Dongwu Securities released a research report stating that maintaining the “buy” rating of Ideal Automobile-W (02015), the 2024 performance forecast was raised to 7.8 billion yuan (originally 7.5 billion yuan) due to the 24Q3 gross margin performance exceeding expectations. Considering increased industry competition, the 2025/2026 net profit forecast was lowered to 10.3/15.3 billion yuan (previously 12.1/17.6 billion yuan), -34%/+33%/+48% year-on-year. The company achieved revenue of 42.87 billion yuan in 2024Q3, of which vehicle sales business revenue reached 41.32 billion yuan. In Q3, net profit attributable to ordinary shareholders was 2.81 billion yuan, and non-GAAP net profit reached 3.85 billion yuan.

The main views of Dongwu Securities are as follows:

Overall performance in Q3 was in line with expectations.

1) Revenue: Ideal Auto's Q3 delivery achieved 0.153 million units, +45.4%/+40.8% month-on-month, and the average bicycle price was 0.27 million yuan, and -15.5%/-3.2% month-on-month respectively. The core was a significant increase in L6 sales volume, accounting for +13pct of total sales volume.

2) Gross profit margin: The company's overall gross profit margin in Q3 was 21.5%, -0.5/+2.0pct, respectively. Among them, the gross profit margin of the automobile sales business was 20.9% and -0.3/+2.2pct, respectively. The gross margin performance exceeded expectations. The core reason was that the Q3 discount had a significant scale effect of restraint and 41% increase in sales volume.

3) Cost ratio: The company spent 2.6 billion yuan on R&D in Q3 and 3.4 billion yuan on SG&A expenses. The corresponding cost rates were 6.0%/7.8%, respectively, -2.1/+0.5pct year-on-year, and -3.5/-1.1 pct, respectively, a significant improvement from month to month. Among them, the reasons for the month-on-month increase in the absolute value of SG&A expenses include the company's CEO Li Xiang confirming the increase in remuneration due to the increase in the number of employees in the current quarter. Overall channel expansion was more restrained. By the end of September, the company had 479 retail centers nationwide, an increase of 2 compared with the end of June, and the efficiency of single stores improved markedly. R&D expenses were reduced by 0.5 billion yuan month-on-month. The core reason was the reduction in design and R&D costs for new products and technologies and the reduction in employee remuneration.

4) Interest income and investment income: Q3 was -0.02 billion yuan, down 0.46/0.39 billion yuan, respectively, from the same period last month, mainly due to the decline in investment income of IMOTIONAUTOTECH.

5) Profit: The company achieved bicycle profit of 0.025 million yuan (non-Gaap caliber) in Q3, which was -23.6%/+82.0% month-on-month. The month-on-month improvement was mainly due to the increase in bicycle gross profit due to scale effects and the reduction in bicycle costs under strict cost control (main reason).

6) Cash: As of September 30, 2024, the cash position was RMB 106.5 billion. Free cash flow for 2024Q3 was RMB 9.1 billion, which was positive month-on-month.