The company's Q3 performance: 24Q3 revenue of 42.9 billion yuan, YoY +24%/+35%; GAAP net profit of 2.8 billion yuan, YoY -0.1%/+155%; NON GAAP net profit of 3.9 billion yuan, +11%/+156% YoY. The company's revenue for the first three quarters was 100.2 billion yuan, +22% YoY; GAAP/NONGAPP's net profit to mother was 4.5/6.7 billion yuan, -25%/-12% YoY. The company's end-to-end large model was put on the bus and maintained a “buy” rating.

Q3 sales increased +41% month-on-month, and the scale effect led to gross margin +2pct24q3's automobile sales revenue of 41.3 billion yuan, +23% year over year; service and other revenue was 1.6 billion yuan, +46% year over year. 24Q3 delivered 0.15 million vehicles, +45%/+41% month-on-month, with average quarterly monthly sales exceeding 0.05 million for the first time. Increased sales led to increased scale effects, and gross margin improved month-on-month. The company's 24Q3 gross margin was 21.5%, -0.5pct/+2.0pct month-on-month. In terms of expenses, 24Q3 sales, general and administrative expenses were 3.4 billion yuan, or +32% over the same period. The increase was mainly compensation for CEOs who met the target of delivering one million vehicles. 24Q3 R&D expenses were 2.6 billion yuan, -8%/-15% month-on-month, reducing the cost reduction from new product development and design.

The number of supercharging stations has been accelerated to 1,000. The goal is to improve the energy charging experience for electric models in 25 years. As of October 31, 1000 supercharging stations and more than 4,500 charging stations have been put into use across the country, covering 174 cities in 30 provinces. Among them, 116 supercharging stations and 640 charging piles were added from 9.30-10.27, adding +55%/69% month-on-month compared to September, and construction progress was greatly accelerated. We believe that the rapid improvement of the company's charging network will enhance the user's energy replenishment experience and lay a solid foundation for the launch of pure electric vehicles in '25.

The “Full Push 6.4 End-to-End + VLM” architecture, the Smart Driving Smart Cabin was upgraded and OTA 6.4 was officially released on October 23, and “End-to-End+VLM” started full push to achieve full coverage of smart scenarios. The highlight of this upgrade is to enhance the ability to drive intelligently in congested and complex road conditions, make the lanes stronger and smoother, and achieve anthropomorphic driving. Based on deep learning of the 4 millionclips data model, end-to-end intelligent driving has no breakpoints on urban roads, and can easily pass through complex pain point scenarios such as roundabout islands. The VLM model can deeply understand the traffic environment, add an understanding of traffic rules and road conditions, and can handle scenarios such as tidal lanes and potholes. This upgrade also includes full-dimensional optimization of cockpit interaction and car experience.

Profit forecasting and valuation

We expect the company's 24-26 revenue of 141.9/216.9/275.2 billion yuan, GAAP net profit of 6.2/12.7/18.4 billion yuan, and non-GAAP net profit of 9/16/21.7 billion yuan, respectively. Geely Automobile and BYD Co., Ltd. were selected as comparable companies. The comparable company averaged 2025E 14xPE, with a premium of 2xPE. Compared with the previous valuation premium of 5xPE, the reduction of 3xPE was mainly based on intense market competition. Considering the company's NongAAP profit of 16 billion yuan in 25 years, the target price was 131.42 HKD (previous value HK$132.07), maintaining a “buy” rating.

Risk warning: Macroeconomic downturn, consumer demand falls short of expectations, supply chain shortages.