2Q24's performance was basically in line with expectations: 1H24 operating income +489.6% to 65.04 billion yuan, net profit to mother reversed to 1.63 billion yuan (year-on-year change, same below), net profit after deduction to mother reversed to 1.44 billion yuan, gross margin +18.7pcts year-on-year to 25.0%; of these, 2Q24 revenue was +547.9% YoY, +44.9% month-on-month to 38.48 billion yuan, net profit to mother was 1.41 billion yuan Yuan, net profit after deduction was 1.32 billion yuan, and gross margin was +23.3pcts/month-on-month +6.0pcts to 27.5%. The high increase in the company's 2Q24 performance mainly benefited from improved profitability (2Q24 bicycle profit of about 0.014 million yuan) driven by large-scale delivery of ASP models, and the performance was in line with expectations.

The core model will launch a low-cost version to meet the diverse needs of consumers: the company's car sales volume in the first 7 months of 2024 was +171.2% to 0.283 million units, and the sales volume was +701.1% to 0.22 million vehicles (M9 accounts for about 34.5% of sales). The company continues to focus on the 0.2-0.6 million yuan full-scene SUV market, broadening product boundaries by introducing low-end core models. 1) The Quanjie M7 will launch the Pro version. The pre-sale price of the new car is 0.2498 million yuan (0.04 million yuan lower than the Ultra version), and is equipped with the ADS basic version of the ADS visual integrated smart driving solution. 2) In the 7 months since its launch, the M9 has accumulated more than 0.11 million units, and has already topped the list of models with more than 0.5 million yuan. According to the Ministry of Industry and Information Technology, the M9 may be introduced as a new five-seater model, which will satisfy various consumer preferences while the price is falling.

In summary, we are fully optimistic about the ability of the relevant model sales to climb in the face of sufficient reserve orders and improved competitiveness in product upgrades.

Simultaneously with partner equity bundling and strengthening the control of the Quanjie brand: Since the company purchased the “Quanjie” trademark from Huawei for 2.5 billion yuan, the company strengthened its ownership of the brand and made the following adjustments; 1) 8/9 used 1.33 billion yuan to acquire 19.36% of the shares of Celis Motors (the company's controlling subsidiary) held by the minority shareholder Chongqing Jinxin Fund (Chongqing state-owned capital background). Taking back minority shares at low prices not only shows the local government's support for enterprise development, but also guarantees the company's control over important subsidiaries. 2) Recently, the company's wholly-owned subsidiary “Celis Auto Sales Co., Ltd.” was renamed “Chongqing Wenjie Auto Sales Co., Ltd.” 3) On 8/25, the company issued a major asset purchase announcement, investing in 10% of the shares in BU (Car BU) at a price of 11.5 billion yuan. As of 1H24, the company's book cash was about 43.8 billion yuan, and there was no funding pressure. We judge that the company's name change to its subsidiary and share acquisition by minority shareholders prove that it has fully taken the initiative of the brand, while maintaining the continuation of deep cooperation with Huawei through the participating car BU. The company is expected to maintain a strong model cycle by improving management/coordination and the core advantages of intelligence+ product positioning.

Maintaining the “buy” rating: The recent fluctuations in the company's market performance are mainly related to the decline in weekly sales of the QQ brand (the reason for the decline was due to factory shutdowns in hot weather and the alternation of production capacity between old and new models). Given the economies of scale and order accumulation, we maintained the 2024E-2026E net profit forecast to 6.37/7.62/8.4 billion yuan, maintaining the company's “buy” rating.

Risk warning: Huawei Auto's strategy is changing, Huawei models are encroaching on each other's market share, and industry competition is intensifying.