The company's recent situation

The press conference for the new M7 Ultra will be held on May 31, 2024.

reviews

The new M7 Ultra was officially released. The appearance, driving control, smart driving, safety, and space were upgraded in all aspects, and delivered as soon as it went on sale. The price of the new M7 Ultra is 28.98-329,800 yuan. It is comparable to the old M7 Max version with the corresponding configuration, and there is no increase in price. In terms of appearance, the new M7 Ultra is based on the M9 family front face, uses a more exquisite grille design, and has a new color scheme and interior. The new model follows the McPherson front suspension+aluminum alloy H-arm multi-link independent rear suspension, and a standard CDC continuously variable damping shock absorber has been added. The suspension adjustment frequency can reach 100 times/s. With ADS pre-targeting, intelligent collaboration can be achieved to improve driving stability and smooth cornering. In terms of passive safety, high-strength steel and aluminum alloy account for 80.6% to create a high-strength body, and the doorknob has a mechanical emergency door opening function. The smart driving hardware lidar was upgraded to 192 lines, and the detection distance can reach 250 meters. In terms of space, the passenger space of 3338 mm is the largest in its class. Shu Yun's seat has been upgraded, and support for 13.2-inch tablets has been added. Model iteration boosted sales, and the M7 Ultra surpassed 10,000 units on the first day of release. The company vigorously increased its delivery capacity. The new M7 Ultra was delivered upon launch. The delivery target for the first week of June was 4,000 units, and the June delivery target was 20,000 units.

The active security function of Huawei ADS has been upgraded again, and cloud computing power has been greatly improved. According to the press conference, the maximum effective range of Huawei's forward AEB plan has been increased to 4-150 km/h (previously 4-130 km/h); Huawei's exclusive lateral active safety and backward active safety speed ranges have also been upgraded to 40-130 km/h and 1-60 km/h, respectively, which can better handle multiple scenarios and achieve all-round collision prevention. In terms of smart driving, as of June 2024, HUAWEI's cloud learning and training computing power was upgraded to 3.5E FLOPS, which is nearly 1 times higher than in April 2023, greatly improving model training speed. The urban NOA function has covered more than 40,000 townships, and all branch roads of urban and rural main roads can be used. As of May 2024, the total mileage of Huawei ADS smart driving reached 220 million kilometers.

The win-win cooperation model is gradually realized, and 2Q structure optimization and profit release can be expected. Huawei empowers car companies throughout the entire process of product R&D, testing, manufacturing, and supply chain management. Hongmeng Zhixing has formed a differentiated brand matrix and product system covering the entire price range, including Inquire, Intellect, Enjoy, and JAC cooperative brands. Enquiry has become a “masterpiece” of the smart selection model through impressive sales performance. We believe there is no need to worry too much about the risk of Huawei's resources being scattered, and the increase in other models is expected to feed back the evolution of Huawei's ADS and jointly boost the volume of the Hongmeng Zhixing brand. M9 has entered a steady delivery period and the launch of the new M7. We expect the company's sales volume to reach a new high in June, the 2Q product structure will continue to improve month-on-month, the company's 1Q24 profit will be positive month-on-month, and 2Q gross margin and profit performance are worth looking forward to.

Profit forecasting and valuation

We maintain our profit forecast for 2024/2025. The current stock price corresponds to 16.8x 25E P/E, maintaining an outperforming industry rating and target price of 124 yuan, corresponding to 23x 25E P/E, with 39% upside compared to the current stock price.

risks

Order conversion fell short of expectations; NOA in unmapped cities across the country fell short of expectations.