Brief performance review

On October 17, the company released its three-quarter report. The first three quarters achieved revenue of 11.45 billion yuan, +21.98%; net profit to mother was 1.081 billion yuan, +34.87% year over year; gross sales margin was 31.53%, -1.39PCT year on year; and net sales margin was 9.82%, +0.88PCT year on year.

24Q3 achieved revenue of 3.921 billion yuan, +36.11% year over year; net profit to mother was 0.373 billion yuan, +48.95% year over year; gross sales margin was 31.57%, -2.1PCT year on year, +0.75PCT month on month; net sales margin was 9.74%, +0.64PCT year on year and -0.34PCT month on month.

Management analysis

1. The performance exceeded expectations, mainly due to the increase in sales scale, and the sales and management expenses ratio dropped sharply.

2. Split as follows

(1) Revenue: 24Q3 revenue of 3.921 billion yuan, +36.11% year over year, mainly due to a sharp increase in the company's sales volume at home and abroad, with sales volume of 0.026/0.029 million vehicles in July/August, +74%/+115% year over year; four-wheel sales of 0.014/0.016 million vehicles, +32%/25% year over year.

(2) Gross profit margin: In 24Q3, the company's gross margin increased 0.75PCT month-on-month. We expect the gross margin of two-wheeled motorcycles to increase mainly due to changes in product structure and export sales ratio.

(3) Expense rate: 24Q3 sales/management/finance/R&D expense rates were 8.53%/3.27%/0.64%/6.95%, year-on-year, -2.75PCT/+2.58PCT/-1.54PCT, -0.68PCT/-1.41PCT/+2.38PCT/+0.92PCT. We expect the decline in the sales expense ratio mainly due to lower inventory, reduced promotions, and financial liquidation such as property insurance, which will reduce the company's management expenses rate.

3. Follow-up outlook:

This year's new cars, the 675SR, Z10, and U10PRO, have outstanding performance and the potential to explode, and are expected to continue to release sales in late '24 and '25. Furthermore, the platform system has been greatly improved this year, and the number and speed of the company's new product launches is expected to increase dramatically thereafter.

Profit Forecasts, Valuations, and Ratings

The company's performance exceeded expectations, the scale effect was fully unleashed. We are optimistic about the explosive potential of the company's many new cars and continue to release sales. Therefore, we raised our 24-26 profit forecast by 0.05/0.04/0.08 billion yuan respectively. We expect 24-26 revenue to 15.336/18.76/21.738 billion yuan, respectively, and net profit to mother of 1.351/1.748/2.139 billion yuan. In 2024/2025, the corresponding PE was 17/13 times that of the company. Leading the way and maintaining a “buy” rating.

Risk warning

Risk of increasing US tariffs, risk of rising sea freight rates, risk of new product promotion falling short of expectations