China's Geely set to post earnings jump as Volvo tech boosts sales

Jake Spring and Norihiko Shirouzu

* Geely to release 2016 earnings on Wednesday

* Net profit likely doubled to 4.6 bln yuan -poll

* Expected profit would be biggest growth in 8 years

* Geely gearing up for 2018 overseas expansion

BEIJING, March 21 (Reuters) - China's Geely Automobile

Holdings Ltd is set to post 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

initial estimates.

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 likely doubled to 4.6 billion yuan

($666 million), its strongest growth since 2008, showed a

Reuters poll of 31 analyst estimates. The figure is set to rise

52 percent to 7 billion yuan in 2017, the poll showed.

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 = 6.9040 Chinese yuan renminbi)

(Reporting by Jake Spring and Norihiko Shirouzu; Editing by

Adam Jourdan and Christopher Cushing)