The company announced third-quarter results: 24Q3 revenue of 6.873 billion yuan, -5.05% YoY, +21.92% month-on-month; net profit to mother 0.603 billion yuan, -9.02% YoY, +29.02%. In the first three quarters, the company achieved revenue of 17.464 billion yuan, +0.05% year-on-year; net profit to mother was 1.554 billion yuan, -0.25% year-on-year. The company is a leading electric two-wheeler company. We are optimistic that the company will actively seize the industry development opportunities brought by the new national standard and the trade-in subsidy policy, use brand influence to vigorously expand dealer channels, and fully benefit from increased industry concentration. We raised our target price to 41.46 yuan (previous value 36.35 yuan) to maintain the “buy” rating.

Sales volume was affected by short-term storage pressure, and gross margin increased year-on-year. In 24Q3, the company achieved operating income of 6.873 billion yuan, -5.05%/+21.92%; realized net profit to mother of 0.603 billion yuan, -9.02%/+29.02% month-on-month; realized net profit without return to mother of 0.553 billion yuan, -9.82%/+24.86% month-on-month. The year-on-year decline in revenue was mainly due to new standards such as batteries that began to be enforced on November 1. Dealers chose to leave the warehouse, and inventory levels entered a phased low level, leading to a year-on-year decline in the company's sales volume. In terms of net profit attributable to mother, we expect Q3 to be basically flat year over year after adding equity incentive fees. 24Q3 achieved gross profit margin of 16.79%, a month-on-month change of +0.66/-0.86pct, a net profit margin of 8.90%, and a month-on-month change of -0.30/+0.48pct. The cost rate for the 24Q3 period was 6.84%, -1.92pct month-on-month.

The new national standard is combined with trade-in subsidies. Since this year, the increase in industry concentration has benefited leading companies. Faced with frequent safety incidents such as electric two-wheeler fires, the country's attention has increased dramatically, and a number of measures have been introduced to regulate the safe travel of electric two-wheelers. Five departments including the Ministry of Commerce issued the “Implementation Plan for Promoting Trade-in of Electric Bicycles” in August, and the Ministry of Industry and Information Technology issued the “Electric Bicycle Safety Technical Specification (Draft for Comments)” in September. The requirements for enterprise production capacity and product quality have increased in the new national standard. With the official release of the new national standard, market share is expected to be further concentrated on leading companies; combined with the trade-in subsidy policy, the company has been selected as a whitelisted enterprise. We are optimistic that the company will fully benefit from industry growth as a leading enterprise.

Profit forecasting and valuation

Considering weak demand in the two-wheeler industry this year, we lowered the company's 24-year sales growth assumption; considering the premium brought about by the intelligent upgrade of the new national standard, raised the 25-26 ASP assumption, and predicted that the company's 24-26 net profit to mother would be 2.086 billion yuan, 2.748 billion yuan, and 3.26 billion yuan (previous values of 2.313 billion yuan, 2.748 billion yuan, 3.326 billion yuan). The year-on-year growth rates were +10.89% and + 31.75%, +18.60%, corresponding EPS is 2.42, 3.19, 3.78 yuan. Comparatively, the company's 25-year Wind unanimously expected an average PE value of 9.4 times. Considering that the company is a leading two-wheeler company, actively optimizes product layout and strengthens channel construction, the company was given 13.0 times PE in 25 years, corresponding to a target price of 41.46 yuan (previous value 36.35 yuan), maintaining a “buy” rating.

Risk warning: Competition in the industry worsens; raw material prices have risen above expectations; market development falls short of expectations.