Initiate with BUY and TP of HK$40.00. We believe Leapmotor could post faster sales volume growth than most of its peers in the next few years, aided by a plethora of new models and unique overseas expansion model supported by Stellantis (STLA US, NR). The company plans to launch three new models (B- series) based on an upgraded platform in FY25E, and small-size (A-series) and medium-to-large--size (D-series) models from FY26E, following the success of the C-series. We estimate Leapmotor to break even at the net profit level in 2H26E amid greater economies of scale, overseas contribution at the JV, and solid R&D capabilities to control costs, which could be earlier than most of its NEV start-up peers.

Its value-for-money brand image has been strengthened after the successful launches of the C10 and C16, and could benefit from consumption downgrade. The medium-size SUV C10 and 6-seat SUV C16, both of which were launched in 2024, provide good quality and functions that target consumers need, despite prices that are about 35-50% lower than its rival models. We believe sales volume of both models have exceeded the company's and investors' prior expectations, which could pave the way for its upcoming new models. We attribute such success partially to its solid R&D capabilities which may have been underestimated by some investors, in our view. We project its sales volume to double YoY to 285,000 units in FY24E and rise 51% YoY to 430,000 units in FY25E aided by new models and overseas sales.

Unique overseas expansion could be a positive surprise to its sales and profit. Leapmotor's JV with Stellantis has an exclusive license to sell Leapmotor's vehicles in overseas markets until 2051. We are of the view that such asset-light model with leverage from Stellantis' established global sales network and brand image could be a better way for Leapmotor which has relatively limited resources to expand overseas business, although it needs to share potential profits with Stellantis. The majority of overseas profits should come from the JV, according to the framework agreement. We project overseas sales volume to be 60,000 units in FY25E and 100,000 units in FY26E, with possible local production in the EU from late 2025. We forecast the JV's net margin to be 10% in FY25E and 12% in FY26E, based on our cost structure analysis. These would translate into a share of profits of RMB391mn in FY25E and RMB814mn in FY26E, on our estimates.

Earnings/Valuation. We project Leapmotor's sales volume to rise 98%/51%/28% YoY to 0.285/0.43/0.55mn units in FY24-26E, with overseas contribution of 2%/14%/18%, respectively. We expect its net loss to narrow to RMB3.9bn/3.0bn/1.2bn in FY24-26E, respectively. We initiate our coverage with a BUY rating and target price of HK$40.00, based on 1.2x our FY25E revenue estimates, at a similar current P/S level as its peers. Key risks to our rating and target price include lower sales volume/margins, slower overseas expansion than we expect, as well as a sector de-rating.