The company's operating adjustment benefits were released, and product strength, supply chain, and marketing breakthroughs one by one were based on sales of old models falling short of expectations. We lowered our 2024-2026 revenue from 47.41/78.72/93.35 billion yuan to 41.09/63.34/77.07 billion yuan. Based on the profit contribution of technology services related to mass cooperation exceeding expectations and operating cost control, we raised our 2024-2026 non-GAAP net profit from -6.58/-2.1/1.05 billion yuan to -5.27/-0.38/1.81 billion yuan, corresponding adjusted EPS of -2.8/-0.2/0.9 yuan. The current stock price of HK$27.60 corresponds to 1.2/0.8/0.6 times PS in 2024-2026 and 27.6 times PE in 2026. The launch of the M03 new vehicle cycle and the acceleration of export expansion are driving the 2024H2 delivery curve upward. The benefits of the company's business adjustments are gradually being released. Low-cost smart driving solutions, Juan Ma is responsible for design to boost product strength, and Volkswagen cooperates with the public in the supply chain to strengthen cost advantages, strengthen Internet new media marketing, and maintain the “increase” rating.
2024Q2 service revenue drove gross margin higher than expected. The narrowing of net loss stemmed from cost control and government subsidies of the 2024Q2 company's revenue of 8.111 billion yuan. ASP fell 11% month-on-month to 0.226 million yuan, mainly affected by the decline in X9 deliveries of models over 0.3 million yuan. The overall gross margin increased by 1.1 pct to 14.0% month-on-month, mainly due to continued month-on-month increase in monetization revenue contributions related to Volkswagen's strategic cooperation, while automobile gross margin increased 0.9 pct to 6.4% month-on-month, benefiting from lower costs and improved model product portfolios. The non-GAAP net loss narrowed from 1.408 billion yuan in 2024Q1 to 1.22 billion yuan in 2024Q2, mainly due to effective control of operating expenses and the increase in government subsidies, which raised other revenue from 0.07 billion yuan to 0.28 billion yuan.
The M03 new vehicle cycle is launched, and the P7+ is equipped for the first time with an ADAS cost reduction program to enhance product competitiveness. The company's 2024H2 delivery curve is expected to improve. Based on the 0.011 million vehicles already delivered in July, we expect a slight increase in August deliveries and 0.018 million vehicles in September. Based on the launch of the M03 new vehicle cycle and accelerated export expansion, it is expected that 2024Q4 delivery will accelerate month-on-month growth:
(1) Large-scale delivery of M03 will begin on August 27. Currently, pre-sale orders exceed G6's performance over the same period, and have the advantage of being larger in space and more suitable for women's aesthetics compared to competing products; (2) The company's 2024Q3 export sales account for 15%, and corresponding estimates suggest that 2024Q3 exports have more than doubled month-on-month (2024Q2 exports account for 10%).
The company reduced the cost of smart driving hardware in the P7+ by reducing sensors and high-precision maps. The solution will be applied to other models in the future. It is expected that the 2025H2 can achieve an L3+ level software experience based on L2 grade hardware. As high-end smart driving sinks to affordable models, it is expected to drive overall sales growth.
Risk warning: Product launches fall short of expectations, production capacity and supply chain risks, and increased industry competition.