Incident: The company released its 2024 mid-year report. 1H24 achieved total operating income of 284.69 billion yuan (-12.8%), achieved net profit of 6.63 billion yuan (-6.5%) to mother, and achieved net profit of 1.02 billion yuan (-82.0%) after deducting non-return to mother. Among them, 2Q24 achieved total revenue of 141.61 billion yuan (-21.6%), -1.0% month-on-month, and realized net profit to mother of 3.91 billion yuan (-9.0%), or +44.2% month-on-month.

Revenue and net profit are under pressure, and multiple factors are dragging down the company's gross profit. 1H24 achieved total operating income of 284.69 billion yuan, -12.8% year over year, realized net profit of 6.63 billion yuan, and realized net profit of 1.02 billion yuan, -82.0% year over year. The year-on-year decrease in net profit without return to mother was mainly due to the decline in the fuel vehicle market and the unprecedented price war. The decline in the company's sales revenue and gross profit decline. Among them, 2Q24 achieved total operating income of 141.61 billion yuan, or -21.6% year-on-year, and realized net profit to mother of 3.91 billion yuan, or -9.0% year-on-year. In terms of profit margin, 2Q24's gross profit margin was 8.2% (-1.3pct) and net profit margin was 3.3% (-0.2pct). In terms of the period expense ratio, the 2Q24 company's sales expense ratio was 4.3% (+0.5pct); the management expense ratio was 3.2% (+0.3pct); the R&D expense ratio was 2.6% (+0.3pct); and the financial expense ratio was 0.2% (+0.4pct). The change in the financial expense ratio was mainly due to the company being affected by the market exchange rate and increased exchange losses. The company's overall cost ratio increased by 1.5 pct compared to the same period last year.

The “troika” continues to make every effort to develop the new energy market. 1H24 completed wholesale sales of 1.827 million vehicles and achieved terminal retail sales of 2.115 million vehicles. While continuing to maintain its leading position in the domestic industry, it effectively relieved inventory pressure on sales channels. Specifically: (1) 1.244 million own-brand vehicles, accounting for 58.8% of the company's sales volume; (2) retail sales of 0.524 million new energy vehicles, up 29.9% year on year; (3) retail sales of 0.548 million vehicles in overseas markets, year over year An increase of 12.7%.

Independent brands, new energy vehicles, and the “new troika” of overseas business continue to gain strength, providing the company with strong development momentum and operating guarantee during the critical period of dealing with complex challenges and deepening structural adjustment. In addition, the company has successively launched various new energy products such as the Zhiji L6, Roewe D5X, and Buick GL8 plug-in hybrid. The SAIC Volkswagen ID family also continued to perform well, seizing structural growth opportunities in the market by increasing the development of the new energy market.

Leading innovation chain technology layout to help transform joint ventures. Based on the concept of “scenarios create value, software-defined vehicles, and data determines experience”, the company pioneered mass production and loading of industry-leading technologies such as solid-state batteries, full-stack 3.0 smart vehicle solutions, and vehicle central coordination motion control platforms (VMC), and further promoted the collaborative development of “algorithm+software+chips” and the on-boarding application of new technologies such as AI models. By building a “strong heart”, “smart brain” and “strong body”, the company accelerates the development of new quality productivity in the core technology field of electric intelligent connectivity. At the same time, the advantages of independent innovation can be effectively spilled out to joint ventures through “technological empowerment”, helping to renew joint venture brands.

The mature industrial chain system “formed a system” and went overseas to further cultivate overseas markets. As a leading enterprise in the Chinese automobile industry, after a long period of development and accumulation, the company has formed a complete R&D, manufacturing and marketing system. It not only has a strong domestic supply chain system guarantee, user base, distribution network and automobile financial service support, but also pioneered the “construction” of the automobile industry chain. It has established 3 vehicle manufacturing bases and more than 2,000 marketing service outlets overseas to provide consumers in more than 100 countries and regions around the world with sustainable, high-quality, and diversified products and services. Specifically: (1) The company strives to consolidate infrastructure in Western Europe and South America Markets, accelerate the expansion of emerging markets such as Eastern Europe, and continue to improve overseas service systems; (2) Actively respond to EU countervailing investigations, issue public statements as soon as possible to convey confidence in medium- to long-term development in Europe, accelerate efforts such as site selection and construction in Europe, and defend against the European Commission by collating data and collecting materials.

Maintain an “overweight” investment rating. The company firmly grasps the strategic direction of innovation and transformation, actively grasps the pace of market recovery and structural growth opportunities, promotes the development of the company's own brands, strengthens the results of the transformation of joint ventures, and continues to accelerate the transformation of growth momentum. Due to increased competition in the automotive industry, the company's net profit for 24-26 is estimated to be 12.45/13.01/14.13 billion yuan respectively, maintaining an “increase” investment rating.

Risk warning: the risk that price competition in the domestic industry will continue to be fierce; the risk that some overseas regional markets will implement trade protection measures; the risk that the pace of recovery in domestic automobile consumer demand is uncertain, etc.