On March 21, Ideal announced that it lowered its 1Q24 delivery guidelines and adjusted sales expectations for the full year. We lowered the sales volume and profit forecast for Ideal 2024/25E and lowered the target price of Ideal Auto to HK$40.8/HK$159.5, a potential increase of 29%/32%, and reaffirmed the “buy” rating.
Adjust sales expectations for the whole year and reallocate resources to increase L series sales: the company quickly adjusted in the face of market changes and lowered the 1Q24 delivery guide from 100-103,000 units to 76,000 units; guided a 50%-70% year-on-year increase in sales, and indicated that the second quarter will focus on increasing L series sales. According to current delivery data and annual guidelines, the ideal sales share is still relatively stable; moreover, the recent performance of plug-in hybrid models in the NEV market continues to be better than pure electric models, which can still provide them with reasonable room for growth. We have slightly lowered our ideal 2024-2026 car delivery forecast and lowered our profit forecast for 2024/25E. As negative public opinion about MEGA is removed, L-series sales are picking up, and the L6 is being launched and delivered in the near future, we expect the ideal delivery volume to reach 608,000 units in 2024, an increase of 62% over the previous year.
The profitability of bicycles is still relatively steady: as sales volume continues to grow, supply cost reduction progresses, and operating efficiency increases, the ideal bicycle profit level has gradually increased since 4Q22, and now profitability is in a leading position among new forces. The company emphasizes that it will strive to stabilize the gross margin above 20% in 2024 and further pursue improving the quality of operations. Based on this, we believe that as deliveries grow further, the ideal is to achieve a continued release of profits.
Reiterate the ideal “buy” rating: the ideal is to adjust the guidelines in a timely manner to ensure a steady quality of operations, and the capital market's expectations on the company's fundamentals are effectively adjusted accordingly. The company's valuation has entered a relatively calm phase after experiencing a recent decline. The current price-earnings ratio of US stocks is valued at 17.1x, which is below a standard deviation below the average, and the downside risk is small. Looking ahead to the upcoming second quarter and the full year of 2024, we think the ideal sales performance trend may be similar to 2023. After a certain amount of pressure in the first quarter, it is ideal to consolidate the basic sales market through strategic adjustments and resource reallocation, and it is expected that sales of L series models will grow steadily.
Valuation: We used the segmented summation method and used price-earnings ratios to give price-earnings ratios of 19.5x and 15.0x the ideal 2024 car sales and other revenue, respectively. We got the target price of Ideal Auto (LI.US) at $40.8, which corresponds to a price-earnings ratio of 19.1x. At the same time, we got Ideal Automobile-W (2015.HK) with a target price of HK$159.5.
Investment risk: Demand growth in the NEV industry falls short of expectations. Order performance for the company's new models fell short of expectations. Public opinion continued for a long time, which in turn affected the brand image and sales of subsequent pure electric models. The progress of the energy supplementation network construction fell short of expectations. Autonomous driving is slow to land.