The performance was in line with expectations. The company's revenue for the first half of the year was 76.723 billion yuan, up 17.1% year on year; net profit to mother was 2.832 billion yuan, down 63.0% year on year; net profit after deducting non-return to mother was 1.169 billion yuan, down 5.9% year on year. Revenue for the second quarter was 39.699 billion yuan, up 28.3% year on year, up 7.2% month on month; net profit to mother was 1.674 billion yuan, up 145.1% year on year, up 44.5% month on month; net profit after deducting non-return to mother was 1.057 billion yuan, up 3679.3% year on year, up 846.3% month on month.

Gross margins are under pressure, and expense ratios have declined slightly. The gross profit margin for the first half of the year was 13.8%. The company changed its accounting policy to include guarantee quality assurance expenses in operating costs. After adjustment, the gross margin for the first half of the year decreased by 2.5 percentage points year on year; the gross profit margin for the second quarter was 13.2%, a decrease of 1.2 percentage points over the previous month. The decline in gross margin is expected to be mainly due to increased price competition in the industry. The cost ratio for the first half of the year was 10.3%. After adjustment, it decreased by 0.5 percentage points year on year under the same caliber. Among them, sales/management/R&D expenses under the same caliber were +0.5/-0.3/-0.7 percentage points year on year, respectively. Net cash flow from operating activities in the first half of the year was 3.435 billion yuan, a year-on-year decrease of 50.6%, mainly due to increased payment to suppliers.

Deep Blue and Avita cut losses sharply year on year, and Changfu's profitability improved year on year. Investment income for the second quarter was 0.174 billion yuan, up 168.6% year on year, down 2.1% month on month; investment income in joint ventures was 0.104 billion yuan, turning a loss into a profit year on year, down 30.1% month on month. Changan Ford's net profit in the first half of the year was 1.821 billion yuan, up 127.9% year on year, mainly benefiting from Lincoln model export growth and sales expenses; thanks to product structure improvements and cost reduction and efficiency promotion, etc., Deep Blue Auto and Avita Technology achieved significant year-on-year losses. Deep Blue Automobile/Avita Technology lost 7.39/1.395 billion yuan respectively in the first half of the year, with losses of 1.059/1.756 billion yuan respectively for the same period last year. Avita Technology included investment profit and loss of about -0.562 in the company's statements billion yuan. Changfu/Changma's sales volume in the second quarter reached 0.056/0.0175 million vehicles respectively, +4.4%/-4.1% year over year, and +0.8%/-9.1% month over month. As sales of joint venture brands stabilize and Avita gradually reduce losses, it is expected that the company's investment income will continue to improve.

Profitability of independent brands improved significantly from month to month, and sales in new energy and overseas markets are expected to maintain an upward trend. Involuntary net profit of 0.953 billion yuan was deducted in the second quarter, 0.145 billion yuan in the same period last year, and -0.037 billion yuan in the first quarter of this year. The profitability of the autonomous sector improved significantly over the same period last year. In the second quarter, own-brand passenger car sales were 0.3846 million units, up 3.4% year on year, down 12.0% month on month; in the second quarter, sales of own-brand new energy vehicles were 0.1703 million units, up 86.0% year on year and up 32.2% month on month. The year-on-year growth rate of independent new energy sales was far higher than the industry average. Avita's investment in Huawei is expected to be officially launched. It is expected that Huawei's technology, supply chain, and talent in the field of automotive intelligence will continue to empower Avita and the company; in the second half of the year, the company will launch various key new energy models such as the Changan Qiyuan E07, Deep Blue S05, Deep Blue L07, and Avita 07 to boost sales of autonomous new energy. Overseas sales of independent brands were 0.0943 million vehicles in the second quarter, up 69.1% year on year, down 13.5% month on month. The company fully launched the “Haina Baichuan” globalization plan to promote base construction in Thailand and the construction of the Mexican market system. Deep Blue S7 and Changan Qiyuan A05 appeared at the UAE exhibition, completing the debut of new energy brand models in the Middle East. It is expected that the overseas market will become a new base point for the company's sales growth.

The gross profit margin, expense ratio, etc. are adjusted, and the net profit to the mother for 2024-2026 is 7.869, 10.302, and 11.673 billion yuan (original 8.902, 10.704, 11.814 billion yuan), which is 20 times the company's 2024 PE average valuation, and the target price is 15.8 yuan, maintaining the purchase rating.

Risk warning

Changan Ford's sales fell short of expectations, Changan Mazda's sales fell short of expectations, Changan's own brand sales fell short of expectations, and the industry's price war affected profits.