Incident: On August 31, Changan Automobile released its 2024 semi-annual report.

Comment:

The increase in revenue in the first half of 2024 was not an increase in profit. In the first half of 2024, the company achieved operating income of 76.723 billion yuan, a year-on-year increase of 17.15%; realized net profit of 2.831 billion yuan, a year-on-year decrease of 63.00%; realized net profit deducted from non-mother of 1.169 billion yuan, a year-on-year decrease of 5.89%. The sales expense ratio was 4.01%, a year-on-year decrease of 0.67pct; the management expense ratio was 3.16%, a year-on-year decrease of 0.31pct; and the financial expense ratio was -0.72%, a decrease of 0.02pct year-on-year. The overall gross margin was 13.80%, a year-on-year decrease of 3.74 pct.

Sales have increased steadily, and new energy and exports have continued to increase. The company achieved sales volume of 1.334 million vehicles in the first half of 2024, an increase of 9.7% over the previous year, and the market share increased steadily. The company's new energy and export sales performance was good. Among them, its own brand sold 0.299 million new energy vehicles, up 69.9% year on year; overseas sales of its own brand were 0.203 million vehicles, up 74.9% year on year. The sub-brand Avita 2024 lost 1.36 billion yuan in the first half of the year, a year-on-year loss of 0.4 billion yuan; Deep Blue 2024 lost 0.74 billion yuan in the first half of the year, a year-on-year loss of 0.32 billion yuan. The NEV business increased as deliveries increased, and the scale effect led to an improvement in profits.

Taking a stake in Huawei hopes to enhance the brand's strength. The joint venture Avita is hoping to take a stake in Huawei to help the company and Huawei further strengthen their cooperation model. The new models of the Deep Blue/Avita brand will be equipped with Huawei Qiankun Smart Driving and Hongmeng cockpits, which is expected to improve the competitiveness of the new products. As “car BU” businesses such as the Huawei Qiankun Smart Driving System and Hongmeng cockpit continue to grow, it is expected that the company's investment income will be strengthened in the future.

“Haina Baichuan” promotes the global market layout. The company launched the “Haina Baichuan” program to accelerate the overseas localization process, speed up the construction of overseas regional channels, strengthen the allocation of overseas resources, and promote the construction of a production base in Thailand and the establishment of a Mexican market system.

In the first half of 2024, the company's overseas business achieved operating income of 16.902 billion yuan, a year-on-year increase of 114.22%; the gross margin of overseas business was 26.91%, an increase of 17.89pct over the same period. Compared with the domestic business gross margin of 10.10% during the same period, overseas structural optimization supported the company's performance improvement.

Investment advice: The company continues to strengthen new energy and export business, improve product structure and optimize performance. Through Avita's investment in Huawei, we hope to deepen the cooperation model and accelerate the implementation of intelligence. The company's earnings per share for 2024-2025 are expected to be 0.86 yuan and 1.12 yuan, respectively. The current stock price corresponds to PE of 14 times and 11 times, respectively, maintaining the company's “increased holdings” rating.

Risk warning: risk of sales of new energy models falling short of expectations; risk of industry competition increasing risk; risk of overseas business expansion falling short of expectations; risk of declining gross margin; risk of exchange rate fluctuations; risk of geopolitical events, etc.