Investment highlights:

The first domestic NEV share, and the B-side business is steady. While exploring the C-end business, the company went public under a major asset restructuring in 2018, becoming the first domestic NEV share, and was the first domestic NEV sales champion for 7 consecutive years. Currently, its three major brands: the Beijing (BEIJING) brand mainly sells on the B-side, the ARCFOX brand (ARCFOX) targets the C-side, and the STELATO brand (STELATO) has started cooperation in the Huawei Smart Choice Model. Relying on the BAIC Group, BAIC Blue Valley received the Group's superior resource support to jointly launch high-end intelligent manufacturing cooperative production in a joint venture with the world-renowned automobile manufacturer Magna to enhance the manufacturing capabilities of high-end intelligent new energy vehicles; it cooperated deeply with Huawei to strengthen the brand and intelligent layout.

Core change 1: Jihu brand expectations are gradually improving - the brand label is gradually becoming clear. The company is advancing in exploration in 2024. Early development of the Jihu brand is under pressure due to the following three reasons: 1) insufficient brand recognition; 2) few channel outlets and insufficient marketing investment; 3) intelligent product configuration and pricing are high and intelligent functions are not very competitive. Looking forward to the future, the company actively summed up its experience. In 2024, there are the following 3 major transformation breakthroughs:

1) Using Koala as a representative, experiment with scenario-based car construction. The product focuses on the mother and child market to create a differentiated competitive advantage; 2) Strengthen the brand label, focusing on “safety labels”, and product+ marketing revolves around label definition and promotion to solve the problem of insufficient brand recognition; 3) Product pricing returns to the mainstream price range, and the main sales model of the Polar Fox drive the increase in brand sales. In 2024, the Jihu brand returned to the 0.15-0.2 million yuan price range through the pricing of the main product Alpha T5/S5. The product's cost performance ratio is competitive compared to core competitors.

Core change 2: Huawei and BAIC Blue Valley - Upgrading smart selection and working together. The strong Huawei brand empowers the company to cooperate with Huawei for 6 years, going through twists and turns, to explore and grow together. The company and Huawei released the Hongmeng Smart Choice Model Enjoy the S9 in 2024, positioning it as a medium to large sedan. Within the target market of the S9, there is little competition for own-brand models, and there are many representatives of joint venture foreign star models (Mercedes-Benz E-Class, BMW 5 Series, Audi A6L). Empowered by Huawei, the S9 is accurately positioned, and the product definition is in line with its positioning. It is highly competitive among 0.4 million yuan medium to large sedans, and sales are expected to exceed expectations.

The profit forecasting and investment rating company gathered the BAIC Group's resource support. The Jihu brand label was clear and focused on safety attributes in line with product marketing. Furthermore, the company's cooperation with Huawei was upgraded to Hongmeng Smart Choice. Huawei was fully empowered from brand to channel, and the first model, the Xinjie S9 product, was clearly positioned and highly competitive. We are optimistic about the future development of the company. We expect the company to achieve operating income of 22.742, 48.517, and 59.208 billion yuan in 2024-2026, with year-on-year growth rates of 59%, 113%, and 22%; net profit due to mother -4.208, -2.187, and 0.801 billion yuan, year-on-year loss reduction; EPS is -0.76, -0.39, and 0.14 yuan. The PS valuations corresponding to the current stock price are 1.6, 0.7, and 0.6 times, respectively, covered for the first time, giving “an increase” “Hold” rating.

Risk warning

The overall development of the passenger car market fell short of expectations; performance fell short of expectations due to increased market competition; new car sales fell short of expectations due to changes in the competitive landscape; sales fell short of expectations due to operational issues; uncertain risks brought about by poor progress in cooperation with Huawei; model sales fell short of expectations due to insufficient promotion of new brands; related models were not fully comparable; relevant data and data on the benchmark are for reference only.