Event: The company released its 2024Q3 financial report: revenue for the first three quarters of 2024 was 100.19 billion yuan, +22.0% year over year, and 2024Q3 revenue was 42.87 billion yuan, +23.6%/+35.3%, respectively. Net profit for the first three quarters of 2024 was 4.51 billion yuan, -25.4% year over year, and 2024Q3 net profit to mother was 2.81 billion yuan, or -0.3%/+155.2%, respectively. Non-GAAP net profit for the first three quarters of 2024 was 6.63 billion yuan, -12.8% YoY, and 2024Q3 non-GAAP net profit was 3.84 billion yuan, +10.6%/+155.5%, respectively.

Revenue grew steadily and gross profit remained healthy

Revenue side: 2024Q3's total revenue was 42.87 billion yuan, +23.6%/+35.3% year over year, respectively; of these, the 2024Q3 automobile business revenue was about 41.32 billion yuan, or +22.9%/+36.3% year over year, respectively. The increase in vehicle sales revenue compared to the third quarter of 2023 and the second quarter of 2024 was mainly due to increased vehicle deliveries, but was partially offset by lower average sales prices, mainly due to different product combinations. Overall ASP dropped from 0.279 million yuan to 0.27 million yuan in 2024Q2. In terms of delivery volume, the 2024Q3 delivered a total of 0.153 million vehicles, +45.4%/+40.8% year over year; of these, Ideal L9, L8, L7, L6, and Mega sales in a single quarter accounted for 14.3%, 12.5%, 22.5%, 49.2%, and 1.5% of 2024Q3 sales, respectively.

In other business areas, 2024Q3's revenue reached 1.55 billion yuan, +45.8%/+14.1% year over year, respectively. The year-on-year increase was mainly due to an increase in cumulative vehicle sales, which also increased sales of services and accessories, and increased sales of products and services supporting automobile sales due to increased vehicle deliveries.

Profit side: In terms of gross profit, the gross profit of the 2024Q3 automobile business was 8.65 billion yuan, +21.4%/+52.2% year over year, respectively; the gross margin of the 2024Q3 automobile business was 20.9%, and -0.3 pts/+2.2 pts year over month, respectively.

In terms of operating profit, 2024Q3's operating profit for a single quarter was +3.43 billion yuan, profit margin was +8.0%, and +1.3 pts/+6.5 pts year-over-year, respectively. 2024Q3's net profit for a single quarter was 2.81 billion yuan, and non-GAAP net profit was 3.84 billion yuan, +10.6%/+155.8% yoy/month-on-month, respectively; non-GAAP net profit margin was 9.0%, and +4.2 pts/-1.1 pts y/y, respectively.

Sufficient cash reserves, continuous investment in charging stations

Cost side: The ideal R&D cost for 2024Q3 is 2.59 billion yuan, -8.2%/-14.6% yoy/month-on-month; the 2024Q3 R&D cost ratio is 6.0%, -2.1pts/-3.5pts YoY. The year-on-month decline was mainly due to a reduction in design and R&D costs for new products and technologies and a reduction in employee remuneration.

2024Q3 sales management expenses were 3.36 billion yuan, +32.1%/+19.3% YoY, respectively; the 2024Q2 sales management expenses ratio was 7.8%, +0.5pts/-1.1 pts YoY. The year-on-month increase was mainly due to the third quarter of 2024 confirming the CEO's share compensation expenses for performance-based rewards, as well as an increase in employee compensation due to an increase in the number of employees.

Channel side: As of September 30, 2024, the company has 479 retail centers in 145 cities and operates 436 after-sales maintenance centers in 221 cities.

Charging network: As of October 31, 2024, there are 1,000 ideal overcharging stations and 4,888 ideal charging stations across the country, with a layout in 31 provinces and 175 cities.

Cash flow: 2024Q3's net cash from operating activities was RMB 11 billion, and the 2024Q3 free cash flow was RMB 9.1 billion.

Future outlook: The company expects vehicle deliveries in 2024Q4 to be between 0.16 million and 0.17 million vehicles, in the year-on-year range of +21.4% to +29.0%; the corresponding revenue is about 43.2 billion yuan to 45.9 billion yuan, and the year-on-year range is +3.5% to +10.0%.

R&D investment translates into user value Intelligent driving accelerates breakthroughs. In terms of intelligent driving, ideal cars are entering the first tier at an accelerated pace. In October 2024, the company launched the OTA 6.4 update to Ideal MEGA and Ideal L series models, providing new and upgraded features in intelligent driving, smart space, and smart electric power. Along with this upgrade, the company fully promoted a new smart driving solution combining end-to-end (E2E) and visual language models (VLM) to ideal AD Max owners. We believe that the company's investment in smart driving has paid off. The company's ability in smart driving is expected to rise to the leading level in the industry, strengthen its product capabilities, and form a deeper moat from a technical level. The company is expected to further optimize market share and profitability with technological advantages.

Investment advice:

We are optimistic that the ideal product definition ability brought about by sharp user insight and an efficient organizational structure will continue to explore demand, and successfully replicate range extensions in pure electric products through product form innovation. As sales increase, the scale effect will continue to dilute various cost ratios. Taking into account the company's recent operating pace and adjusting the profit forecast, the company's revenue for 2024-2026 is estimated to be $144.89/185.57/228.51 billion, respectively, and net profit to mother of $8.56/13.47/17.75 billion, corresponding to the closing price of HK$107.4 per share on October 31, 2024 (HKD/RMB exchange rate 1:0.92), PE is 24/16/12 times, respectively, maintaining the “recommended” rating.

Risk warning: New model sales fall short of expectations; car companies' new model launch progress falls short of expectations.