Performance preview

Profitability is forecast to grow 518% to 559% year over year

The company issued a performance pre-profit announcement: The company expects to achieve operating income of 103 billion yuan to 110 billion yuan in 1-3Q24, an increase of 518% to 559% over the previous year. Net profit attributable to mother was 3.5-4.1 billion yuan, after deducting non-net profit of 3.2-3.8 billion yuan, reversing losses year-on-year. Corresponds to the 3Q24 revenue center of 41.46 billion yuan, +634%/month-on-month +7.7%; net profit center to mother 2.18 billion yuan, +54.8% month-on-month; net profit center without return to mother of 2.06 billion yuan, +55.9% month-on-month.

Key points of interest

3Q24 continued its good product structure, and the net profit of bicycles increased month-on-month. According to the company's production and sales report, 3Q24's total sales of new energy vehicles were 0.116 million vehicles, +9.1% month-on-month, of which Cyrus sold 0.11 million vehicles, +12.0% month-on-month. According to the Passenger Federation, M9 accounted for 46% of sales in July-August, and we expect 3Q to continue the good product structure in 2Q. We estimate that 3Q24 bicycle revenue (center) was 0.358 million yuan, a slight decrease from month to month; bicycle net profit (center) was 0.019 million yuan, an increase of more than 5,000 yuan over the previous month.

Sales are expected to maintain steady growth, and profits are expected to gradually be released. The company disclosed that as of October 10, the M9 has accumulated over 0.15 million cars1. We believe it is expected to provide strong support for the steady growth of the company's sales, and the product structure is expected to be maintained; new products from 4Q24 to next year are expected to increase sales. At the profit level, the semi-annual report revealed a sharp increase in the 1H24 R&D expenditure ratio from 15% in the same period to 73%, diluting profits. We believe that the actual profit quality is superior. Looking ahead, we believe profits are expected to be gradually released on the basis of steady sales, benefiting from scale effects and reduced procurement costs.

Acquire additional “gigafactories” to improve the asset integrity and control of the company's important businesses. The company issued the “Report on Issuing Shares to Purchase Assets (Draft)” and plans to acquire Longsheng New Energy at a transaction price of 8.16 billion yuan. The issue price is 66.39 yuan/share, and the number of shares issued is 0.12 billion shares, accounting for 7.53% of the total share capital of the listed company after issuance. After the transaction is completed, Longsheng New Energy will become a wholly-owned subsidiary of the company, and the company will acquire ownership of the gigafactory. After the transaction was completed, the company's net profit due to the 1H24 exam preparation standard fell by 79.75 million yuan. The company determined that this was due to an increase in the scale of depreciation and amortization; however, the balance ratio and operating cash flow are expected to improve. In addition, the company has invested 10% and upgraded the strategic cooperation to “business cooperation+equity cooperation”. We expect the company to further expand its product matrix on the basis of complementing the luxury SUV category, and at the same time accelerate the expansion of overseas markets and open up room for long-term growth.

Profit forecasting and valuation

Based on the steady growth trend in the company's sales volume, we raised 24E/25E revenue by 20%/13% to 136.7/161.1 billion yuan, diluted profits based on changes in the company's fee ratio, and kept the profit forecast unchanged. The current stock price corresponds to 27x/17x 24E/25E P/E. Maintain the outperforming industry rating and target price, corresponding to 37x/23x 24E/25E P/E, with 40% room for increase compared to the current stock price.

risks

The company's sales volume fell short of expectations, and market competition intensified.