According to a research report released by China Galaxy Securities, maintaining the Ideal Automobile-W (02015) “Recommended” rating, the 2023-25 operating income is estimated to be 1181.80/2024.15/271,859 billion yuan, and net profit of 72.29/125.52/18.509 billion yuan. The company released its financial report for the third quarter of 2023. In the first three quarters, the company achieved operating income of 82.119 billion yuan, +197.14% over the same period last year, and achieved net profit of 6.046 billion yuan, significantly reversing losses over the previous year. In the Q3 quarter, the company achieved operating income of 34.679 billion yuan, +271.2% year-on-year, +21%, and net profit of 2,813 billion yuan, +21.8% month-on-month.

The main views of China Galaxy Securities are as follows:

Q3 sales volume was 105108 units, up 296% year on year and 21.5% over Q2. Scale advantages drove profitability to new heights.

Q3 Company's sales volume reached a new quarterly high. The average bicycle sales price was 319,800 yuan/vehicle. Due to the increase in the share of L7 sales of low-priced products and the launch of terminal concession promotions for some models, the average bicycle sales price declined slightly from 323,300 yuan in Q2 and 341,000 yuan compared to 2022/3. However, benefiting from the continued increase in scale effects and the decline in battery costs, the company's profitability further increased, and gross margin continued to increase month-on-month. From 2023Q1 to Q3, the gross margin of the company's automobile business was 19.8%/21%/21.2%, respectively, and the profit for Q3 bicycles was 26,800 yuan.

The expense ratio continues to decrease, the cash reserve is 88.52 billion yuan, and the financial situation is good.

The company's total cost for Q3 was 5.305 billion yuan, the total cost rate was 15.3%, and R&D expenses continued to rise to 2,817 billion yuan over the same period last month. As of the end of the third quarter, the company's free cash flow was 13.22 billion yuan and cash reserves were 88.52 billion yuan. Net cash after deducting interest-bearing debt and convertible debt increased to $80.6 billion, with plenty of cash on hand. With the arrival of the peak sales season in the fourth quarter, Q4's sales volume is expected to be 125,000 to 128,000 units, an increase of 170%-176% over the previous year, driving the revenue scale to 38.46 billion yuan to 39.38 billion yuan, an increase of 118%-123% over the previous year.

MEGA has opened a new track for pure electric vehicles. Retail channels, charging station layout, and intelligent driving have been continuously improved and promoted, making it one of the leading new energy vehicle companies.

On October 26, the company released the pure electric MPV product MEGA to enter the pure electric luxury market. The characteristics of the pure electric MPV market are similar to the early hybrid market. It has the characteristics of a small market size and low product supply, and has good market expansion and entry conditions. With the support of the brand effect, the company is expected to quickly open up the market with new products and continue to expand its brand influence. It is expected that with the support of new products, the company's sales volume will reach 600,000 units in 2024.

In terms of channel construction and charging station layout, as of the end of October, the company had 372 retail centers and opened 41 stores in the last 4 months. It is estimated that 400 stores will be built throughout the year. In terms of charging station construction, by the end of October, 119 5C supercharging stations have been launched, covering 35 cities. The estimated number of charging stations is around 476. According to the company's plan, the construction of 3,000 charging stations will be completed in 25 years, including 1,000 highways and 2,000 cities. The improvement of charging facilities and breakthroughs in new technologies such as high-voltage fast charging will greatly optimize the company's experience in using pure electric vehicles and open up room for sales growth. In terms of intelligent driving, urban NOA research and development on AdMax is progressing smoothly. It is planned to push the official version of AdMax 3.0 software to users by the end of the year, providing NOA capabilities for all scenarios, and will become the first tier of intelligent driving through market verification.

Risk warning: 1. Risk of sales of new energy vehicle products falling short of expectations; 2. Risk of increased competition in the industry; 3. Risk of rising raw material prices.