2Q24 results are in line with our expectations

1H24 achieved total operating income of 284.69 billion yuan, -12.8% year over year; net profit to mother of 6.63 billion yuan, -6.5% year over year; net profit after deducting non-return to mother was 1.02 billion yuan, -82% year over year. Corresponding to 2Q24 operating income of 141.61 billion yuan, -21.6% YoY /-1.0%; net profit to mother was 3.91 billion yuan, -9.0% YoY/+44.2% month-on-month; net profit without return to mother -1.1 billion yuan. The performance was basically in line with market expectations.

Development trends

Retail performance is superior to the accelerated removal of wholesale, and the sales performance of independent and joint venture brands is divided. 1H24 sold 1.827 million vehicles, -11.8% year-on-year. Since 2Q, the company has accelerated storage through a number of measures, and 1H24 achieved 2.115 million terminal retail sales. Looking at brand segmentation, the sales performance of independent brands was divided. 1H24 SAIC Passenger Vehicle, Shangtong Wuling, and Zhiji sold 0.335/0.57/0.022 million vehicles respectively, -18.5%/+9.6%/+129.3% compared with the same period last year. In terms of joint ventures, Volkswagen stabilized and GM was under pressure. 1H24 SAIC-VW and SAIC-GM sold 0.51/0.23 million vehicles, +2%/-50% year over year; corresponding VW/GM revenue was 65/32 billion yuan, respectively, +21%/-48% year over year.

Comprehensive gross profit is under pressure, and Indian companies' share transfers and capital increases have led to an increase in other investment income. 1H24's comprehensive gross margin declined slightly. The gross margin was 11%, a slight decrease of -1.5ppt year over year. In terms of expenses, the company's sales and management rates remained stable. 1H24 was 4.0%/3.3% respectively, which was the same as +0.1pp/ year over year. In terms of investment income, non-recurrent projects led to a significant increase in investment income. 1H24's investment income reached 8.5 billion yuan, +36% over the same period, of which 5.6 billion yuan was non-profit and loss, mainly due to the completion of the share conversion and capital increase of India's MG company, which increased the company's profit by 5.13 billion yuan. The performance of joint ventures is divided, public profits have stabilized, and GM is still in a period of adjustment. Among them, SAIC Volkswagen and SAIC-GM Manufacturing's net profit was 0.86/-2.27 billion yuan, +62% /loss over the same period last year, respectively.

Looking ahead, the company is speeding up the process of going overseas and internal reforms, and we expect the company to go through a period of adjustment. In terms of going overseas, the company went overseas for new models and opened up new markets to further expand growth. On the one hand, the company is speeding up the entry of cost-effective HEV/PHEV models into the European market. We expect the company's European export base to stabilize; at the same time, the company will accelerate market development in Central and Eastern Europe, Southeast Asia, Australia and New Zealand. On the other hand, the company's internal reforms are accelerating, and the autonomous side focuses on model genealogy reform and unified platform construction to promote cost reduction; the joint venture draws on Volkswagen's successful improvement experience, promotes SAIC-GM reform, and accelerates the launch of PHEV models. At the overall profit level, we believe that the company is expected to achieve stable gross profit through supply chain cost reduction and a unified model platform, continue to reduce costs and increase efficiency on the cost side, and expect net profit to be stable throughout the year.

Profit forecasting and valuation

Considering sales pressure, etc., we lowered our 2024/2025 profit forecast by 9%/13% to 15/15 billion yuan. The current stock price corresponds to 10x/10x 24E/25E P/E. Maintain an outperforming industry rating. The target price was lowered simultaneously by 9% to 16 yuan, corresponding to 12x/12x 24/25E P/E, with 27% upside compared to the current stock price.

risks

Price competition intensified, and joint venture sales declined.