The gross margin of 3Q24 cars exceeded expectations, but the three fees showed a high month-on-month increase. BYD's net profit for 3Q24 was +11.5%/+28.1% month-on-month to 11.6 billion yuan (RMB, same below), after deducting non-net profit of 10.88 billion yuan, or +12.7%/+27.0% month-on-month. 3Q24 revenue was 201.13 billion yuan, +24.0%/+14.2% YoY. The 3Q24 gross profit margin was 21.9%, exceeding our expectations and the market, +3.2 percentage points month-on-month, mainly due to a significant month-on-month improvement in the gross margin of the automobile business. Driven by multiple factors such as the decline in lithium carbonate prices during the period, scale effects, and the start of DMI 5.0 models, the gross margin of the automobile business exceeded expectations. At the same time, the contribution of the Qin L/Seal 06, the 3Q pricier plug-in hybrid model, has also led to an increase in ASP.

3Q24's three expenses all increased sharply month-on-month, with sales/management/R&D expenses being +27.8%/+20.1%/52.0% month-on-month respectively, all of which reached record highs. We believe this is mainly due to the significant increase in high-end models and intelligent spending, as well as the large number of 3Q DMI 5.0 models launched. Due to the increase in the three fees, 3Q bike net profit was ~0.0093 million yuan, which is slightly lower than expected.

The country relies on vertical supply chains and scale effects to stabilize market share, waiting for high-end models and overseas contributions. We believe that with the arrival of the peak season in the fourth quarter, combined with the continued release of DMI 5.0 models, sales will continue to rise to the level of 1.3-1.5 million units (1.13 million units in 3Q24) from quarter to quarter. There may be room for further improvement in gross profit due to scale effects. In the passenger car market of less than 0.2 million yuan next year, BYD will still rely on vertical supply chains and high gross profit advantages to stabilize its market share. The third-quarter results have yet to see a significant contribution from high-end models and exports. Only the Tension Z9 GT went on sale in the 3rd quarter, while deliveries of the Tension Z9 GT only began in September. Also, the Fangchengbao brand, which collaborates with Huawei on smart driving, has not yet launched the Panther 8. In terms of exports, the third quarter was affected by the EU tariff policy, and the share of exports declined from month to month. In the 3rd quarter, new countries and regions such as Vietnam, Pakistan, and Tunisia were added. Overseas sales are expected to increase as overseas factories begin production one after another.

Maintain purchases and raise profit forecasts and target prices. We raised our 2024-26 profit forecast by 14%/19.4%/23.3%, which mainly reflects higher sales forecasts and the growth of high-end models and overseas sales, leading to improved profit margins. According to SOTP, the target price was raised to HK$379.22 (previously HK$306.48). Keep buying.