Key points of the announcement: Ideal Auto achieved revenue of 42.87 billion yuan in 2024Q3, +23.6%/+35.3% year-on-month; of these, vehicle sales business revenue reached 41.32 billion yuan, +22.9%/+36.3%. In Q3, net profit attributable to ordinary shareholders was 2.81 billion yuan, -0.3%/+155.1%, and non-GAAP net profit reached 3.85 billion yuan, or +11.1%/+156.2%, respectively.

The overall performance in Q3 was in line with expectations. 1) Revenue: Ideal Auto Q3 delivered 0.153 million units, +45.4%/+40.8%, the average bicycle price was 0.27 million yuan, and -15.5%/-3.2%, respectively. The core was a significant increase in L6 sales volume, accounting for +13pct of total sales.

2) Gross profit margin: The overall gross profit margin of the company in Q3 was 21.5%, of which the gross profit margin of the automobile sales business was 20.9% and -0.3/+2.2pct, respectively. The gross margin performance exceeded expectations. The core reason was that the Q3 discount overall had a significant scale effect of restraint and 41% increase in sales volume. 3) Cost ratio: The company's Q3 R&D expenses were 2.6 billion yuan, SG&A expenses were 3.4 billion yuan. The corresponding cost rates were 6.0%/7.8%, respectively, -2.1/+0.5 pct year over year, and -3.5/-1.1 pct, respectively, a significant improvement from month to month. Among them, the reasons for the month-on-month increase in the absolute value of SG&A expenses include the company's CEO Li Xiang confirming that shares paid remuneration expenses and increased remuneration due to an increase in the number of employees in the current quarter. Overall channel expansion was more restrained. By the end of September, the company had 479 retail centers nationwide, an increase of 2 compared with the end of June, and a significant increase in single store efficiency. R&D expenses were reduced by 0.5 billion yuan month-on-month. The core reason was the reduction in design and R&D costs for new products and technologies and the reduction in employee remuneration. 3) Interest income and investment income: Q3 was -0.02 billion yuan, down 0.46/0.39 billion yuan, respectively, from the same period last month, mainly due to the decline in investment income of IMOTIONAUTOTECH. 4) Profit: The company achieved bicycle profit of 0.025 million yuan (non-Gaap caliber) in Q3, which was -23.6%/+82.0% month-on-month. The month-on-month improvement was mainly due to the increase in bicycle gross profit due to the scale effect and the reduction in bicycle costs under strict cost control (main reason). 5) Cash: As of September 30, 2024, the cash position was RMB 106.5 billion. 2024Q3 free cash flowIt was RMB 9.1 billion, which was positive month-on-month.

Profit forecast and investment rating: As 24Q3 gross margin performance exceeded expectations, we raised the company's 2024 performance forecast to 7.8 billion yuan (originally 7.5 billion yuan). Considering the intensification of industry competition, we lowered the company's 2025/2026 net profit forecast to 10.3/15.3 billion yuan (originally 12.1/17.6 billion yuan), -34%/+33%/+48% year over year, corresponding to PE of 24/18/12 times.” “Buy” rating.

Risk warning: The industry price war continues to be interpreted; the pace of development of advanced smart driving is lower than expected.