The third quarter results are in line with our expectations: the company's revenue for the first three quarters of 2024 was 103-110 billion yuan, net profit to mother was 3.5-4.1 billion yuan, and net profit after deduction was 3.2-3.8 billion yuan. 3Q24's revenue was 37.96-44.96 billion yuan, net profit attributable to mother was 1.88-2.48 billion yuan (vs. we expected about 2.2 billion yuan), and net profit after deduction was 1.76-2.36 billion yuan. The company's 3Q24 performance is in line with our expectations. According to the profit center, 3Q24 bicycle profit was about 0.02 million yuan (+37.5% month-on-month). The main benefits of this quarter's performance were reversed year on year and the month-on-month increase. 1) The company's refined management capabilities led to an increase in gross margin; 2) product structure optimization, and an increase in the proportion of high-value models.

Optimistic about the company's long-term advantages in the high-end luxury market: 3Q24's car sales volume was +199.4% /month-on-month +9.8% to 0.134 million vehicles, and the sales volume was +680.2% /month-on-month +12.6% month-on-month to 0.11 million vehicles (M9 accounts for about 44.9% of sales). The company already has a brand effect on high-end luxury racetracks where competition is limited and profitable. 1) Recently, the company launched the M7 Pro version and the M9 five-seat version to ensure long-term competitive advantage by meeting the diverse preferences of consumers. The 5-seater version of the M9 is equipped with the same black technology as the six-seater version, while adding a second row of rider+storage space to enhance driving comfort. As of 10/10, the M9 has topped the list of models with more than 0.5 million, with a cumulative total of over 0.15 million units. 2) During the National Day, 10/1-10/7, sales promotion of various Huawei products led to an increase in store traffic, and orders for core models increased. The average daily orders for the Quanjie M7 and M9 during the calculation period were about 1285 and 1,110 units, respectively. We are fully optimistic about the ability of the Quanjie brand to climb the corresponding model sales in the face of sufficient reserve orders and increased competitiveness in product upgrades.

The acquisition of Longsheng New Energy was once again completed, and all obtained brand ownership+factory ownership: 3Q24 made the following adjustments to increase ownership of the Quanjie brand: 1) Successively completed wholly-owned acquisitions of the “Wanjie” trademark and Cyrus Motors (an important subsidiary, the original company held 80.64% of the shares). 2) On 8/25, the company once again offered 10% of shares at a price of 11.5 billion yuan, and deepened cooperation with Huawei through an equity binding (vs. Changan Automobile is expected to participate in indirect shares through Avita). 3) In 2024/10, the company plans to acquire 100% of Longsheng New Energy's shares by issuing shares. The issue price is 66.39 yuan/share, which corresponds to the number of 0.123 billion shares issued, accounting for 7.53% of the total share capital of the listed company after issuance. Longsheng New Energy is the implementing entity of the M9 Gigafactory Industrial Park infrastructure support project. After the transaction is completed, the company will fully control the M9 Gigafactory. We judge that a) the company's voice in the operation and management of the relevant brands has increased significantly; b) the company's participating vehicle BU has strengthened cooperation and increased performance (1H24 hopes to reverse losses and achieve net profit back to the mother to 2.23 billion yuan). c) The company is expected to maintain a strong model cycle by improving coordination and maintaining the advantages of intelligence+ product positioning.

Maintaining a “buy” rating: In view of the economies of scale and order accumulation of the model in question, we maintained the 2024E-2026E net profit forecast to 6.37/7.62/8.4 billion yuan, maintaining the company's “buy” rating.

Risk warning: Huawei Auto's strategy is changing, Huawei models are encroaching on each other's market share, and industry competition is intensifying.