Incident: Recently, BAIC Blue Valley said on an interactive platform that the first model of the company's Smart Choice collaboration with Huawei will be launched on the market this year, and the model is positioned as a high-end intelligent pure electric sedan.

Comment:

Bicycle losses have narrowed in '23. On January 16, BAIC Blue Valley disclosed the 2023 earnings pre-loss announcement. The company expects annual net profit to be -5.7 billion yuan to 5.2 billion yuan, and net profit after deducting non-recurring profit and loss is estimated to be -6.2 billion yuan to -5.7 billion yuan. In 2022, BAIC Blue Valley's net profit and net profit after deducting non-net profit were -5.465 billion yuan and 5.838 billion yuan, respectively. In terms of sales, the subsidiary BAIC New Energy sold a total of 92,172 vehicles throughout the year, an increase of 83.69%; the cumulative sales volume of BAIC Blue Valley's Jihu Auto and BEIJING brand trams in 2023 was 30016 and 62,156 units, respectively, up 138% and 66% year-on-year, respectively.

Cooperate with Huawei to upgrade the smart selection model, and the launch of the first model within the year is expected to reverse the loss trend. According to the company's August 23 announcement, the company and Huawei will be fully upgraded on the basis of the existing strategic cooperation. The first model will be positioned as a high-end intelligent pure electric sedan. The company will comprehensively upgrade the existing BE22 platform to build BAIC New Energy's next-generation high-end pure electric intelligent connected vehicle platform. The upgraded BE22 platform products will be produced by Beijing's high-end intelligent ecological factory. The construction period of this upgrade project is expected to be 10 months. After completion, the overall production capacity of the project is 120,000 vehicles per year. According to the plan, this model It is expected to hit the market this year. On the brand side, Huawei has transferred a number of “STELATO” trademarks to Beijing New Energy, and we believe this brand is expected to become a new cooperative brand between the two parties.

The Jihu brand is expected to gradually improve in '24, and S5 was announced by the Ministry of Industry and Information Technology. In 2017, Jihu established a strategic partnership with Huawei and became one of the first new energy vehicle brands to participate in the HUAWEI HI cooperation model. Later, sales were sluggish due to problems such as unsynchronized technology and promotion, and delays in vehicle investment. In 2023, BAIC Blue Valley launched a total of new models such as the Extreme Fox Alpha S Advance Edition, the Extreme Fox Alpha S/T Forest Edition, the Extreme Fox Koala, and the Extreme Fox Alpha T5, and sales doubled year-on-year.

At the beginning of 2024, the new Jihu Alpha S5 was announced by the Ministry of Industry and Information Technology. The S5 is positioned as an electric medium to large sedan, slightly smaller in size than the Alpha S, which is expected to further expand the Jihu Auto product matrix.

Revenue forecast: The continuous expansion of the Jihu brand's 24-year product matrix is expected to drive a further increase in delivery volume. High-end models cooperating with Huawei are expected to further improve the company's revenue level and drive the company's profitability to recover. We expect the company to achieve operating revenue of 15.1 billion yuan, 30.7 billion yuan, and 60.3 billion yuan respectively in 2023-2025.

Risk factors: Risk of vehicle sales falling short of expectations; risk of increased competition in the NEV industry; risk of fluctuating raw material prices and supply shortages.