Matters:

The company released the third quarter report of 2024, and the operating income in 24Q3 was 4.24 billion yuan, a year-on-year increase of +34.8%; The net profit attributable to the parent company was 370 million yuan, a year-on-year increase of +139.1%.

Comments:

The self-owned brand business continued its strong performance in 24Q2. In 24Q3, the company's single-quarter revenue still maintained a high growth rate, with a year-on-year increase of 34.8%, with the self-owned brand channel business as the main growth driver, and the electric two-wheeled business continued to contribute to the main revenue increment. In 24Q3, the revenue of electric two-wheelers was 2.59 billion, a year-on-year increase of +57%, and the growth of electric two-wheelers became the company's core incremental contribution business; The Q3 revenue of self-owned brand retail scooters was 690 million yuan, a year-on-year increase of -1%; All-terrain vehicles and lawn mower robots achieved revenues of 2.6 million and 150 million yuan respectively, an increase of 35% and 625% year-on-year respectively. In 24Q3, ToB direct sales channels achieved revenue of 210 million yuan, a year-on-year decrease of 34%.

24Q3 gross profit margin increased year-on-year, and net profit attributable to the parent company increased highly. In 24Q3, the company achieved a net profit attributable to the parent company of 370 million yuan, a significant increase of 139.1% year-on-year, and a gross profit margin of 28.5%, a year-on-year increase of +3.3pct, and the gross profit margin in a single quarter continued to maintain an upward trend year-on-year, which we expect to be mainly due to the continuous improvement of the gross profit margin of products such as electric two-wheelers and all-terrain vehicles. 24Q3 sales, management, R&D, and financial expense ratios were +1.5, -0.3, -0.8, and -1.3pct year-on-year, respectively, and the total expense ratio during the period was -0.9pct year-on-year. In 24Q3, the net profit margin attributable to the parent company was 8.8%, +3.8pct year-on-year, and we expect the company's profitability to continue to improve in the future.

The growth of electric two-wheelers is accelerating, and the volume of all-terrain vehicles and lawn mowers is rapidly increasing. The company's two-wheeler business has begun to enter the performance realization period, with the product positioning of mid-to-high-end segmented young users, highlighting the attributes of intelligent and trendy toy products, and the proportion of two-wheeler business contributing to overall profitability continues to increase while the revenue scale continues to expand. All-terrain vehicles and lawn mower robots are the company's long-term growth curve, and we expect that with the subsequent product iteration and launch, the performance contribution can be expected.

Investment suggestions: the product competitive advantage shaped by production and research barriers, and the high-end brand value shaped by product demand to establish the company's core competitive advantage, the two-wheel business has entered the performance realization period, and the long-term growth business expenses such as all-terrain vehicles and lawn mower robots are expected to begin to narrow. We adjust the company's 2024-2026 net profit attributable to the parent company forecast to 11.7/16.3/2.2 billion yuan (original value of 11.7/15.2/1.99 billion yuan), and the corresponding PE in 24-26 is 28/20/15 times. The company has stable cash flow and adopts the DCF method to valuation, with an adjusted target price of $52 per CDR, corresponding to 10 CDRs per share, corresponding to a 25-year valuation of 23 times. The company's long-term growth momentum is sufficient, and it maintains its "Recommended" rating.

Risk warning: new product launch and market response are less than expected, overseas policy fluctuations, raw material prices fluctuate.