Incident: The company released 24Q3 results. In the first three quarters, it achieved revenue of 11.45 billion yuan, +21.98%; net profit to mother was 1.081 billion yuan, +34.87% year over year; net profit after deducting non-return to mother was 1.05 billion yuan, +36.74% year over year. Looking at a single quarter, 24Q3 revenue was 3.921 billion yuan, +36.11% year over year; net profit to mother was 0.373 billion yuan, +48.95% year over year; net profit without return to mother was 0.363 billion yuan, +46.62% year over year.

Four-wheelers: Significant restoration has been achieved under a low base. I am optimistic that the new product will continue to contribute more. According to Motorcycle Association data, in July-August, the company shipped 0.0298 million four-wheel beach vehicles, +28% over the same period. In August, the company released a major new U/Z series all-terrain vehicle product. Product configuration upgrades and product strength were greatly improved, which is expected to drive four-wheeler product structure optimization and profitability improvement.

Two fuel wheels: Domestic sales remained high during the peak season, and export growth slowed slightly. According to the Motorcycle Association data, the company sold 0.0418 million fuel motorcycles in July-August, +55% compared to the same period, and >250cc sold 0.025 million units, +58% year-on-year. In terms of exports, the company's motorcycle export volume was 0.0138 million units in July-August, and the Q3 motorcycle export growth rate slowed down. It is expected to be mainly affected by factors such as European product standard changes, order season fluctuations, and customs clearance delays for some customers. The export growth rate is expected to gradually recover as the product switch is completed. In terms of domestic sales, domestic sales are expected to continue to be booming under peak season catalysis. Since July, the company has launched major new products such as 500SR VOOM and 675SR-R, which are expected to continue to contribute to growth.

Electric two-wheelers: New products+channels work together to achieve rapid release. According to the Motorcycle Association data, the company sold 0.013 million electric motorcycles in July-August. As new products and channels continue to gain strength, extreme core electric two-wheelers are expected to continue to grow.

The decline in the fee ratio during the period led to a year-on-year improvement in Q3 net interest rate

The Q3 gross margin was 31.57%, -2.1 pct year on year, and +0.75 pct month on month. The year-on-year decline is mainly due to factors such as rising shipping costs and appreciation of the RMB exchange rate. The month-on-month improvement is expected to be due to changes in product structure. Q3 Sales/management/R&D/finance expense ratio year-on-year -2.8/-1.5/+2.6pct, total -3.5pct. Taken together, the Q3 net sales margin was 9.7%, +0.6pct year-on-year. Q3 Net cash flow from operating activities was $0.75 billion, +35% year over year.

Profit forecasting and investment advice

In view of the company's Q3 performance exceeding expectations, we raised our profit forecast. The net profit for 2024-2026 is 1.365, 1.734, and 2.084 billion yuan (previous values were 1.33, 1.639, 1.945 billion yuan), +36%, +20% year-on-year, corresponding to 2024-2026 PE 17x, 14x, and 11x, respectively, maintaining the “buy” rating.

Risk warning

Macroeconomic fluctuations, adverse changes in trade policies, changes in exchange rates, intensification of market competition