Incident: The company announced its 2024 semi-annual results. 2024H1 achieved operating income of 14.414 billion yuan, -15.4% year over year; the company achieved net profit of 1.034 billion yuan to mother, -12.95% year over year.

Gross margin increased year on year, and the cost ratio remained stable during the period: 2024H1's gross profit margin was 18.00%, +1.07pct year on year; the increase in gross margin was mainly due to product portfolio optimization and price increases for battery and electric drive products. 2024H1 sales expense ratio 4.20%, YoY +0.07pct; management expense ratio 6.32%, YoY -0.29pct; R&D expense ratio 3.41%, +0.15pct yoy. The reasons for the year-on-year decline in the company's 2024H1 revenue are: 1) Macroeconomic uncertainty and a brief weakening in market demand. 2) Distributors' inventory removal cycle has led to a decline in sales of electric two-wheelers. As sales of electric scooters and bicycles continued to pick up in May and June, the industry's sales trend continued to improve.

Increased industry concentration benefits leading companies and opens up room for growth in overseas markets: The electric bicycle fire incident in Nanjing in early 2024 attracted great attention from relevant government departments. Furthermore, in 2024, H1 strengthened the supervision of electric two-wheelers by introducing a new national standard and updating the existing national standard. We believe that the improvement of industry standards is expected to promote increased industry concentration, and the company is expected to fully benefit as an industry leader. The company insists on focusing on long-term development, continuously investing in research and development of new core components and technologies and expanding overseas markets to open up room for growth. On May 13, 2024, Yadi laid the foundation for the world's 8th intelligent production and research base in Indonesia. The new plant is expected to have a total investment of $0.15 billion and will be completed in 2026. At that time, the total area of the factory will reach 27 hectares, with an annual production capacity of up to 3 million units. Up to now, Yadi has exported to 100 countries around the world, ranked first in global sales for seven consecutive years, and has more than 80 million users worldwide.

Investment proposal: We expect the company to achieve operating income of 35.806/41.033/46.286 billion yuan in 2024-2026 and achieve net profit of 2.616/3.108/3.701 billion yuan to mother. The corresponding PE was 13.04/10.98/9.22 times, respectively, maintaining the “gain” rating.

Risk warning: New product sales fall short of expectations; industry competition increases risk; macroeconomic downside risk.