Key points of investment

Incident details: The company disclosed the 2024 interim report. 2024H1 achieved operating income of 65.044 billion yuan, a year-on-year increase of 489.58%; realized net profit to mother of 1.625 billion yuan, an increase of 220.85%; and realized net profit of 1.437 billion yuan after deduction, an increase of 176.27% over the previous year.

24H1's revenue grew rapidly, mainly driven by strong sales of new models in the interviewee market; 24H1 turned losses into profits, or a significant year-on-year improvement in gross margin driven by scale effects. 1) The company's 24H1 achieved revenue of 65.044 billion yuan, a significant increase of 489.58% compared to 11.032 billion yuan in the same period last year. The main reasons include several times year-on-year growth in sales of the Q series in the first half of the year, and the increase in overall average prices driven by the addition of high-end product lines this year. A total of 0.1806 million vehicles were delivered, an increase of nearly 7 times over 0.0232 million vehicles in the same period last year; in the first half of the year, the 24H1 achieved sales of 0.059 million vehicles, and the 24H1 achieved sales of 0.059 million vehicles, which accounted for 32.6% of the sales volume in the Q series, driving up the average unit price increase. 2) 24H1's net profit to mother was 1.625 billion yuan, turning a loss into a profit, or the scale effect brought about by a sharp increase in the delivery volume of all 24H1 products, which led to an increase of 18.7 pcts in gross margin over the same period last year.

Profitability increased dramatically in 24Q2, or due to the combined impact of further sales growth in a single quarter and the commencement of delivery of multiple new products in Q2. Net profit for Q2 was 1.405 billion yuan to mother, a significant increase from 0.22 billion yuan in Q1; gross margin for Q2 was 27.47%, 5.96pct higher than Q1. The above profit indicators all show a significant increase in the company's profitability in Q2. We expect the overall gross margin to rise mainly due to further growth in overall sales volume in Q2 and the commencement of delivery of various new models in Q2. Q2 sold 0.098 million vehicles in a single season, higher than the Q1 sales volume of 0.082 million vehicles. At the same time, the company launched 3 revised models in Q2: the new Q2 M5, the new Wenjie M7 Ultra, and the new Q7 Max.

The company's Questionnaire series product matrix continues to be enriched; at the same time, the commissioning of the Gigafactory is expected to support the company's sales expectations.

1) In the first half of the year, the company's old models were iterated and new models were delivered together. Among them, for the existing M5 and M7 series, the company launched various models such as the new M5, the new M7 Ultra and the new M7 Max in April-May, which gave a good boost to the sales volume of the corresponding series; in terms of new products, the Qinjie M9, which was released at the end of last year, officially began mass production and delivery in February this year. The product was positioned in the 0.47-0.57 million yuan price range that had not been covered before, forming a good expansion of the company's product line. It's already decided It reached 0.12 million vehicles, and sales performance exceeded expectations. Looking at the second half of the year, the new Wenjie M7 Pro was officially launched in August, and the Quanjie M9 five-seater version is expected to be released on September 10. At the same time, the new series, the new model with a price range of 0.35-0.45 million yuan, the Wenjie M8 may also be launched within the year, which is expected to drive vehicle sales to continue to perform well in the second half of the year. 2) In order to meet sales expectations, the company has set up production capacity ahead of schedule. The Cyrus Gigafactory was put into operation in Chongqing's Liangjiang New Area in February of this year and is currently undertaking the manufacturing of the Genjie M9; the factory plans to have an annual production capacity of 0.7 million vehicles, which is expected to provide good support for the company's continued development on the production capacity side.

The company continues to deploy intelligent vehicles, and further encourages and deepens cooperation with Huawei in the field of intelligent driving by investing in Huawei subsidiaries. The company continued to invest in smart driving technology iteration. In the first half of the year, the company continued to iterate and improve the self-developed intelligent “Yunhai Architecture” central gateway architecture, service gateway architecture and ring network architecture, and promoted and completed 1.4 million sub-OTA upgrades for users. The daily smart driving mileage exceeded 2 million kilometers and the total mileage exceeded 0.2 billion kilometers. On August 26, Celis announced that it plans to invest 11.5 billion yuan in Shenzhen Yinwang Intelligent Technology Co., Ltd. and obtain 10% of its shares and 1 board seat. Established in January 2024, it is a subsidiary of Huawei, and its main products are automotive intelligent systems and component solutions. Through this equity acquisition, the company is expected to deepen cooperation with Huawei and lay a good technical foundation for the intelligent development of automobiles.

The company announced plans to increase its share holdings, showing management's confidence in future development. On August 28, the company issued the “Notice on the Company's Key Team's Plan to Increase the Company's Shares”, which discloses that within 6 months from the date of disclosure, the key team plans to increase their holdings of the company through centralized bidding transactions. The proposed increase in holdings is not less than RMB 0.1 billion and no more than RMB 0.2 billion, which shows that the company's key team has strong confidence in future continuous development.

Investment advice: The company's 24H1 performance was better than expected. Looking ahead to the second half of the year, with the gradual launch of new models and initial results in brand building, vehicle sales are expected to continue to perform well; in the long run, the company will continue to lay out in the direction of intelligence, or support performance growth. We expect total revenue for 2024-2026 to be 137.065 billion yuan, 172.777 billion yuan, and 202.604 billion yuan, respectively, with year-on-year growth rates of 282.4%, 26.1%, and 17.3% respectively; corresponding net profit to mother is 5.075 billion yuan, 7.935 billion yuan, and 11.004 billion yuan, respectively, with year-on-year growth rates of 307.2%, 56.4%, and 38.7%, respectively; corresponding EPS respectively It is 3.36 yuan, 5.26 yuan, and 7.29 yuan, and the corresponding PE is 22.5x, 14.4x, and 10.4x, respectively (based on the closing price on September 6). Covered for the first time, giving a “buy-A” rating.

Risk warning: Risks such as increased market competition, risk of brand building falling short of expectations, risk of falling short of expectations in intelligent automotive development, risk of falling short of expectations in new product development, etc.