The 2024 Q2 results were in line with expectations, and M9 led to an increase in gross margin. The performance was in line with expectations: On August 25, the company released the 2024 semi-annual report.

2024Q2 achieved total revenue of 38.484 billion yuan, +547.7%/+44.9% year-on-month; 2024Q2 net profit to mother in a single quarter was 1.405 billion yuan, compared with -0.719 billion yuan in 2023Q2 and 0.22 billion yuan for 2024Q1; and 2024Q2 net profit without return to mother was 1.323 billion yuan, compared to 2023Q2 of -0.961 billion yuan, 2024Q1 is 0.114 billion yuan.

M9 drives an increase in gross margin: Benefiting from the delivery of M9, 24Q2 gross margin was 27.5%, an increase of 6 pcts compared to 24Q1. As of the 2024 semi-annual report announcement date, the Quanjie M9 had a cumulative total of 0.12 million vehicles, ranking first in sales of models over 0.5 million.

Increased cost rate for the period: The cost rate during 2024Q2 was 22.1%, an increase of 4 pcts compared to 24Q1. Among them, the sales expense ratio was +2.6 pct to 15.4% month-on-month, the R&D expense ratio was +1.3 pct to 4.9% month-on-month, the management expense ratio was +0.2 pct to 1.9% month-on-month, and the financial cost ratio was -0.1 pct to -0.1% month-on-month.

Buy a 10% stake to deepen cooperation with Huawei

Purchase of 10% shares: On August 25, the company issued a major asset purchase announcement. Cyrus Auto, a wholly-owned subsidiary of Celis, plans to purchase 10.00% of the shares of the target company (Shenzhen Promise, or Huawei Smart Car Solution) held by Huawei Technology in cash, at a consideration of 11.5 billion yuan.

Deepening cooperation with Huawei: Shenzhen is looking forward to five major businesses, including Qiankun Smart Driving, Hongmeng Cockpit, Qiankun Vehicle Control, and Qiankun Car Cloud, to provide hardware and software services. 2024H1 achieved revenue of 10.435 billion yuan. The promising implementation of shares in Shenzhen marks a further deepening of cooperation between Celis and Huawei. It will help Cyrus further enhance its advanced intelligent electrification technology and advanced smart car products, help build a smart car ecosystem, and continuously improve the safety and stability of the intelligent core component supply chain.

The market covers the 0.25-0.57 million SUV market, and the product SKU continues to expand, focusing on SUVs, covering the 0.25-0.57 million yuan market: Hongmeng Zhixing, in cooperation with Cyrus and Huawei, launched 3 series M5, M7 and M9, covering the 0.25-0.57 million yuan SUV market.

Product SKUs continue to expand to attract more potential consumers: The new QQ M7 Pro, which was released on August 26 and equipped with the basic version of Huawei Qiankun Smart Driving, lowered the price of M7 series products. The five-seater version of Questionnaire M9 has been declared to broaden the target audience for M9.

In addition, Insight will launch a new series of products, which are expected to be launched by the end of the year. With the increase in product lines and SKUs, Inquire is expected to attract more potential consumers.

Profit forecasting

The company's revenue for 2024-2026 is 140.2, 166.5, and 195.9 billion yuan, respectively, and EPS is 2.95, 3.22, and 3.85 yuan, respectively. The current stock price corresponds to 0.8, 0.7, and 0.6 times PS, respectively. Considering the gradual stabilization of the company's position as a new high-end brand in China, which has great potential for future growth, it maintains a “buy” investment rating.

Risk warning

(1) The promotion of new models fell short of expectations; (2) automobile consumer demand fell short of expectations; (3) the progress of cooperation with Huawei fell short of expectations.