Event: On August 25, Cyrus released its 2024 semi-annual report.

Comment:

2024H1 saw a high increase in revenue and a recovery in profits. 2024H1 achieved operating income of 65.044 billion yuan, an increase of 489.58% over the previous year; realized net profit of 1.625 billion yuan to mother, and realized net profit of 1.437 billion yuan after deducting non-return to mother, turning a loss into a profit. The 2024H1 sales expense ratio was 14.35%, a year-on-year decrease of 1.34pct; the management expense ratio was 1.81%, a year-on-year decrease of 4.61 pct; and the financial expense ratio was -0.04%, an increase of 0.88pct year-on-year. The main reason is the sharp increase in NEV sales, combined with cost management optimization, and improved profitability.

Questionnaire brands are recognized by the market, and the scale effect is gradually showing. In the first half of 2024, the company began large-scale delivery of the flagship AITO Qunjie M9, and launched the new Zenjie M5 and the new Zenjie M7 Ultra to meet the multi-dimensional choices of different users in terms of appearance and space. As of the statistics released in the semi-annual report, the Quanjie M9 has accumulated over 0.12 million vehicles, ranking first in sales of models over 0.5 million; the new Qunjie M7 Ultra has delivered more than 0.03 million vehicles in the 50 days since its release. In the first half of 2024, the company's total NEV sales volume was 0.2009 million units, up 348.6% year on year. Among them, the Quanjie brand sold 0.1826 million vehicles, an increase of 608.83% year on year.

The effect of scale is evident, improving the company's gross profit margin. The company's gross margin for the first half of 2024 was 25.04%, an increase of 18.70 pcts year-on-year.

Insist on innovation to drive product upgrades. The company's 2024H1 R&D expenses were 2.827 billion yuan, a year-on-year increase of 320.68%, accounting for 4.35% of revenue. The company adheres to innovation drive, continuously improves platform construction and product upgrades such as intelligent architecture, intelligent ecology, intelligent power, intelligent simulation, intelligent testing, and digital intelligence processes, and enhances the company's intelligent technology.

Taking a stake in Huawei hopes to enhance the brand's strength. The wholly-owned subsidiary Cyrus Automobile Co., Ltd. invested 11.5 billion yuan in a 10% stake in Shenzhen Yinwang Intelligent Technology Co., Ltd., to help the company and Huawei further deepen the cooperation model and jointly promote the development of smart cars and intelligent driving. As “car BU” businesses such as the Huawei Qiankun Smart Driving System and Hongmeng cockpit continue to grow, it is expected that the company's investment income will be strengthened in the future.

Investment advice: The company is gradually stabilizing its position in the NEV market with the new energy vehicle market. It is expected that future sales volume and new model launches will continue to improve profits and promote better performance.

Deepening cooperation with Huawei is expected to enhance brand strength and increase return on investment. The company's earnings per share for 2024-2025 are expected to be 3.36 yuan and 5.26 yuan, respectively. The current stock price corresponds to PE of 22 times and 14 times, respectively, maintaining the company's “increased holdings” rating.

Risk warning: Sales fall short of expectations; industry competition increases risk; risk of cooperation with Huawei falling short of expectations; risk of declining gross margin, etc.