Key points of investment

Revenue and profit are under pressure in the short term, but sales trend improved in May-June

1) Revenue and profit are under pressure, mainly due to distributors' inventory removal disturbances: 2024H1 achieved revenue of 14.414 billion yuan, yoy -15.42%; realized gross profit of 2.594 billion yuan, yoy -9.75%; realized net profit of 1.034 billion yuan, yoy -12.89%. 24H1 revenue pressure is mainly due to uncertainty in industry standards, short-term pressure on demand, and dealers being affected by this uncertainty to open warehouses.

2) Sales & bicycle indicators: increase in ASP and bicycle net profit. The 24H1 electric two-wheeler sold about 6.382 million units, YOY -22.3%, ASP was 2258 yuan, yoy +8.8%; the net profit of the bike was 162 yuan, yoy +12%. Despite pressure on H1's overall sales volume, sales gradually picked up in May and June, indicating a positive business trend.

3) Increased gross margin and improved profitability due to product structure optimization: 2024H1's gross profit margin was 18.0%, up 1.1 pct year on year; net margin was 7.2%, up 0.2 pct year on year. In terms of expenses, the company's sales/management/R&D were 4.2%/2.9%/3.4%, respectively, -0.6/+0.15/+0.15pct, total -0.3pct. Increased gross margin is mainly due to product structure optimization and high profitability of batteries and chargers.

Looking forward to the future, the industry is expected to experience a recovery in demand after the revision of the new national standard, and Yadi is expected to become one of the leading brand beneficiaries of supply-side optimization

Policy level: In the first half of 2024, electric two-wheeler fires occurred in some regions, drawing public attention to battery safety and drawing great attention from the competent authorities. The supervisory authorities are gradually introducing new national standards and updating existing standards, including charging equipment and batteries, and continue to strengthen industry supervision. For example, in May 2024, the State Administration of Market Regulation introduced new regulations on 22 specific aspects of battery design and manufacturing, including overcharging, excessive discharge, external short circuit, uncontrolled heat, and lithium battery puncture.

Industry level: demand side waiting for recovery, supply side optimization determined. On the demand side, although short-term demand is affected by safety incidents and policy changes, dealers and consumers may have some wait-and-see sentiment. Demand is expected to recover in the future as new industry regulatory standards are implemented. On the supply side, safety incidents are frequent, the safety and performance of leading manufacturers are widely trusted by all sectors of society, and the reputation of leading brands will further increase and seize share.

Company level: With the gradual implementation of the policy, the key to electric two-wheeler competition in the second half will gradually become the launch of models that meet market needs and can quickly reach the market on the basis of legal compliance. The leading two-wheeler company represented by Yadi has entered the list of companies published by the Ministry of Industry and Information Technology for the first batch of “Electric Bicycle Industry Specification Conditions”. Its comprehensive capabilities have been recognized by the competent authorities, and it is expected to become one of the manufacturers that can enjoy the dividends of supply-side optimization the most.

Profit forecasting and valuation: Resonance between supply and demand drives double click

The company is the leading brand of electric two-wheelers. The company expects revenue of 31.129/38.033/43.006 billion yuan in 2024-2026, up -10.5%/22.2%/13.1% year on year, and net profit of 2.407/2.96/3.377 billion yuan, up -8.8%/23.0%/14.1% year on year. The price-earnings ratio corresponding to the current market value is 11.8/9.6/8.4X. The company will grow with high quality under the joint drive of the following three aspects: (1) the new national standard raises the competitive threshold and demand is recovering; (2) the product structure continues to be optimized to show leading price increases; and (3) overseas “electrification” is determined to open up the blue ocean market. We believe that as the leading two-wheeler brand, Yadi Holdings is expected to be one of the most beneficial companies under the new regulatory standards. At the same time, it is also a pioneer in industrial chain integration, sodium electricity, and overseas travel, maintaining a “buy” rating.

Risk warning

Policy progress falls short of expectations; industry market demand falls short of expectations; overseas market development falls short of expectations.