Luyuan Group: the founding brand of electric two-wheelers, intelligent development starts a second round of growth

Luyuan Group Holdings (Cayman) Co., Ltd. was founded in 2009 and is a leading enterprise in the electric two-wheeler industry in China. The company is committed to leading the development of the core technology of electric vehicles. Its products cover the three categories of electric bicycles, electric light motorcycles, and electric motorcycles. Among them, the company's liquid-cooled electric vehicle series is equipped with a unique liquid-cooled motor, which has nine core technology support, a battery life of more than 100 kilometers, and a quality guarantee for 10 years to promote the development of electric two-wheelers in the direction of durable goods. Based on a wide-coverage and efficient sales network, the company's products have been successfully sold to 37 countries including Thailand, Indonesia, and the Philippines. In 2023, the company achieved revenue of 5.083 billion yuan, +6.27% year-on-year, and realized net profit of 146 million yuan, or +23.36% year-on-year.

Market expansion+pattern optimization, 100 billion track continues to be booming

1) Policy side: The introduction and implementation of the new national standard promotes standardization of industry production standards, puts forward higher requirements for product production, sales and use, and accelerates the release of replacement demand for electric two-wheelers; at the same time, the production qualification threshold also promotes increased industry concentration. 2) Demand side: On the one hand, as the economy continues to recover after the epidemic, personal travel consumption continues to grow, and electric two-wheelers are benefiting from the development as an important travel tool for residents; on the other hand, commercial applications such as instant delivery and shared travel are developing rapidly, and their dependence on electric two-wheelers is high. The characteristics of high-frequency vehicle use have shortened the car purchase and exchange cycle, leading to an increase in demand in the electric vehicle market. 3) Supply side: The industry has entered a stage of stock development, and the market is shifting from homogenized price competition to high-quality competition. Major brands use intelligent product intelligence and design autonomy to drive sales growth and brand premiums, driving a sharp rise in the volume and price of electric two-wheelers; in addition, upstream raw material prices have declined markedly, further opening up profit space for the industry.

The company's competitive advantage: strengthening production, supply and marketing capabilities, and accelerating intelligent penetration 1) R&D advantage: The company has more than 20 years of technology research and development experience, has formed a complete core technology matrix, and pioneered liquid-cooled motor technology in the industry to promote the transformation and upgrading of products from consumer goods to durable goods. 2) Product advantages: Relying on strong product design capabilities and external cooperation resources, the company continuously enriches the product matrix, achieves comprehensive coverage of high and low end models, and focuses on developing the middle and high-end target markets. 3) Production capacity expansion: The company plans to upgrade or expand production lines at the production base, which is expected to reach 9.5 million units by 2026, and production capacity is expected to expand 3 times within 3 years; 4) Channel advantage: The company has established a multi-dimensional channel matrix combining online and offline collaboration, C-end and B-side; 5) Intelligent advantages: The company and the large-scale shared travel platform Qingju Car are collaborating to jointly develop smart electric vehicles to accelerate penetration into the smart market, which is expected to drive increased profitability through product premiums.

Investment advice: We expect the company's 2024-2026 revenue to be 61.65/ 70.16/ 8.563 billion yuan, net profit to mother 1.81/2.32/ 303 million yuan, and the current stock price corresponding PE is 15.9/12.4/9.5x.

Listed companies with similar business in Hong Kong stocks and A shares were selected as a reference. As of June 6, 2024, the average PE value of comparable listed companies in 2024 was 19.5x, fluctuating up and down by 10%, that is, the valuation range of 17.6-21.5x, corresponding to Luyuan Group's market value range of 31.7 to 3.88 billion yuan. First coverage, giving a “buy” rating.

Risk warning: Risk of fluctuations in raw material prices, risk of seasonal fluctuations in business performance, risk of new product development falling short of expectations, risk of accounts receivable, risk of estimating certain subjective risks, and risk of selecting comparable companies across markets.