Incidents:

Emma Technology released its 2024 three-quarter report on October 25, 2024: in the first three quarters of 2024, the company achieved operating income of 17.464 billion yuan, +0.05%; net profit to mother of 1.554 billion yuan, -0.25%; gross profit margin of 17.42%, +1.61 pct year on year; net profit margin of 8.90%, year-on-year, -0.02 pct year on year.

Investment highlights:

The third-quarter revenue and profit phase weighed under pressure in Q3 2024. The company achieved operating income of 6.873 billion yuan, -5.05%; net profit to mother 0.603 billion yuan, -9.02% YoY; and net profit after deducting non-return to mother 0.553 billion yuan, or -9.82% YoY.

The gross margin increased, and the cost ratio rose steadily in the first three quarters of 2024. The company's gross profit margin was 17.42%, +1.61 pct, and profitability increased; the company's sales/management/R&D expenses ratio was 3.53%/2.57%/2.64%, respectively, +0.71/+0.51/+0.26 pct, and the overall cost ratio increased steadily.

The “Electric Bicycle Safety Technical Specification (Draft for Comments)” was released, and the new national standard policy was implemented on September 19, 2024. The Ministry of Industry and Information Technology issued the “Electric Bicycle Safety Technical Specification (Draft for Comments)”, which includes: the maximum design speed is no more than 25 km/h; the quality of the vehicle using lead-acid batteries has been relaxed to no more than 63 kg; built-in Beidou positioning modules and communication functions; and the installation of pedal riding devices is not mandatory. The new national standard policy continues to be implemented, benefiting industry leaders.

The second batch of electric bicycle whitelists was released. A total of 5 Emma brand companies were selected on September 28, 2024. The Ministry of Industry and Information Technology announced the second batch of electric bicycle whitelists, including 25 companies from 13 brands including Emma and Yadi. In the second batch, 4 subsidiaries of the Emma brand were selected (including the wholly-owned subsidiary Sportsman), and a total of 5 companies were selected from the first and second batch lists, which are expected to continue to benefit.

Profit Forecast and Investment Rating Forecast Company's 2024-2026E revenue was 21.24/25.265/28.245 billion yuan, and net profit to mother was 1.979/2.506/3.003 billion yuan, respectively, and the corresponding PE was 15.76/12.45/10.39X, respectively. The electric two-wheeler industry has entered high-quality development. We are optimistic that the company's performance will continue to grow and maintain a “buy” rating.

Risks indicate changes in industry regulatory policies, increased risk due to industry competition, falling short of expectations in downstream demand, falling short of expectations in promoting new products, falling short of expectations, etc.