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机构：中银国际
研究员：LOU Jia/Olivia NIU/Catherine SUN
Key Factors for Rating
Both revenue and gross margin came in line. In 2Q24, total revenue rose by 23.6% QoQ to RMB31.7bn, lower than volume growth of 35.1%, due to a decrease in vehicle ASP of 7.4% QoQ to RMB279k with larger sales proportion of affordable L6 model and official price reduction across entire L7/8/9 lineups. 2Q24 vehicle margin arrived at 18.7%, better than initial guidance of 18% thanks to stronger economies of scale and supply-chain cost reduction benefits despite unfavourable product mix with escalated L6 sales mix. Yet, the gross margin for other sales and services dropped from 43.0% in 1Q24 to 36.3% in 2Q24, owing to a change of accounting treatment for after-sales relevant costs. This leads to a moderate decline in blended gross margin from 20.6% in 1Q24 to 19.5% in 2Q24, largely in line.
Better-than-feared bottom line with resilient gross margin and stricter OPEX control. In 2Q24, the company nicely turned around on operating profit from -RMB585m in 1Q24 to RMB468m, above our previous forecast helped by stricter OPEX control. Both R&D/SG&A expenses declined QoQ to RMB2.8bn/3.0bn against larger revenue scale, leading to a reduction in OPEX ratio to 18.4% vs. 23.5% in 1Q24. This could be partly attributed to the new round of workforce layoffs, which set to drive stronger operational efficiency with the full coverage of OPEX savings in 2H24. Benefiting from the operating profit improvement, non-GAAP net income added 17.8% QoQ to RMB1.5bn in 2Q24, ahead of our projection of RMB1.35bn.
Free cash flow remains negative on faster payments to vendors. Despite improving profitability, 2Q24 free cash flow remains negative at -RMB1.9bn, vs. -RMB5.1bn in 1Q24, primarily pulled back by faster payment to vendors as the balance of trade and notes payables was slashed by RMB7.8bn, which was partially offset by inventory destocking within 2Q24.
Vehicle margin set to pick up moderately while cash flow poised to turn positive in 2H24. During the earnings call, the mgmt. guided vehicle margin/blended margin could sustain QoQ moderate recovery to 19%+/20%+ in 3Q24, driven by the continued efficiency enhancement and supply chain cost reduction. In addition, free cash flow is set to turn positive in 2H24, which seems achievable given the consecutive cash inflow in Jun/Jul and further expansion of sales scale.
Conservative 3Q24 delivery guidance on macro demand uncertainty and consumers’ wait-and-see posture. The company guided 3Q24 deliveries of 145k-155k units, implying average monthly sales may stay flat at 47k-52k in Aug/Sep, below our prior forecasts of 155k-160k units. During the earnings call, management explained that the conservative guidance has taken into account the uncertainties for the prolonged tepid demand in premium market as well as consumers’ wait-and-see sentiment for trade-in subsidies to be launched by local governments, in addition to vehicle scrappage subsidies supported by the central government. On the other hand, management anticipate subsequent regional policy stimulus possibly to drive pent-up demand release in 4Q24, albeit the competition dynamics may further intensify.
BEV updates. At the earnings call, management confirmed a couple of BEV to roll out next year, with the first BEV model to hit market in 1H25. Meanwhile, the company aims to become one of the top-tier BEV makers in the price segment of RMB200k and above within two years.
We maintain our sales forecasts for 2024-25E at 500k/670k units largely intact. We nudge down our non-GAAP net profit forecasts for 2024-25 by 2%-5% to RMB10.1bn/12.6bn, respectively. At the earnings call, management expressed confidence in strong margin recovery HoH in 2H24, which looks attainable given increasing delivery scale, continued supply-chain cost reduction, as well as OPEX savings after the new-round layoffs in 2Q24.
Currently, its ADRs are trading at 1.1x 2024E P/S and 15x 2024E P/E, which is undemanding in our view. Witnessing the misfire of MEGA and the mounting competition dynamics in large-size EREV SUV segment, consensus seems lack of confidence in Li Auto’s growth prospects. Yet, we reckon the company is now on the right path to prepare for BEV push next year by relentlessly beefing up the strengths in 5C charging network accessibility and AD technology iteration. This could effectively translate into BEV product competency when the BEV product line-up hit the market in 2025. For EREV segment, we believe Li Auto still has upsides for the market share in the price segment between RMB200k- 300k, given its lower market presence and limited EREV product spectrum in that segment at present.
We slightly revise down our TP to US$33.00/ HK$130.00, equivalent to 25x 2024E P/E and 20x 2025E P/E, respectively. Maintain BUY rating.