Incident: The company announced its 2024 H1 results announcement. In 24Q2, the company achieved total operating income of 5.637 billion yuan, an increase of 18.07% over the previous year, and achieved net profit of 0.467 billion yuan to mother, an increase of 12.06% over the previous year, after deducting net profit of 0.443 billion yuan without a return to mother, an increase of 21.4% over the previous year.

Q2 The volume and price are expected to rise sharply, the product structure optimization effect is obvious, and the overseas market is growing rapidly. We expect that with the help of new product launches (highly intelligent products such as Look Up, Luna, and Snapdragon) and channel expansion, sales are expected to grow by around double digits. Price competition in the 2024 industry has clearly slowed down compared to last year. The company is also taking the initiative to reduce the share of special price cars. ASP is expected to increase by a single digit and optimize the product structure. The company focuses on promoting agent expansion and localization of post-market services in the Southeast Asian market, laying a solid foundation for the Emma brand to gain popularity and reputation in the region. During the reporting period, international business revenue was 0.12 billion yuan, up 40.69% year on year.

Gross margin increased as scheduled, and profit margins also increased after excluding the impact of equity incentive costs. The company achieved a gross profit margin of 17.6% in 24Q2, YOY+2.3 pcts, and the gross profit of bicycles is expected to increase by 20% +. Price competition in the industry is slowing down mainly due to product structure upgrades. In terms of costs, due to the company's market expansion, the sales cost rate increased by 0.93 pct in 24Q2, and the R&D cost rate of new product development and new national standard reserve research and development increased the R&D cost rate by 0.35 pct.

Management costs increased by 0.63 pct. Net interest rate to mother decreased by 0.44%. Excluding the impact of equity incentives, it is expected to increase by 0.4 pct, and the net profit from bicycles will also increase by 10% +.

Profit forecast and investment suggestions: Since 2024, industry regulatory policies have been frequent, which are expected to guide the industry's medium- to long-term standardized and healthy development. The “Regulatory Conditions” list is expected to further optimize the industry competition pattern, and the company is also one of the first 4 major brands to enter the list. With the implementation of the new national standard in 2025, the industry is expected to usher in a new cycle of rotation and price increases rapidly, and the company's share is expected to increase further. The company issued equity incentives at the beginning of the year, and confidence is strong. We expect the company to achieve total operating income of 23.149/28.169/32.945 billion yuan in 2024-2026, and net profit to mother of 2.192/2.558/3.132 billion yuan, with year-on-year increases of 16.5%/16.7%/22.5%, respectively. The current stock price corresponding PE is 11.15X/9.56X/7.80X, respectively, maintaining a “highly recommended” investment rating.

Risk warning: policy-related risks, increased risk of market competition, risk of large fluctuations in raw materials