained a good medium-term buy.

"It's likely to re-list Volvo soon, which will mean a lot of cash for them over a long period of time," Lai said.

Geely's parent, China's biggest private carmaker, signed a definitive agreement late last month to buy Ford Motor Co's (F.N) Volvo car unit for $1.8 billion. Both Geely and Ford had said they hoped to complete the deal in first quarter.

Geely Chief Executive Gui Shengyue predicted the Swedish premium brand could break even as early as the fourth quarter of 2010.

"As far as I know, Volvo is in good operating condition and it's possible it could break even in the fourth quarter of this year," Gui told reporters in Hong Kong.

Geely has the right of first refusal to buy Volvo from its parent once the deal closes, said Gui. However, he added the listed company would likely wait until Volvo had added production capacity in China.

Owning a global brand would give Geely a chance to build its profile in China, where it is known for smaller, cheaper cars, and to catch up with bigger state-owned rivals that have partnered global brands including GM GM.UL and Volkswagen.

SLOWER GROWTH AHEAD

Geely's sales rose more than 60 percent to around 100,000 units in the first quarter but the company kept its 2010 sales target at 400,000, up 22 percent from 2009.

"Like other Chinese automakers, Geely's sales will remain healthy this year, but it's just unrealistic to repeat last year's breakneck growth," said Zhang Xin, a Beijing-based analyst with Guotai Junan Securities.

Geely sold 326,710 million sedans last year, an increase of 60 percent, pushing its market share above 4 percent.