Incident: The company released its 2024 semi-annual report. In the first half of 2024, the company achieved revenue of 65.04 billion yuan, +489.6% year over year; realized net profit of 1.63 billion yuan, +220.9% year over year; realized net profit without deduction of 1.44 billion yuan, or +176.3% year over year.

Comment:

24H1 drastically reversed losses and entered a long-term profit period, and M9 delivery volume helped increase gross margin rapidly.

24H1 achieved revenue of 65.04 billion yuan, +489.6% year over year; realized net profit of 1.63 billion yuan, +220.9% year over year; realized net profit deducted from non-mother of 1.44 billion yuan, +176.3% year over year.

Among them, 24Q2 achieved revenue of 38.48 billion yuan, +547.7% year-on-year; net profit to mother of 1.41 billion yuan, or +295.4% year-on-year. In terms of sales volume, the company achieved sales of 0.201 million new energy vehicles at 24H1, +348.5% over the same period; the Quanjie brand delivered 0.182 million vehicles. 24Q2 delivered 0.099 million vehicles, of which the M5/M7/M9 delivered 0.014 million/0.037 million/0.048 million vehicles respectively. The rapid volume delivered by the Q2 M9 led to a rapid increase in the company's gross margin. 24Q2 achieved a gross profit margin of 27.5%, +23.3pct year over year, and +6.0 pct month-on-month.

The plan is to purchase 10% of Shenzhen's shares through cash payments and further upgrade cooperation with Huawei. On August 23, 2024, the board of directors of the company deliberated and passed the “Proposal on the Major Asset Reorganization Plan”, agreeing that Cyrus Automobile Co., Ltd., a wholly-owned subsidiary of the company, would purchase 10% of the shares in cash, with a transaction amount of RMB 11.5 billion. Promise will take over the core business of Huawei's original smart car solutions. According to the Promising simulation audit report, Orient 2022/2023/2024H1 achieved revenue of 2.1 billion yuan/4.7 billion yuan/10.44 billion yuan respectively, and achieved net profit of 7.59 billion yuan/-5.6 billion yuan/2.23 billion yuan respectively, and 24H1 has significantly turned losses into profits. With the upgrading of cooperation between the two sides, we believe it is expected that the safety and efficiency of intelligent core components supply will be further improved, and help the company reach the level of a world-leading enterprise in design, R&D, quality, and operation.

The launch of the new M7 Pro is expected to contribute to new sales elasticity. On August 26, the new Wenjie M7 Pro was officially launched. The price started at 0.2498 million yuan. The new car basically continued the overall design of the models currently on sale.

The smart driving level is equipped with the basic version of Huawei ADS, which supports NCA smart driving pilot assistance (covering national highways and city express sections), AEB active safety and intelligent parking assistance. Compared to the Quangjie M7 Ultra premium smart driving version, the price of each configuration of the Zenjie M7 Pro is 0.04 million yuan lower, and it is expected to become a new popular model. He Liyang, president of Cyrus Motors, said that new cars will be delivered as soon as they are released, and that the delivery target for the first week and month of launch is 3000 or 10,000 units.

Profit forecast: M9 deliveries drive rapid improvement in gross margin, and the launch of the new M7 Pro is expected to contribute to new sales flexibility; the implementation of cooperation with Huawei is expected to have a positive impact on investment returns, and long-term intelligent empowerment will continue to deepen. We expect the company to achieve revenue of 150.5/172.7/205.9 billion yuan in 2024-2026 and achieve net profit of 5.1/8/11.5 billion yuan to mother.

Risk factors: The risk of launching new models falling short of expectations, the risk of price wars, and increased competition for new energy high-end medium and large vehicles.