The impact of bad weather and national inspections subsided, and Q2 revenue returned to growth. Mid-range and high-end models are popular, driving the increase in gross margin. The industry side has favorable policies for trade-in and the release of the first batch of electronic confessions lists. The company's product upgrades and channel optimization support better performance during peak seasons, and maintain a “highly recommended” rating.

Revenue returned to growth, and Q2 business performance was outstanding. 24H1 achieved operating income of 10.591 billion yuan/YoY +3.66%, net profit of 0.951 billion yuan/YoY +6.24%, net profit of 0.893 billion yuan/YoY +7.16%. Of these, 24Q2 achieved operating income of 5.637 billion yuan/YoY +18.07%, net profit attributable to mother 0.467 billion yuan/YoY +12.06%, net profit not attributable to mother 0.443 billion yuan/YoY +21.38%. As the impact of bad weather and national inspections subsided, stores resumed normal sales, and 24Q2 business performance exceeded market expectations.

The profit side is expected to achieve better growth after the equity incentive fee is proposed.

Product structure optimization drives up gross margins and increases sales and management expense ratios. 24Q2 gross profit margin 17.64%/+2.34pct year on year, leading to ASP upgrade and product structure optimization. 24Q2 sales/management/R&D/finance cost ratios were 4.18/2.83/3.01/ -1.25%, respectively, +0.93/0.64/0.35/0.87pct, respectively. The increase in sales expenses was mainly due to the expansion of the company's sales team and increased investment in publicity. The increase in management expenses was mainly due to the increase in subsidiaries, which led to a year-on-year increase in payable employee compensation.

Improve base construction and layout, and enrich the business structure. The company will improve the proposed production base in Jianfeng County, supplement the production capacity of electric tricycles, invest in the construction of a production base in Lanzhou, and improve the production capacity layout in northwest China. In foreign markets, the company continues to promote the construction of production bases in Southeast Asia, focusing on promoting agent expansion in Southeast Asia, and actively participating in exhibitions in North America, Indonesia and other places. 24H1 international business revenue is 0.12 billion yuan/year over year.

Profit forecast and investment advice: In the second half of the year, on the basis of product upgrades and channel optimization, the company benefited from the trade-in policy to catalyze demand, and the resource bias brought about by being selected for the electricity confession list, compounded by the impact of a low base, and is expected to continue the positive growth trend. Optimistic in the medium to long term, after the implementation of the new national standard policy, industry concentration increased, and the company fully benefited as an industry leader. We expect the company's net profit to be 2.125/2.536/2.973 billion yuan in 2024-2026, corresponding to the PE valuation of 12/10/8 x, maintaining the “Highly Recommended” rating.

Risk warning: The competitive landscape of the industry deteriorates, the effects of policy implementation fall short of expectations, dealer management risks, new product development and sales fall short of expectations, channel expansion falls short of expectations