Key points of investment

Company announcement: 2024Q2 achieved total operating income of 141.614 billion yuan, -21.60%/-1.02%; net investment income of 5.727 billion yuan, +79.55%/+107.96%, respectively; net profit to mother of 3.914 billion yuan, -9.03%/+44.22% year-on-month; net profit without deduction of net profit of 1.1 billion yuan, year-on-month, -131.38%/-151.88%.

2024Q2's performance is basically in line with expectations: 1) Revenue: 2024Q2 SAIC Motor's wholesale sales volume was 0.9928 million vehicles, -15.90%/+19.02%, respectively; bicycles ASP 0.1426 million yuan, -6.78%/-16.84%, respectively. 2) Gross profit margin: 2024Q2 Group's gross margin was 8.21%, -1.33/-0.63pct, respectively. The main reason for the year-on-month decline in gross margin was intense price competition due to increased competition.

3) Cost ratio: 2024Q2 sales/management/R&D expenses were 4.29%/3.24%/2.63%, respectively, +0.47/+0.27/+0.34pct year-on-year, and +0.56/-0.12/-0.13pct, respectively. 4) Investment income: 2024Q2's net investment income was 5.727 billion yuan, +79.55%/+107.96%, respectively, of which the return on investment in joint ventures and joint ventures was 0.004 billion yuan, -99.83%/-99.83%, respectively. SAIC Volkswagen's Q2 wholesale sales volume was 0.264 million vehicles, -4.67%/+6.44% year over month, and SAIC-GM Q2 wholesale sales volume was 0.1141 million units, or -56.95%/+2.31% year over month. Q2 SAIC-GM continues to store terminals, channel inventory - 0.069 million vehicles (wholesale-retail-export), saving energy for subsequent sustainable development. 2024H1 Volkswagen's net profit was 0.0017 million yuan, +59.1%/-53.7% year-on-month, respectively, and SAIC-GM lost 0.01 million yuan. In addition, MG India introduced local investors to increase the company's profit by 5.13 billion yuan through equity transfers & capital increases. 5) In the end, the company's net profit for 2024Q2 was 3.914 billion yuan, -9.03%/+44.22% year-on-month; net profit after deduction was 1.1 billion yuan, or -131.38%/-151.88%.

Profit forecast and investment rating: 1) Independent brand new energy+ exports go hand in hand: the company's core technology, new energy three-power system+intelligent software and hardware full-stack layout, smart self promotion of high-end independent brands, strives to consolidate infrastructure markets such as Western Europe and South America in terms of exports, accelerate the expansion of emerging markets such as Eastern Europe, and continue to improve overseas service systems. At the same time, it is actively responding to EU countervailing investigations. 2) Active transformation of the joint venture: The company signed a memorandum of understanding with Audi to jointly develop a variety of new smart electric models for the Chinese market; integrated superior resources with GM to establish a new software and digitization center in SAIC-GM; SAIC Volkswagen actively adjusted its marketing strategy to accelerate the brand's voice in the new energy vehicle market. Due to the impact of the incident, we raised the company's 2024 performance forecast to 14.465 billion yuan (originally 14.27 billion yuan). Due to increased competition, we lowered the company's net profit forecast for 2025-2026 to 14.155/16.504 billion yuan (originally 17.68/19.62 billion yuan), corresponding PE to 10/10/9 times, maintaining the company's “buy” rating.

Risk warning: terminal price war exceeds expectations; export-related trade risks, etc.