1H23 performance forecast announced: 1H23's operating income was +25.9% year-on-year to 22.37 billion yuan, net profit turned loss to profit of 160 million yuan (1H22 net profit to parent net profit - 7.1 billion yuan), net profit loss after deducting non-return home net profit decreased to -240 million yuan (1H22 net profit non-attributable net profit - 1.08 billion yuan). Among them, 2Q23's operating income was +44.8% /+7.7% month-on-month to 11.6 billion yuan, net profit to the parent was 100 million yuan (2Q22 net profit - 4.2 billion yuan), net profit of non-return net profit of -140 million yuan after deducting non-return net profit of -60 million yuan (2Q22 minus net profit of non-relegated net profit - 60 billion yuan).

The export+commercial vehicle business led to an increase in gross margin: 1) 1H23's gross margin was +4.6 pcts year on year to 11.7%, and 2Q23's gross margin was +4.6 pcts/month on year, +0.2 pcts to 11.8%. 2) The 1H23 sales/management/R&D expense ratio was 3.4%/3.3%/3.7%, respectively, compared to +0.1 pcts/-1.0 pcts/-0.1 pcts. 3) 1H23's car sales volume was +18.5% yoy to 279,000 units; 2Q23's car sales volume was +32.7% /1.5% month-on-month to 140,000 units (passenger car sales volume +37.3% y/y +6.4% to 80,000 units, commercial vehicle sales volume +26.4% y/y -5.0% to 57,000 units). We believe that the main reasons why the company's net profit turned a loss into a profit in the first half of the year and net profit loss after deduction was a) government subsidies; b) operating and management expenses were well controlled; c) the improved sentiment in the export+commercial vehicle business, which led to an increase in sales/gross margin.

Independence and cooperation go hand in hand to actively seize new energy transformation opportunities: 1) In the field of independence: the company adheres to a development strategy where passengers go hand in hand; a) In terms of passenger cars, Yi-Wei Auto Technology Co., Ltd. was established on 2023/3, and the first sedan developed based on the “DI” platform was launched on 2023/6 to compete in the A-class pure electric market; b) In terms of commercial vehicles, the company maintained steady development of the light commercial vehicle business. JAC 1 Card won the bid for 2,300 light trucks, and continued to strengthen cooperation with express delivery companies to strengthen brand potential. 2) Areas of cooperation: a) The company is making every effort to promote the introduction and production of new energy vehicles with Volkswagen. The first pre-mass production model went offline on 2022/12, and plans to produce 20-250,000 and 35-400,000 vehicles in 2025 and 2029, respectively. b) The company has raised the level of intelligent vehicle manufacturing through cooperation with NIO, and has the first high-end all-aluminum body production line intelligent manufacturing plant for its own brand in China. c) We are optimistic about the long-term potential prospects of cooperation between the company and Huawei based on smart electric vehicles.

Focus on the progress of cooperation between the company and multiple companies: The market's focus on the company is on the progress of cooperation with car companies/ICT manufacturers. We believe that we will focus on overseas market performance and the pace of mass production of models in cooperation with Volkswagen in the short term, and on the implementation of cooperation with Huawei in the medium to long term. We maintain the company's 2023-2025E net profit forecast of 2.2/3.7/560 million yuan. We recommend that you pay attention.

Risk warning: Competition in the automobile industry is intensifying, the recovery situation in the commercial vehicle industry falls short of expectations, progress of cooperation falls short of expectations, and export sales volume falls short of expectations.