24Q1 performance situation: 24Q1 automobile sales revenue of 24.3 billion yuan, total revenue of 25.6 billion yuan, +36.4% year over year; overall gross margin was 20.6%, gross profit margin of 23.5% in the previous quarter; gross profit margin of 19.3%. The total cost of Q1 was 5.87 billion yuan, up 71.4% year on year, including R&D expenses of 3 billion yuan, up 64.6% year on year, sales expenses of 3 billion yuan, up 81% year on year; net profit after adjustment was 1.3 billion yuan, -9.7% year on year.
Sales situation: Ideal 24Q1 delivered a total of 80,400 units, +53% year over year; Ideal delivered 25,800 units in April, +0.4% year over year. Against the backdrop of a slowdown in sales growth in the first quarter, we believe that the competitive landscape deteriorated, ideal competitiveness declined, etc., we think it was more due to off-season demand (beta factors). Ideal is to release the Ideal L6 on April 18. As of May 5, we expected the L6 to be the core main model with a decline in the price of ideal products and this year's increase. We maintain our expectations and are optimistic that it will break through a new monthly sales high of Ideal Bike in the 25-30w market and maintain a steady monthly sales forecast of 15,000 to 20,000 units.
The pure electric platform was delayed: It was originally expected that all pure electric SUV models in the second half of the year will be delayed until the first half of next year, mainly due to the construction of 5c ultra-fast charging infrastructure and store upgrades. Ideal Internal believes that in order to sell pure electricity well, the energy supplementation experience is one of the important breakthroughs.
Gross profit forecast after price reduction: On April 22, 2024, Ideal announced a new price system for models currently on sale: L Series pricing cut by 18,000 to 20,000, Mega starting at 30,000 to 530,000. After the price reduction, bicycle revenue is expected to drop to 285-290,000 yuan. We expect the bike cost to be around 230,000 yuan, which is still 19-20% for the whole year. We judge that 2Q is or the gross profit is low. The car's gross profit is expected to be 18%, mainly due to the L6 climbing slope and the price reduction of models currently on sale. Gross profit is expected to continue to be optimized in the next quarter as it climbs and the product matrix continues to be optimized.
Performance guidance: The company expects some pressure in 24Q2, with sales between 105,000 and 110,000 vehicles, up 21.3% to 27.1% year over year. The company expects total revenue for 24Q2 to be between RMB 29.9 billion and RMB 31.4 billion, an increase of 4.2% to 9.4% year over year. The company delayed the release of the pure electric platform, and the annual sales guide was still 56w-64w. We think the goal is to increase the volume of the four models on the extended-range platform.
Medium- and long-term growth points: 1) The increase in pure electric platforms — Delayed to 25H1. Relying on 5C ultra-fast charging and space definition, it is still expected that pure electric models will increase well in the 30-500,000 price range. 2) Going overseas — According to financial reports, the company already has plans to go overseas and may be located in the Middle East this year. 3) Intelligence - We emphasize that intelligence may become the core competitiveness of car companies in the next 3 years. The technology+data flywheel from leading new car companies will build deeper product power barriers.
Investment advice: Ideal faced a drastic adjustment after the financial report. We believe that the core reason is that the 1Q profit decline and the delay in pure electric platforms caused the market to lower its ideal annual sales/profit expectations and corresponding downgraded valuations; we judge that the market may be excessively pessimistic in judging the ideal annual sales volume and profit, and there is a misjudgment about the deterioration of the competitive landscape (the ideal market share did not decline significantly). As 2Q L6 climbs, the ideal market share is expected to increase further. However, the delay in pure electric models has also caused us to lower our overall performance expectations for this year. We adjusted this year's sales forecast to 550,000 units, of which the L789 may return to 30,000 to 35,000 monthly sales, and the L6 is expected to be 15,000 to 20,000. We adjusted the company's projected revenue for 24/25 to be 1687/228.9 billion yuan (previous value 1809/2255 billion yuan), and the adjusted net profit for 24 years was 13.9 billion yuan (previous value 15.9 billion yuan). Considering the growth potential of pure electricity and overseas sales next year, based on 24E PE's valuation of 18x, we adjusted the target price to HK$136 to maintain the “buy” rating.
Risk warning: gross profit risk due to fluctuations in automobile sales prices; this year's new models fall short of expectations; the new energy industry and policies fall short of expectations, etc.