Net profit for 24Q3 was 0.37 billion yuan, +49% year-on-year

The company released three quarterly reports. The company achieved cumulative operating income of 11.45 billion yuan, +22% year over year; net profit to mother of 1.08 billion yuan, +34.9% year over year; Q3 achieved revenue of 3.92 billion yuan, +36% year over month, and achieved net profit of 0.37 billion yuan to mother, +48.9% year over year, and -13.6% month on month, exceeding our expectations (“Q3 Outlook: Prosperity Improves, Cross-Industry Chain Flexibility” published on 2024.10.11).

We continue to be optimistic about the company's new two-wheeled and four-wheeler products, and domestic sales and exports will grow together. Maintain a “buy” rating.

Q3 revenue increased year-on-year. We expect Q4 two-wheel/four-wheel export conversion companies to sell 0.055 million motorcycles in July-August, up 93% year on year; 250cc+ high-displacement motorcycles sold 0.025 million vehicles, +58% year over year, of which 0.01 million vehicles were exported, +29.5% year over year; domestic sales of 0.015 million vehicles were expected, up 88% year on year. Corresponsively, the company achieved revenue of 3.92 billion yuan in Q3, +36.1% year-on-year. Revenue fell 12.2% month-on-month, mainly due to seasonal fluctuations and changes in European emission standards. Looking backwards, with the gradual completion of Euro5+ certification of products, the two rounds of export business in Q4 are expected to improve. Furthermore, the new U/Z series all-terrain vehicle product released by the company at the end of August has sufficient advantages. After delivery starts in Q4, it is expected to help the company further increase its market share and contribute to profit growth.

The sales/management expense ratio improved month-on-month, driving the net profit performance to exceed expectations of the 24Q3 company's gross margin of +0.8 pct month-on-month, mainly due to structural adjustments in four-wheel/two-wheeler products. The profit structure is expected to continue to be optimized with the abundance of new high-displacement products. On the cost side, the company's Q3 sales rate was 8.5%, or -2.8/-0.7pct, or the market promotion intensity was controlled; management rate was optimized, -1.7/-1.4pct to 3.3% month-on-month, respectively; at the same time, the company continued to invest in new platform development, and the Q3 R&D rate was 6.95%, -1.5/+0.9 pct compared to the previous month. The financial rate was +2.6/2.4pct compared to the previous month, mainly due to exchange fluctuations. In the end, the company achieved net profit of 0.37 billion yuan in Q3, +48.9% year-on-year.

Released a new round of equity incentive plans to fully motivate employees On September 2, '24, the company released the 2024 equity incentive plan (draft). The number of stock options to be granted to incentive recipients is 3.55 million, and the exercise price is 106 yuan. For the first time, the program awarded incentives to 1,310 core management and technical personnel. Revenue assessment targets were set for each of the three operating periods. It is planned that the 2024 revenue will not be less than 14 billion yuan; the cumulative revenue for 2024-2025 will not be less than 30.5 billion yuan; and the cumulative revenue for 2024-2026 will not be less than 50.5 billion yuan. This equity incentive plan highlights the company's confidence in continuous development and helps the company to fully mobilize employees' enthusiasm and achieve business goals.

Maintaining a “buy” rating, target price of 202.90 yuan

Maintaining the previous forecast, the company's net profit for 24-26 is expected to be 1.36/1.7/2.09 billion yuan, respectively. Comparable to the company's 25-year Wind unanimously expected PE average value of 18.1 times, we gave the company 18.1 times PE in 25, with a target price of 202.90 yuan (previous value of 192.39 yuan) to maintain “buying.”

Risk warning: New product sales fall short of expectations, and the risk of fluctuations in exchange rates and shipping costs.