3Q24's performance improved significantly year-on-month: the company's total revenue for the first three quarters of 2024 was +36.0% to 167.68 billion yuan, and net profit to mother +358% YoY to 13.05 billion yuan (net profit after deducting 6.13 billion yuan). Total revenue for 3Q24 was +20.5% YoY/+9.8% to 60.38 billion yuan, and net profit to mother +92% YoY/-73% YoY to 2.46 billion yuan (net profit after deducting 2.76 billion yuan). The company's 3Q24 bicycle ASP (after excluding Lynk & Co) was +2.8% month-on-month to 0.111 million yuan, and after deduction, the bicycle profit was <0.006 million yuan.

Structured cost reduction led to an improvement in profits. For the first time, ZEEKR turned a loss into a profit: the company's gross margin in the first three quarters of 2024 was +0.5pcts to 15.3% year over year, and 3Q24 gross margin was +0.1 pcts yoy and -0.9 pcts month-on-month to 15.6%.

In the first three quarters of 2024, the company's SG&A fee rate was -1.3 pcts to 11.6% year on year, and the 3Q24 SG&A fee rate was -2.3 pcts yoy and -2.1 pcts month-on-month to 10.3%. 1) The month-on-month decline in the company's gross margin was affected by the adjustment of accounting standards and the decline in ZEEKR gross margin. After restoration, it was basically the same as 2Q24. Reasons for the month-on-month improvement in profitability include: a) the integration of the company's resources to reduce costs and increase efficiency; b) ZEEKR turned a loss into a profit for the first time in a single quarter, with 3Q24 bicycles making a profit of 152 yuan (vs. 2Q24 bicycle loss of 0.01 million yuan). 2) Looking ahead, the company's emphasis on resource integration+platformization strategies will contribute to greater profit flexibility.

Lynk & Co plans to incorporate ZEEKR to re-optimize the equity structure, and internal restructuring is being accelerated: the company issued the “Taizhou Declaration” on 2024/9, which clearly states that merger and restructuring will be the main theme of group adjustments. Subsequent adjustments include the geometric merger of the Galaxy brand and the acquisition of Ningbo passenger cars. On 11/14, the company announced the integration of the GKrypton+Lynk & Co brand. Specific equity adjustments include that the shareholding ratio of listed companies will increase to about 62.8%, GKrypton will hold 51% of Link&K's shares, and the remaining 49% of the shares will continue to be held by Geely Automobile's wholly-owned subsidiary. We judge that 1) After the merger, Linker & Co will become a holding subsidiary of a listed company (with a shareholding ratio of about 81%). Considering Linker's forward-looking layout in Europe and deepening cooperation with Volvo's channel side, it is expected that Linker & Co will reverse losses and contribute more to the listed company's reporting side in the future. 2) The two sides will adopt a cooperation model with relative independence in terms of brands and coordination of internal resources. a) Brand side: Lynk & Co focuses on the middle and high-end market and mainly focuses on small to medium models. ZEEKR adheres to the luxury positioning and lays out medium to large models. b) Resource side: The two sides will increase collaboration in production+technical resources, and at the same time, ZEEKR will also use Linker brand channels to develop a declining market layout. In summary, the company has accumulated extensive development in the technology and product fields, and will later form a clearer product matrix through brand restructuring+focus. It is expected that the scale advantage will be further strengthened under increased competition.

Maintaining a “buy” rating: In view of policy support and the upward trend in sales, we raised the 2024E-2026E net profit forecast of 3.8%/23.7%/26.2% to RMB 16.31/12.15.93 billion yuan, and raised the target price to HK$18.08 (corresponding to 13.5x 25EPE). We are optimistic about the medium- to long-term NEV transformation prospects of the company's brands and maintain a “buy” rating.

Risk warning: Demand falls short of expectations, new model launches/sales fall short of expectations, and market competition intensifies.