1-3Q24 performance falls short of our expectations

The company announced 1-3Q24 results: operating income of 1.013 billion yuan, -24.9% year-on-year, 3Q achieved revenue of 0.331 billion yuan, -24.2% YoY, -14.4% month-on-month; 1-3Q24 net profit of 0.051 billion yuan, corresponding to earnings per share of 0.22 yuan, or -57.5% YoY; 3Q quarterly net profit of 0.001 billion yuan, YoY -98.2%. The decline in the company's net profit in 3Q24 was mainly due to weak terminal demand and the decline in the company's shipments. The company's 1-3Q24 and 3Q24 performance fell short of our expectations.

Profitability is under pressure, 3Q24 gross profit margin 21.3%, year-on-year -2.6ppt, month-on-month -5.7ppt. In terms of expenses, 3Q24 sales expense ratio was 6.5%, year over year -0.4ppt; management expense ratio was 9.9%, year on year +3ppt, month on month +1.9ppt; R&D expense ratio was 7.1%, +1.7ppt year on year, +1.1ppt month on month; financial expense ratio -0.2%, +0.7ppt year over year, +3.5ppt compared to month on month.

Development trends

E-bike channel inventory continues to be eliminated, and the penetration rate of electric motorcycles is expected to increase. According to company announcement 1) Electric scooter market: The overall boom in the overseas electric scooter terminal market continues to weaken, and market demand is still insufficient.

The European electric scooter market is affected by geopolitics and inflation, and inventory removal is slow. According to the European Cycling Association, this situation is expected to be resolved in 2025; the US market penetration rate is still low, but with the introduction of stimulus policies by several state governments, the electric scooter market is expected to usher in marginal improvements. 2) Electric motorcycle market: The European market is affected by the slowdown in demand, and the market space is limited; the Southeast Asian market is still dominated by fuel vehicles, and the penetration rate of electric motorcycles is low, and there is room for growth in the future. During the downturn of the industry, the company maintained the stability of the profitability of its core business, insisted on R&D and innovation, and built a quick response after-sales system. Looking ahead, we believe that the company's solid business foundation can gain greater competitiveness when market sentiment recovers.

Profit forecasting and valuation

In view of the high inventory in the terminal market and weak consumption of electric scooter products, we lowered the company's net profit to mother by 64%/60% to 0.079/0.135 billion yuan in 2024/2025. The current stock price corresponds to the 2025 price-earnings ratio of 35.1. Considering the company's leading position in electric scooters and its obvious long-term competitive advantage, we have maintained an outperforming industry rating, comprehensive profit forecast adjustments, and an upward trend in industry valuations. We only lowered our target price by 30% to 28 yuan, which corresponds to 48.6 times the 2025 price-earnings ratio. There is 38.3% room for growth compared to the current stock price.

risks

E-bike product development falls short of expectations; downstream demand falls short of expectations; industry competition intensifies.