The performance was in line with expectations. The company's revenue for the first half of the year was 277.086 billion yuan, down 12.4% year on year; net profit to mother was 6.628 billion yuan, down 6.5% year on year; net profit not attributable to mother was 1.02 billion yuan, down 82.0% year on year. Revenue for the second quarter was 138.102 billion yuan, down 21.4% year on year and 0.6% month on month; net profit to mother was 3.914 billion yuan, down 9.0% year on year, up 44.2% month on month; net profit without return to mother was -1.1 billion yuan, down 131.4% year on year, down 151.9% month on month.

Gross margin and expense ratios were under pressure, and cash flow improved dramatically. The gross profit margin for the first half of the year was 8.5%, down 1.1 percentage points; the gross profit margin for the second quarter was 8.2%, down 1.3 percentage points year on year and 0.6 percentage points month on month. The decline in gross margin is expected to be mainly due to pressure on fuel vehicle sales and increased price competition in the industry. The cost rate for the first half of the year was 10.7%, up 0.8 percentage points from the previous year. Among them, the R&D expenses rate increased 0.3 percentage points and the financial expenses ratio increased 0.5 percentage points year on year, mainly due to a decrease in exchange earnings (exchange loss of 0.67 billion yuan in the first half of the year, and exchange income of 0.744 billion yuan in the same period last year). Net cash flow from operating activities in the first half of the year was 11.317 billion yuan, up 64.2% year over year, mainly due to finance companies' adjustments in loan size and optimization of deposit structures.

SAIC-GM's sales pressure affects return on investment, and the transformation of the joint venture brand structure continues to advance. Investment income for the second quarter was 5.727 billion yuan, up 79.5% year on year and 108.0% month on month. The increase in investment income was mainly due to the subsidiary MGI introducing local Indian investors through share transfers and capital increases, increasing the company's profit by 5.13 billion yuan; investment income in joint ventures in the second quarter was 0.004 billion yuan, compared to 2.289 billion yuan in the same period last year, and 2.203 billion yuan in the first quarter of this year. SAIC Volkswagen's net profit for the first half of the year was 0.865 billion yuan, up 61.9% year on year; SAIC-GM's net profit for the first half of the year was 2.275 billion yuan, compared to 0.528 billion yuan in the same period last year. SAIC Volkswagen and SAIC-GM achieved sales of 0.264/0.1141 million vehicles in the second quarter, down 4.7%/57.0% year on year, respectively, and 6.4%/2.3% month on month. The company focused on terminal retail and stimulated consumer demand through measures such as market promotion, financial concessions, and marketing innovation. Retail sales in the first half of the year were nearly 0.3 million vehicles higher than wholesale sales; continuing to promote the new energy transformation of the joint venture brand, the Volkswagen ID series maintained good sales performance. Orders for the Buick GL8 Lu Zun PHEV exceeded 10,000 in 72 hours after launch, helping Buick GL8 return to the MPV weekly sales championship. As channel inventory pressure gradually clears up, various key models such as Buick GL8 PHEV and Cadillac XT5 are launched and delivered. We look forward to marginal improvements in the joint venture brand in the second half of the year.

In the second half of the year, an independent new energy product cycle will begin, and overseas markets will be deeply cultivated to meet the challenges. SAIC's passenger car sales in the second quarter were 0.1,723 million units, down 19.6% year on year and up 6.0% month on month; in the second quarter, the Group sold 0.2509 million new energy vehicles, up 9.1% year on year, up 15.2% month on month. The company is stepping up efforts to develop the new energy market. In the first half of the year, various key models such as the Roewe D5X and Zhiji L6 will be launched. In the second half of the year, major new energy products such as the new Zhiji LS6/LS7, Roewe iMAX8 DMH, MG HS DMH, and Wuling Starlight S will also be launched one after another. Export sales in the second quarter were 0.2612 million vehicles, down 5.5% year on year and up 15.2% month on month. In the second half of the year, the company will launch new models such as new MGHS/EHS and MG ZS HEVs to overseas markets, consolidate infrastructure markets such as Western Europe and South America, and accelerate the development of emerging overseas markets such as Eastern Europe. At the same time, it is actively responding to EU countervailing investigations, and the European site selection and construction work is also being accelerated.

By adjusting revenue, gross margin, and investment income forecasts, etc., it is predicted that the 2024-2026 EPS will be 1.21, 1.22, and 1.34 yuan (originally 1.27, 1.44, and 1.58 yuan), respectively, which is 13 times the company's 25-year PE average valuation, and the target price is 15.86 yuan, maintaining the purchase rating.

Risk warning

SAIC's passenger car sales fell short of expectations, SAIC Volkswagen and SAIC-GM sales fell short of expectations, industry price wars intensified, and overseas trade protection policies affected export risks.