Investment suggestions: We believe that the long-term growth logic of LK Tech (the "Company") is solid and we expect its short-term performance to improve. We maintain the Company's rating as "Buy", and maintain TP of HK$12.43. We forecast its earnings per share in FY24/ FY25/ FY26 to be HK$0.620, HK$0.803, and HK$1.007, respectively. Our TP represents 20.0x/ 15.5x/ 12.3x FY24-FY26 PE ratio.

On July 26, Xpeng Motors announced that it has reached a cooperation agreement with Volkswagen to jointly develop two electric models. Volkswagen will invest about US$700 million in Xpeng Motors, and will cooperate with Xpeng Motors to develop two new electric models, which will be launched in the Chinese market in 2026. The cooperation between Volkswagen and Xpeng Motors will bring win-win results. We are more concerned that the cooperation between the two automakers may stimulate the continuous improvement of the penetration rate of single-piece die-casting solutions in the Chinese market.

Xpeng Motors is a pioneer among many Chinese automakers in actively applying single-piece die-casting solutions. At present, the G6 model provided by Xpeng Motors actively adopts the single-piece die-casting solution.

The front and rear floor of the G6 model are made by 7,000-t super-large die-casting machines of LK Technology, and the battery packs are die-cast by 12,000-t super-large die-casting machines of LK Technology. The current G6 model is positively recognized by consumers. We believe that Xpeng Motors may continue to increase the application of single-piece die-casting solutions in its cooperation with Volkswagen.

The cooperation between Volkswagen and Xpeng Motors will effectively stimulate the penetration rate of single-piece die-casting solutions in the Chinese market, and LK Technology will continue to benefit.

Currently, except for Tesla, there are generally just a few of automobile manufacturers actively applying the single-piece die-casting solution, and the delivery volume of related models is relatively low, which seems to indicate that the application of single-piece die-casting solutions has encountered a bottleneck. However, we always believe that the application of single-piece die-casting solutions would be the general trend. At present, traditional automakers are gradually changing their wait-and-see attitudes and actively applying the single-piece die-casting solution. In addition to Volkswagen, Toyota has announced in June that it will launch electric vehicles using single-piece die-casting solutions in 2025. We believe that the cooperation between Xpeng Motors and Volkswagen will drive the development of China's automobile industry chain, and LK Technology, as a supplier of super large die-casting machines for Xpeng factories, may be the first to benefit.

Risk factors: The penetration rate of single-piece die-casting solutions may be lower than expected; market competition may intensify.