The company announced its results for the first half of 2024: in the first half of 2024, the company achieved operating income of 14.414 billion yuan, -15.4% year-on-year, and net profit to mother of 1.034 billion yuan, or -12.9% year-on-year.

Short-term sales have declined significantly, and we are optimistic about the company's future long-term development. In the first half of 2024, the company's electric two-wheelers (including electric bicycles & electric scooters) earned 9.786 billion yuan, or -19.9%; the battery and charger business achieved revenue of 4.065 billion yuan, -9.6% year-on-year; and revenue from electric two-wheeler parts was 0.563 billion yuan, +72.5% year-on-year. Short-term company performance is under pressure, mainly due to 1) macroeconomic uncertainty and a brief weakening in market demand, and 2) distributors removed inventory, so 2024H1's electric two-wheeler sales fell 22.3% year on year to 6.38 million units. However, judging from monthly data, the company's electric two-wheeler sales gradually picked up in May-June 2024, and the sales trend is expected to improve.

In the long run, we are still optimistic about the company's competitive advantage in the domestic market and overseas expansion space. In the first half of 2024, a fire incident in the electric two-wheeler industry attracted public attention, and relevant government departments paid great attention. Relevant government departments strengthened supervision by introducing new national standards and updating existing standards, including various aspects relating to charging facilities and batteries. We believe that the company pays attention to product quality, continues to invest in core components to develop new technologies, and is expected to continue to enhance its competitiveness through high-quality products. At the same time, the company is actively promoting the “Yadi” brand globally, which is expected to open up room for further growth.

Profitability has improved. 2024H1's net profit margin was 7.17%, +0.20pct year on year; gross profit margin was 18.00%, +1.13pct year over year, mainly due to product portfolio optimization and price increases for battery and electric drive products. The 2024H1 company's sales expense rate/ management expense rate/ financial expense ratio were 4.20%/2.91%/-0.84%, respectively, -0.61 pct/+0.15 pct/-0.40 pct. In addition, the company's other revenue and net income was $0.251 billion, or -43.2% year-on-year. It mainly received a one-time government subsidy in the first half of 2023, but 2024H1 did not receive similar subsidies, and net foreign exchange losses increased.

Profit forecast and rating: We expect the company's net profit for 24-26 to be 2.55, 3.264, and 3.792 billion yuan, respectively, -3.4%, +28.0%, and +16.2%. The current closing price corresponds to the 24-25 PE of 13.7 and 10.7 times. As a leading electric two-wheeler company, the company, as a leading electric two-wheeler company, gave the company a PE valuation of 14 to 15 times in 2024, corresponding to a reasonable value range of 11.47 to 12.29 yuan, corresponding to HK$12.62 to 13.52 (exchange rate: 1) RMB = HK$1.10), giving it an “superior to the market” rating.

Risk warning: The impact of new mobility tools; downstream demand growth falls short of expectations; industry competition intensifies.