Incident: The company released its 2024 semi-annual report. In the first half of the year, the company achieved operating income of 76.723 billion yuan, +17.15% year over year, realized net profit to mother of 2.832 billion yuan, -63.00% year over year, realized net profit deducted from non-mother 1.169 billion yuan, -5.89% year on year, and EPS was 0.29 yuan. In Q2 2024, the company achieved operating income of 39.699 billion yuan, +28.33% year-on-month, +7.23% month-on-month, achieved net profit of 1.674 billion yuan, +145.13% year-on-year, and +44.52% month-on-month, realized net profit without return to mother 1.057 billion yuan, and +846.27% month-on-month

The volume and price of domestic and foreign own-brand models rose sharply, market competition and new energy transformation caused gross margin fluctuations in the domestic business, and the loss of Deep Blue brand bicycles narrowed sharply: H1 in 2024, the company's own-brand models achieved a sharp rise in volume and price in domestic and foreign markets. In overseas markets, the company exported 0.2032 million vehicles in the first half of the year, +74.85% year-on-year, up 69.11% from 2023 H2, accounting for a year-on-year increase of 6.73 pct to 18.12%, and the average price increase of 6.97 pct compared to 2023 H2. On the other hand, assuming that the overseas market is all vehicle sales, the average price of the company's export products in the first half of 2024 was 0.0832 million yuan, +22.52%; in the Chinese market, the company sold 0.8971 million vehicles (excluding Avita) in the first half of the year, +0.35%, and the average bicycle price was 0.0624 million yuan, +3.43% year over year. In the context of the market price war, the popularity of new models in the Qiyuan series strongly supported the average price of the company's products. In terms of gross margin, the gross margin of the company's automobile sales business decreased by 2.90 pct to 13.47% year on year in the first half of the year. The gross margin of the Chinese market decreased by 4.79 pct to 10.10% year on year. Mainly due to the fact that the company's old products surrendered some benefits in the context of increased market competition and the early profitability of new new energy models was weak. However, the company's Deep Blue brand was gradually narrowing losses due to scale effects. In the first half of the year, the loss of the Deep Blue brand narrowed sharply by 63.17% to 0.0096 million yuan year on year. The gross margin of the overseas market remained flat year on year, reaching 26.91%. The average price of exported models was higher and the profitability was stronger.

The cost rate was properly controlled, and the operating situation of the joint venture/joint venture improved and stabilized the company's profitability: H1 in 2024, the company's R&D expense ratio was -0.73 pct to 3.80%, the sales expense ratio was +0.53 pct to 4.01% year over year, the management expense ratio was -0.31 pct to 3.16% year over year, and the financial cost ratio was -0.02pct to -0.72% year over year. Overall, the company's expense ratio was properly managed. In the context of the price war, the company's stronger support to dealers led to a marked decrease in sales expenses. The company's net profit without return to mother fell by only 5.89% year on year in the first half of the year. Profitability was relatively stable under the large decline in gross margin. Apart from the hedging caused by the overall reduction in expenses, the improvement in the operating conditions of joint ventures and joint ventures played an important role, mainly reflected in the recovery of Changan Ford's net profit and the narrowing of Avita's losses. Changan Ford achieved net profit of 1.821 billion yuan in the first half of the year, +127.86% year over year, bringing the company 0.619 billion yuan of investment income, compared with +54.84% year on year, mainly benefiting Lincoln The increase in brand exports led to a year-on-year decrease in sales expenses; Avita's net loss in the first half of the year decreased by 20.55% to -1.395 billion yuan, sales volume was +104.27% to 0.021 million units, and the net loss of bicycles narrowed sharply by 61.11% year-on-year to 0.0663 million yuan. The continuous enrichment of the product line led to a significant increase in bicycle efficiency.

Avita's shareholding is expected to deepen cooperation, and the launch of new multi-brand models in the second half of the year will accelerate the transformation of new energy sources: On August 20, Avita Technology, a subsidiary of the company, signed an “Equity Transfer Agreement” with Huawei to purchase 10% of the shares at a price of 11.5 billion yuan to form a deeper cooperative relationship with Huawei to promote the company's leading intelligent technology to continue to empower the company's products. Currently, in addition to Avita, Huawei's intelligent technology has begun to empower the company's other new energy brands. The Deep Blue S07 was launched on July 25. The starting price of the model equipped with the Huawei ADS SE smart driving version was 0.1899 million yuan, bringing a significant increase in product technical strength. In the second half of the year, the company will also launch Avita 12 Extended Range Edition, Avita 07 pure electric/extended range version, Deep Blue 107, Deep Blue S05, and Qiyuan E07 to continue to deepen the multi-brand strategy to achieve full coverage of the new energy price band and accelerate the company's new energy transformation.

Investment suggestions: From 2024 to 2026, the company is expected to achieve operating income of 173.347 billion yuan, 1199.321 billion yuan, and 219.383 billion yuan, and net profit to mother of 7.204 billion yuan, 9.808 billion yuan, and 11.407 billion yuan, and diluted EPS of 0.73 yuan, 0.99 yuan, and 1.15 yuan, respectively. The corresponding PE is 16.64 times, 12.22 times, and 10.51 times, respectively. “Recommended” rating.

Risk warning: Risk of NEV sales falling short of expectations; risk of increased market competition; risk of overseas market expansion falling short of expectations.