Incident: 2024H1's total revenue was 76.72 billion yuan, +17.2% year over year; net profit to mother was 2.83 billion yuan, -63.0% year over year; net profit after deducting non-return to mother was 1.17 billion yuan, -5.9% year over year. 2024Q2's total revenue was 39.7 billion yuan, +28.3% YoY, +7.2% month-on-month; net profit to mother was 1.67 billion yuan, +12.7% YoY, +44.5% month-on-month; net profit without return to mother was 1.06 billion yuan, +3679.4% YoY and +846.3% month-on-month.

The increase in the share of new energy led to a month-on-month increase in average ASP. Revenue side: Increased independent sales led to an increase in revenue. 2024Q2 sold 0.385 million autonomous passenger vehicles, +3.4% year over year, -12.0% month on month; total revenue was 39.7 billion yuan, +28.3% year over year, +7.2% month on month. ASP: Affected by the increase in the share of new energy products with higher unit prices (2024Q2 accounts for 44.3% of new energy, +14.8pct month-on-month), the 2024Q2 bicycle ASP reached 0.093 million yuan, +0.009 million yuan year-on-year, and +0.016 million yuan month-on-month.

With an increase in gross margin, 2024H2 can be expected to reduce costs. Gross profit side: 2024Q2's gross profit margin was 13.2%. The Q2 company reclassified product warranty to operating costs according to Ministry of Finance's policy requirements. The restored gross margin was 14.98%, -0.16 pct year on year, +1.84 pct month-on-month, and the actual gross margin increased in the second quarter. Investment income side: 2024Q2 joint venture investment income 0.104 billion yuan, -0.045 billion yuan month-on-month, joint venture bicycle investment income 0.0014 million yuan, -0.0006 million yuan month-on-month. Net profit side: According to the company's performance forecast, 2024Q2 net profit to mother was 1.34-2.04 billion, net profit to mother was 1.69 billion, +13.8% YoY, +45.9% month-on-month; 2024Q2 deducted 0.69-1.39 billion, net non-core 1.04 billion, +3618.6% YoY, +831.1% month-on-month. According to the semi-annual report, net profit from 2024Q2 was 1.67 billion yuan, +12.7%, and +44.5% month-on-month; net profit without return to mother was 1.06 billion yuan, +3679.4% year-on-year, and +846.3% month-on-month, in line with previous performance forecasts. Improved net profit mainly benefited from reduced procurement costs, and increased implementation of the annual cost reduction plan + transmission to the industrial chain in 2024Q2, and the profit side is expected to improve. Cost side: Expense rates have declined month-on-month, and transformation is firmly supported. 2024Q2 sales/management/ R&D/ finance expense rates were 2.6%/2.9%/-0.8%/3.4%, respectively, -3.0/+0.7/+0.0/+1.2pct month-on-month. Sales expenses decreased, and major accounting policy adjustments were made, and other expenses were basically stable.

The new product cycle is intensive and the transformation of new energy sources is accelerating. The Deep Blue S07 was launched on July 25. The product price is 0.1499 million-0.2129 million yuan, with a limited-time discount of 0.01 million yuan. Equipped with the Huawei Qiankun Smart Driving Assist System, it has high-speed pilotage assistance and smart parking assistance functions. As the first Huawei smart driving model under 0.2 million, it is expected to contribute to the increase. Subsequent key new models include the Changan Deep Blue S05, Avita 07, Avita 11/12 Extended Range Edition, and Qiyuan E07. On August 30, 2024, the Avita brand's third model, the Avita 07, officially launched its global debut in Chengdu, and pre-sales began simultaneously. The company's product cycle is strong, and the transformation of new energy sources is accelerating.

Investment advice: We are optimistic about the company's electric intelligence transformation, combined with Huawei's intelligent power, and adjusted profit forecasts. We expect revenue for 2024-2026 to be 183/208.6/234.6 billion yuan, respectively, net profit to mother of 7.82/10.49/12.88 billion yuan, and EPS of 0.79/1.06/1.30 yuan respectively, corresponding to the closing price of 14.16 yuan/share on August 30, 2024. PE is 18/13/11 times, respectively, maintaining the “recommended” rating .

Risk warning: Independent brand sales fall short of expectations; the industry's “price war” intensifies.