Bronco is one of the originators of off-road vehicles and is currently one of the best-selling off-road models in the US. It sells more than 100,000 vehicles a year in the US market and ranks third among off-road vehicles. We believe that with its high cost performance, strong off-road capability, tough appearance, and fame as an established off-road vehicle after localization, Bronco is very hopeful to become a new hit in the off-road vehicle market. Since the average sales price of Bronco is much higher than the company's other models, and high sales volume can be expected to increase, it is expected that high operating leverage will release greater profit elasticity. The company is expected to become Ford's production base for performance models such as off-road vehicles and pickup trucks in China, and the company's product coordination and profitability may be greatly improved. We raised the company's net profit forecast for 2023/24/25 to 11.9/19.3/2,800 million yuan, giving the company 12-14 times PE in 2024, corresponding to the target market value of 24 billion to 26 billion yuan. Upgraded the rating to “buy.”

The Bronco is an American pure-blood hardcore off-road vehicle that was relaunched in 2021, and its sales volume has steadily ranked in the top three in the US market.

The Bronco is the first off-road vehicle in Ford history and one of the world's earliest best-selling off-road models. It was born in 1966 and was discontinued in 1996. In 2021, Ford released the sixth-generation Bronco as its key model in the US off-road vehicle market. It directly competes with the Jeep Wrangler and is a legendary top class in the off-road vehicle field. The exterior of the sixth-generation Bronco retains the design features of the old models, while making improvements adapted to the times and tougher lines. After the launch, Bronco received enthusiastic feedback. It sold 35,000 vehicles in the year it went on sale, and directly reached 117,000 vehicles in the following year, once again dominating the US off-road market. According to Marklines data, from January to October 2023, the top 5 sales models of off-road vehicles in the US in the narrow sense were:

Wrangler (135,000 units), 4Runner (97,000 units), Bronco (96,000 units), Tahoe (93,000 units), and Sorento (74,000 units); the concentration of the US off-road vehicle market is extremely high, with sales of the top 5 models accounting for more than 50% of the total off-road vehicle market. The Bronco starts at $4-5 million and comes standard with a 2.3-liter engine that can reach a maximum of 275 horsepower and 315 Nm of torque. As a mid-range and high-end off-road vehicle, Bronco meets the needs of most off-road users with its high cost performance ratio. It is very popular in the US, and even in the early stages of launch, it is hard to find one.

Bronco is about to be domesticated and is expected to become the next popular off-road model in China. In September 2023, Ford Bronco first appeared on the Ministry of Industry and Information Technology catalogue. It will soon be domesticated and produced by Jiangling Motors. According to the Ministry of Industry and Information Technology, Jiangling Ford Bronco has basically restored the design language of the overseas version. The two configurations are 4800/2070 (1990) /1990 (1840) mm, respectively, and the wheelbase is 2950 mm. We expect Jiangling Ford Bronco to begin pre-sale in 2023Q4 and officially deliver in 2024Q1. Currently, domestic off-road vehicles are in the stage of explosive sales. According to data from the China Automobile Association, the sales volume of off-road vehicles in the narrow sense in China from January to September 2023 was 208,000, of which 162,000 were made in China (78%) and 46,000 imported cars (22%); among domestic brands, the Great Wall Tank series sold 114,000 units from January to September 2023 (71%), making it the absolute leader in domestic off-road vehicles. Among imported foreign brands, models such as Prado, Pajero, and Nissan Patrol once occupied a high market share, but they voluntarily faded out of the Chinese market due to national six emissions. Having experienced supply chain adjustments after the pandemic, foreign-funded off-road models, led by Ford Bronco, are not outdone. Entering the Chinese off-road vehicle market through localization, it is expected to become a rare high-quality supply of newly added foreign brands in the market.

Domestic off-road vehicle sales are currently exploding. We believe that high-quality supply may continue to boost market sales space. Bronco is expected to contribute a lot of flexibility to Jiangling Motors on this basis.

The company's business was restructured to focus on the light commercial vehicle industry. Its main products include two major brands, JMC and Ford. The company is a joint venture between Jiangling Investment and Ford Motor, which hold 41% and 32% of the shares, respectively. In order to improve operating efficiency, the company suspended heavy truck and other businesses, reduced investment in independent passenger car brands, and focused on the light commercial vehicle business in cooperation with Ford. In 2022, young commercial vehicles accounted for about 70% of revenue. The company's main products include two major brands, the independent brand JMC and the joint venture brand Jiangling Ford. Among them, JMC models are mainly light commercial vehicles, while Ford mainly focuses on performance cars and passenger cars. According to data from the China Automobile Association, Jiangling Ford sold 76,000 vehicles from January to September 2023, accounting for 34% of the company's sales volume. With the production and sale of models such as the Ranger and Bronco, we believe that the Ford brand's share of the company's car sales is expected to increase further.

The company is expected to become a domestic production base for Ford's performance models. The commencement of production of new models will not result in additional production capacity, so profit elasticity can be expected. At the Chengdu Auto Show in August, Ford announced a new Chinese market strategy: the Jiangling Ford Ranger pickup truck started pre-sale, and also launched a new “Ford Beyond (Ford Beyond)” channel to include major models such as the Ranger and Bronco, with the aim of building a top off-road ecosystem. Ford plans to open up the Chinese market with performance models such as off-road vehicles and pickup trucks. According to the company announcement, at the end of 2022, the company designed a production capacity of 330,000 vehicles, with a capacity utilization rate of 85.3%; among them, the capacity utilization rates of light passenger cars, pickups, and light trucks produced by non-load-bearing bodies were 117.4%, 158.7%, and 69.8%, respectively. Under the premise of double shift production, the company still has surplus production capacity for non-load-bearing bodies (Xiaolan factory), and the company has experience in the production of non-load-bearing models such as Everest, so it is anticipated that no additional production capacity will be required. Therefore, we believe that Jiangling Ford's Bronco and Ranger production is not expected to significantly increase the company's depreciation and amortization, and profit elasticity is high. In the long run, the company is expected to become Ford's domestic production base for performance models such as off-road vehicles and pickup trucks, and the company's product coordination and profitability are expected to be greatly improved.

Risk factors: Macroeconomic growth is facing downside risks; commercial vehicle industry sales recovery falls short of expectations; consumer propensity to consume off-road vehicles falls short of expectations; consumer acceptance of Jiangling Ford Bronco falls short of expectations; Jiangling Ford Bronco production capacity is climbing lower than expected.

Profit forecast, valuation and rating: Bronco is one of the originators of off-road vehicles and is currently one of the best-selling off-road models in the US. It sells more than 100,000 vehicles a year in the US market and ranks third among off-road vehicles. We believe that after the localization of Bronco, the pricing is expected to be drastically reduced compared to the 500,000 to 800,000 yuan of parallel imported models, which is expected to become a rare high-quality supply of newly added foreign brands in the market. Due to the expected high ASP for bicycles and the corresponding lower depreciation and amortization, we expect Bronco's corresponding profitability to be more elastic. Therefore, we have raised the company's profit forecast. The company's net profit for 2023/24/25 is estimated to be 11.9/19.3/2,800 million yuan (the original forecast was 680 million/730 million/850 million yuan), and the corresponding EPS forecast for 2023/24/25 is 1.38/2.23/3.24 yuan. The company's PE valuation for the past 3 years is 22 times. Considering the significant increase in the company's profit base, the valuation should have been reduced. Therefore, using the 2024 forecast net profit as a benchmark, the company was given 12-14 times PE in 2024, corresponding to the target market value of 24 billion to 26 billion yuan. Upgraded the rating to “buy.”