Despite intense competition, Ideal Auto's performance showed resilience. The company's Q2 sales volume reached 0.109 million, up 25%/35% year over year. Due to changes in product structure, the company's Q2 bicycle ASP dropped to around 0.28 million yuan; revenue was 31.68 billion yuan, up 11% year on year. Q2 gross margin reached 19.5%, of which vehicle gross margin was 18.7%, exceeding our expectations. Due to economies of scale, the company's R&D and SG&A expenses narrowed markedly from month to month; however, the company increased expenses such as expenses, employee remuneration, rent, etc. to support the expansion of the product portfolio and technology, and operating expenses and expense ratios increased year over year. Net profit to mother recorded 1.1 billion yuan, 52%/+86% year-over-year, 3.5% year-over-year net profit, -4.5 pct/month-on-month, non-GAAP net profit -44%/+18% year-on-month to 1.5 billion yuan, and year-on-month net profit margin of -4.7 pct/month-on-month to 4.7%, respectively.
Looking ahead to 2024Q3 and the whole year, 1) Business scale level: The company expects to deliver 0.145-0.155 million vehicles in Q3, up 38.0%-47.5% year on year; estimated revenue of 39.4-42.2 billion yuan, up 13.7% -21.6% year on year. 2) Margin level: The company guides a slight recovery in Q3 vehicle gross margin, which is expected to exceed 19%, driving the overall gross margin to exceed 20%. Such guidelines indicate that the company expects the positive contribution of economies of scale to gross margin to offset the negative impact of the product sales structure on gross margin. 3) Cost side: The company indicates that GAAP R&D expenses for the whole year will be less than 12 billion yuan.
Autonomous driving is advancing rapidly. On July 15, Ideal OTA 6.0 will be launched. According to the company's public results conference, the daily activity of the city NOA has nearly doubled by 8 times, and the average city NOA mileage per vehicle has nearly tripled. Up to now, the user usage penetration rate of ideal cars for intelligent driving has exceeded 99%, and the cumulative NOA mileage for all scenarios has exceeded 1.11 billion kilometers. At the end of July, Ideal Auto launched an early bird test of a dual-system intelligent driving solution based on the E2E end-to-end model and the VLM visual language model. The average daily user activity exceeded 70%. The company expects to conduct tests on a scale of 10,000 people in September.
Energy supplementation will be accelerated first, waiting for the launch of pure electric models in the first half of next year. 1) In terms of charging networks: By the end of July, Ideal Auto had opened and operated 701 Ideal overcharging stations, equipped with 3,260 supercharging stations. The company aims to launch 2000+ supercharging stations and open 0.01 million+ supercharging piles in highways and cities across the country by the end of this year, in line with previous guidelines. 2) In terms of models: The first pure electric model other than MEGA is expected to be launched in the first half of next year. At that time, the company will be able to provide consumers with excellent infrastructure to support pure electric vehicle sales.
3) In terms of sales channels: The company gradually increased the proportion of Auto City stores in the first half of the year. It has increased from 24% at the end of last year to 31% at the end of June 2024, and plans to further increase to close to 50% by the end of the year. The number of vehicles in each store's showroom also increased from 4.6 at the end of last year to 5.1 at the end of 2024H1, and it is planned to reach the target of 6 cars per store by the end of the year.
Investment advice: We expect the company to sell about 0.5/0.63/0.82 million vehicles in 2024-2026, with total revenue of 143/169.2/220.3 billion yuan; GAAP net profit to mother is 7.7/10.4/13.9 billion yuan, GAAP net profit margin to mother 5.4%/6.2%/6.3%; non-GAAP net profit to mother is 10.1/12.2/16 billion yuan, net non-GAAP The profit margin was 7.1%/7.2%/7.3%. We gave it a target market value of 171.2 billion yuan, corresponding to a target price (2015.HK) of about HK$88 and (LI.O) of about $23, corresponding to 14x2025 P/E, maintaining a “buy” rating.
Risk warning: risk of model development and sales falling short of expectations, risk of fluctuations in upstream parts supply, risk of iteration of intelligent driving technology falling short of expectations.