Key points of investment

Company announcement: The company issued a performance announcement for the first half of 2024. In the first half of 2024, it achieved operating income of 16.3 billion yuan, +47% year over year, achieved net profit of 1.67 billion yuan, +256% year over year, and realized net profit without deduction of 1.43 billion yuan to mother, +332% year over year. Among them, 2024Q2 revenue was 9.7 billion yuan, +29%/+47% month-on-month, net profit was 1.02 billion yuan, +191%/+55% month-on-month, achieving net profit without return to mother of 0.86 billion yuan, and +204%/+51% month-on-month. The performance was within the performance forecast range and was in line with expectations.

Domestic exports increased, and 24Q2 revenue and profit were strongly realized. 1) The company's Q2 sales volume increased month-on-month, with exports clearly outperforming the industry. Q2 sales volume was 12,824 units, +20%/+66%, of which, according to China Passenger Network, the company exported 3,749 large and medium vehicles in April-April 2024, +40%/+43% month-on-month. Since the month-on-month view of export sales growth is weaker than domestic sales growth, 24Q2 bicycle revenue declined slightly; 2) The scale effect drove the company's profit center upward. 2024Q2's gross margin was 26.1%, and +2.6pc/pc/month-on-month 1.3pct, YoY The significant increase was mainly affected by the scale effect brought about by the increase in sales volume; the 24Q2 company's cost rate was 14.85%, -0.1pct/+1.0pct. Among them, sales expenses increased a lot due to factors such as continued expansion of overseas channels, and the management cost rate/R&D expense ratio all recorded a year-on-month decline, reflecting profit elasticity brought about by the increase in scale under cost rigidity; 3) The 24Q2 company's asset impairment loss/credit impairment losses were 0.115/0.11 billion yuan respectively, mainly due to reduced inventory prices and impairment losses on accounts receivable. The actual operating performance of the company is superior to the apparent results.

Improved business quality+prominent position in the industrial chain, and excellent 24H1 cash flow performance. 2024H1's net operating cash flow inflow was 5.4 billion yuan, +13% over the same period, significantly outperforming net profit to mother. The main reasons were a decrease in inventory (improved operating efficiency), a decrease in operating accounts receivable (increased export ratio, shorter payment period), and an increase in operational payables (improved position in the industrial chain). The company has had a habit of paying large dividends over the years and has a strong cash flow base. We believe that the company can expect high dividends this year.

Profit forecast and investment rating: We maintained the company's revenue of 34.7/41.4/49.9 billion yuan from 2024 to 2026, +28%/+20% year over year, and maintained a net profit of 3.31/4.11/4.96 billion yuan from 2024 to 2026, +82%/+24%/+21% year-on-year, corresponding EPS was 1.5/1.9/2.2 yuan, corresponding PE was 14/11/9 times, maintaining the “buy” rating.

Risk warning: The global economic recovery fell short of expectations, and demand for domestic and foreign buses fell short of expectations.