Matters:

The company released a performance report for the third quarter of 2024. In the third quarter of 2024, the company achieved revenue of 42.87 billion yuan, an increase of 23.6%/35.3%, respectively. Achieved net profit of 2.81 billion yuan to mother, an increase of 155.2% over the previous month.

The net cash flow from the company's operating activities in the third quarter was 11 billion yuan. By the end of the third quarter of 2024, the company's cash reserves reached 106.5 billion yuan.

Ping An's point of view:

The increase in the share of L6 sales in the third quarter led to a decline in bicycle revenue, but gross margin was increasing month-on-month. According to the delivery data released by the company, the company delivered 0.153 million units in the third quarter of 2024, an increase of 45.4%/40.8%, respectively. Vehicle sales revenue of 41.32 billion yuan was achieved in the third quarter, and the corresponding bicycle revenue was 0.27 million yuan, which continued to decline by 0.009 million yuan compared to the second quarter, mainly due to an increase in the share of L6 sales. In terms of gross margin, the company's gross margin of automobile sales reached 20.9% in the third quarter, an increase of 2.2 percentage points over the previous quarter. The company maintained an increase in gross margin even as the share of L6 sales increased in the third quarter. The company's delivery guidelines for the fourth quarter of '24 are 0.16 million to 0.17 million, and the revenue guidance is 43.2 billion to 45.9 billion yuan. The fourth quarter guidelines are slightly conservative. We expect that the main reason is that the company had no intention of increasing discount momentum at the end of the year and reducing overdrafts for the first quarter of '25.

Expense control in the third quarter showed results, with bicycle operating profit exceeding 0.02 million yuan. According to the company's financial report, the company's R&D expenses for the third quarter were 2.59 billion yuan, a year-on-month decrease of 8.2%/14.6%, respectively, mainly due to the reduction in R&D and design costs for the company's new products and technologies and a decrease in the number of R&D personnel. The company's total operating expenses in the third quarter were 5.79 billion yuan, which was basically the same as in the second quarter. Due to the increase in the company's revenue and gross margin in the third quarter, the company's operating profit in the third quarter improved significantly, reaching 3.43 billion yuan, a record high in operating profit for a single quarter. Bicycle operating profit reached 0.022 million yuan (quarterly operating profit/quarterly sales volume), an increase of 0.018 million yuan over the previous quarter.

The end-to-end smart driving solution was launched, and there is still plenty of room for improvement in the existing L series. In October '24, the company's intelligent driving “end-to-end +VLM” was promoted to AD Max models. According to the company's disclosure, the proportion of the company's AD Max models above 0.3 million has now reached more than 70%, and the proportion of L6 AD Max models has also increased. The increase in the share of Max models is expected to raise the company's gross profit level. The market is worried that the company's L series models will face more intense competition in '25, but we believe that there is still room for improvement in the company's L series product strength. It is necessary for all models above 0.3 million to be equipped with AD Max as standard. While enhancing product strength, it has also accelerated the growth of the company's high-end smart driving car ownership.

Profit forecast and investment advice: Based on the company's first three quarter results and fourth quarter guidance, we adjusted the company's net profit forecast for 2024-2026 to 7.71 billion/14 billion/19.92 billion yuan (the previous forecast value was 8.28 billion/14.07 billion/20.64 billion yuan). The market is concerned that the company's delivery guidelines for the fourth quarter are slightly conservative, but we believe this is a strategy that the company actively adopted to avoid overdraft demand in the coming year. Furthermore, the company's basic L series still has room for improvement in terms of product strength, and is still optimistic about the company's 25-year growth, maintaining the company's “recommended” rating.

Risk warning: 1) Competition in the market is becoming more intense, and the entry of competitors may cause the company to lose potential orders; 2) the macroeconomic environment is at risk, and the company's sales volume may not meet expectations; 3) The company will launch a variety of pure electric models in '25, and sales of pure electric models may not meet expectations.