1H24's performance is basically in line with expectations, and M9 scale delivery continues to improve profitability: 1H24's operating income is expected to be 63.9-66 billion yuan, net profit to mother is expected to be 1.39-1.7 billion yuan (loss of 1.34 billion yuan for the same period in 2023, same below), and net profit without deducted back to mother is estimated at 1.19-1.5 billion yuan (loss of 1.88 billion yuan for the same period).

Among them, 2Q24's revenue is 37.34-39.44 billion yuan, net profit to mother is estimated to be 1.17-1.48 billion yuan (loss 0.71 billion yuan for the same period), and net profit after deduction is estimated to be 1.08-1.39 billion yuan (loss 0.96 billion yuan for the same period). We estimate that 2Q24's bicycle profit was +400.8% month-on-month to 0.013 million yuan (according to central estimates), and the high increase in this quarter's performance mainly benefited from improved profitability driven by large-scale delivery of ASP models.

2Q24 increased the share of M9 deliveries, and the facelifted models have already achieved a scale increase: 2Q24's car sales volume +142.2% YoY/6.6% month-on-month to 0.122 million units, and Q24 sales volume +763.6% YoY/+20.6% month-on-month to 0.1 million vehicles (M9 accounts for about 47.8% of sales volume). The company will continue to focus on the 0.2-0.6 million yuan full-scene SUV market. 1) 2Q24 will complete the annual facelift of the M5 and M7. Among them, a) Quanjie M5 strengthened its young sports attributes through a facelift. It will probably exceed 0.02 million units within 1 month of launch, and its delivery performance is also significantly higher than the previous period. b) Questionnaire M7 was listed on 5/31, maintaining a price of 0.2898-0.3298 million yuan on the basis of additional allocations.

M7 has accumulated over 0.03 million units within 20 days of listing, and has achieved the previously set target of delivering 0.02 million units in the first month of listing. 2) The share of M9 deliveries increased, with an average monthly sales volume of over 0.015 million units in 2Q24, ranking first in sales of models above 0.5 million. As of 6/26, M9 had accumulated a total of 0.1 million units, corresponding to an average of 400 units per day. M9 not only maintained an abundant accumulation of orders, but also maintained steady order growth.

Leading the trend of Huawei+ car enterprise portfolios, withdrawing the right to the Quanjie trademark without changing the cooperation process: 7/2, the company announced that it intends to acquire the registered or pending Quanjie trademarks and related design patents held by Huawei and its related parties, with a total acquisition amount of 2.5 billion yuan. We believe that 1) The acquisition of the Quanjie trademark is considered to not only reduce market disputes over Huawei's car construction, but also enhance the company's control over the brand by withdrawing patents for 12 types of transportation when the company has relatively abundant cash flow. 2) The trademark acquisition mainly affects the 2H24 balance sheet. The acquired assets are recorded as intangible assets and traded in cash. 3) The company's cooperation with Huawei has a first-mover advantage. It has matured in terms of coordination and communication, and the acquisition does not affect subsequent cooperation. On 2023/11/28, Huawei said it has issued invitations to the company and other smart car companies to take a stake in Car BU. If there is cooperation in the form of equity bonds, we expect that the company will more fully enjoy Huawei's technical resources, and using intelligence as the core competitive advantage will continue to drive the company's cooperative models with Huawei to start a strong model cycle.

Maintaining the “buy” rating: Considering the economies of scale of the model in question, we raised the 24E-26E net profit forecast by 33.5%/31.9%/21.3% to 6.37/7.62/8.4 billion yuan. The company's performance is expected to improve quarterly, and we maintain the company's “buy” rating.

Risk warning: Competition in the automotive industry intensifies, Huawei's automobile-related strategy changes, Huawei's transformation effect on the automotive sector is limited, and Huawei models are encroaching on each other's market share.