Key points of investment

Incident: Changan Automobile released a production and sales report for June 2024. The company's wholesale automobile sales volume in June was 0.225 million vehicles, -0.30%/+8.81% year-on-month, and the cumulative wholesale sales volume of H1 in 2024 was 1.3341 million vehicles, or +9.74% year-on-year. Among them, the wholesale sales volume of autonomous passenger cars in June was 0.1383 million units, +0.12%/+12.23%, and the cumulative wholesale sales volume of H1 in 2024 was 0.8219 million units, +7.01% year over year; Changan Ford's wholesale sales volume in June was 0.0195 million units, -3.18%/+8.98% year over month, and the cumulative sales volume of H1 in 2024 was 0.1116 million units, +13.36% year on year; Changan Mazda wholesale sales volume in June 5,535 vehicles, -25.31%/-7.18%, respectively. The cumulative sales volume of H1 in 2024 was 0.0368 million units, +14.44% year-on-year.

Under the influence of the trade-in policy, independent sales increased steadily year-on-month in June, and 2024H1 overseas sales performance was impressive. 1) Overall situation: In June 2024, the company's overall wholesale sales volume declined slightly year-on-year and bucked the trend. The sales volume of its own brands and autonomous passenger car sales both increased month-on-month. The main reason was that the impact of the new trade-in subsidy policy was beginning to show. The three new energy brands under Changan Automobile all improved month-on-month. 2) Overseas: The overseas sales volume of the company's own brands in June 2024 was 0.0293 million vehicles, +46.26%/-11.91% year-on-month, and the cumulative sales volume of H1 in 2024 was 0.2032 million vehicles, +74.85% year-on-year, and the cumulative export rate of its own brands reached 18.12%. Avita signed a strategic cooperation agreement with AL SAQER GROUP, the leading car dealer in the UAE on June 20, 2024. Avita may be able to use the dealer's influence and channel resources in the Middle East region to rapidly expand the Middle East market, reshape the local smart luxury electric vehicle pattern, and empower the long-term safety and spheroization strategy.

Changan's three new energy brands all saw a month-on-month increase in sales in June, and Deep Blue G318 immediately hit the market. In June 2024, the company's own-brand new energy sales reached 0.0636 million vehicles, +60.03%/+15.63%, respectively. The penetration rate of own-brand new energy increased to 33.66% month by month. The cumulative sales volume of H1 in 2024 was 0.2991 million vehicles, +69.87% year-on-year. By brand, 1) Qiyuan: The monthly delivery volume in June 2024 was 0.0151 million vehicles, +11.91% month-on-month, continuing the positive trend, and the Changan Qiyuan E07, the world's first mass-produced “new variable car”, is expected to be mass-produced in October 2024 and launched in Q4. The variety of price options and body shapes is expected to further meet the needs of consumers in all scenarios, and drive Qiyuan's sales volume to continue to rise. 2) Deep Blue: 0.0144 million vehicles were delivered in a single month in June 2024, +15.92% month-on-month; the 2024 H1 delivered a total of 0.0839 million vehicles. The Deep Blue G318, a medium and large SUV with a “load-bearing body+range extender power+electric four-wheel drive system”, was officially launched on June 13, 2024. A total of 6 models were launched with a price of 0.1759-0.318 million yuan. The purchase price was highly competitive, and the fuel economy was remarkable. It has surpassed 0.0141 million vehicles, and the customer order price exceeds 0.225 million yuan, which is expected to lead the new energy hardcore SUV category. 3) Avita: In June 2024, 4,682 vehicles were delivered in a single month, +167.08%/+2.47%, respectively. In 2024, the H1 Avita 12 ranked first in the list of pure electric cars with sales volume of over 0.3 million; the Avita 07, which positions itself as a mid-size SUV, is also expected to be launched in September 2024, or provide both extended-range and pure electric power versions, and is equipped with Huawei Qiankun ADS3.0 and HarmonyOS Hongmeng cockpits. The estimated price is 0.25-0.35 million yuan, and the launch of new products with an advanced level of intelligence is expected to advance further Boosting sales of the Avita brand.

First equipped with the Huawei Qiankun ADS3.0 system, Avita smart driving safety has reached new heights, and the smart driving experience has been further advanced. Avita announced on June 25, 2024 that future models under the Avita brand will be equipped with the Huawei Qiankun ADS3.0 system for the first time, and all models will be equipped with three lidars as standard. The ADS3.0 system uses a new end-to-end autonomous driving architecture with GOD (General Obstacle Recognition) /PDP (Predictive Decision Control), and includes advanced functions such as parking chauffeur (VPD). This function enables the vehicle to achieve unmanned driving from any parking space. The vehicle can independently search for parking spaces after receiving instructions from a mobile phone, intelligently avoid pedestrians and other vehicles during driving, and automatically respond to situations such as parking space occupation; the three lidars also provide stronger hardware support for intelligent driving. By combining the high-precision sensing of the three lidars with the intelligent decision-making of the Huawei Qiankun ADS3.0, the Avita model can achieve more accurate obstacle recognition, more complex scene understanding, and more stable autonomous driving execution capabilities, providing users with a higher-level and safer intelligent driving experience.

Investment advice: The basic market of the company's fuel vehicle business is stable. Driven by multiple factors such as “the beginning of the new energy product cycle, the steady progress of overseas production capacity construction, the new energy business of central vehicle companies is expected to be assessed separately and the continuous deepening of cooperation with Huawei”, we believe that the company's electric intelligent transformation will accelerate and drive the implementation of performance, have a clear upward logic in the medium to long term, and maintain profit forecasts. The net profit due to 2024-2026 is 9.817/11.679/14.185 billion yuan respectively, corresponding EPS is 0.99/1.18 /1.43 yuan, corresponding PE is 14/12/9 times, maintaining the “buy” rating.

Risk warning: risks such as global geopolitical risks, the intensification of the “price war” trend in the industry, the launch and delivery of new models falling short of expectations, and the sales performance of new models falling short of expectations.