Key points of investment

2024 Q2 Quarterly Report Fast Facts

1) Revenue & profit: Revenue 5.637 billion yuan, yoy +18.07%; net profit to mother 0.467 billion yuan, yoy +12.06%, if equity incentives are amortized 0.045 billion yuan, net profit to mother 0.513 billion yuan, yoy +22.91%; net profit without return to mother is 0.443 billion yuan, yoy +21.38%. Revenue exceeded market expectations, and performance was in line with expectations.

2) Sales & bicycles: 2024Q2 sales are expected to be 2.82 million units (yoy +12%), corresponding to ASP of 1999 yuan, with a year-on-year increase of 5%, and a slight decrease compared to Q1; the net profit for the corresponding bike is expected to be 166 yuan, which is flat year-on-year. If equity incentives are added to amortization of 0.045 billion yuan, the net profit of the bike is expected to be 182 yuan, an increase of 16 yuan over the previous year.

It is very encouraging that ASP remained flat month-on-month. It is expected that this year's new products will continue to contribute to optimizing the company's product structure.

3) Profitability:

Gross profit margin was 17.64%, +2.34pct year on year; net interest rate to mother was 8.29%, -0.44pct year on year; net interest rate to mother was 9.09% after amortization of 0.045 billion yuan plus equity incentives, +0.36pct year on year; net interest rate decreased slightly month-on-month, due to the impact of the Q2 national inspection, and the 3C certification fee increased.

Sales, management, R&D, and financial expenses were 4.18%/2.83%/3.01%/-1.25%, respectively, with year-on-year changes of +0.93pct/+0.63pct/+0.34pct/+0.86pct. The increase in sales expenses is due to the company expanding its sales team and increasing marketing investment under major market competition; the increase in R&D expenses is mainly due to an increase in the number of new products developed.

Products & channels are gaining momentum in 2024, and sales growth can be expected to pick up

1) In 2024, product-side “technology” & “fashion” go hand in hand:

In terms of technology, both the three-electric system and intelligence have been greatly improved. ① In terms of motors, self-developed high-efficiency ultra-quiet bread wheel motors and high-efficiency convex motors, the performance has been fully optimized, and the number of self-supplied units has exceeded 4 million units; ② In terms of controllers, second-generation Azure controllers have been developed, and TCS (traction control system) and uphill assist functions have been upgraded to enhance the vehicle's low road surface safety while enriching the user's riding experience in different scenarios. It has been self-produced and applied to the company's products; ③ In terms of batteries, it is actively promoting sodium electricity research and development; ④ In terms of intelligence, the company's integrated smart ecosystem covers mobile apps and cloud platforms , intelligent central control, smart helmets, etc. are equipped with light, medium and high intelligent platforms to provide users with a convenient and technological riding experience. The company competes for differentiation and continues to break through in terms of core components and intelligence. The brand tone continues to improve, and the product structure is expected to continue to be optimized; - In terms of fashion, ① LOGO has been upgraded, cooperated with internationally renowned designer Rob Janoff (Apple logo designer) to optimize and upgrade its own logo, release the “Fashion Emma, Travel Freely” brand slogan, and cooperate with internationally renowned color agencies to color empower the product. ② Released a series of new products, and successfully released several major products in 2023: “Egg” (light luxury and elegant), “Luna” (fashionable and cute), “Dream Maker” (full of technology), “Geek” (cool mecha), and “Commander” (young and tough). Since 2024, series such as Q7, Look Up, Fun Egg, Metaverse Pro 2.0, Snapdragon, and Mecha Master have been released. Among them, the 60 days since the launch of the Looking Up model reached 0.168 million units, it is expected to continue leading the product wave in 24 years.

2) Channel stores will be upgraded again in 2024: The women-only category store, “Miss Miss Shop”, highlights the sweet and cool fashion attitude of young women. In 2023, it has expanded to more than 50 exclusive stores. In 2024, the company built Emma's first fashion cool car category store, the “YOUNG Store”, which is decorated in a minimalist industrial style in black, white, and gray, with trendy and cool models with a full sense of technology in the store, highlighting the young and cool side of the Emma brand; at the same time, it also provides special activities such as customized services and club activities to attract more young people to visit the store.

3) Enjoy supply-side optimization dividends: Emma's Tianjin plant 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 Forecast and Valuation:

The dual-oligopoly pattern in the electric two-wheeler industry has been determined. Ssangyong's position is difficult to shake, and the certainty of increasing market share and profitability of superleading brands has once again increased. It is estimated that in 2024-2026, the company's revenue will be 23.165/26.677/31.161 billion yuan, up 10.12%/15.16%/16.81%, net profit to mother 2.138/2.715/3.405 billion yuan, or 13.66%/26.98%/25.41%. The PE corresponding to the current market value is 11.43/9.00/7.18 X. According to Emma Technology's valuation as a leading consumer goods brand with competitive barriers, it maintains 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.