Chongqing Sokon Industry Group Stock (601127.SH) experienced double growth in revenue and net profit in the first quarter. EB SECURITIES has raised its profit expectations and provided a buy rating.

On April 29th, Chongqing Sokon Industry Group Stock (601127.SH) released its first quarter report for 2024 and annual report for 2023. Based on the continuous improvement in market performance of the AITO Wanjie series and multiple measures such as cost reduction, efficiency improvement, and technological innovation, Chongqing Sokon Industry Group Stock achieved double-digit growth in revenue and net profit in the first quarter of this year: revenue of 26.561 billion yuan, a year-on-year increase of 421.76%; net profit attributable to shareholders of the listed company was 2.2 billion yuan, with a gross profit margin of 21.5%. Several institutions' latest research reports believe that under the intensifying competitive situation of price wars this year, Chongqing Sokon Industry Group Stock has outperformed expectations. EB SECURITIES pointed out that the better-than-expected performance in the first quarter was mainly driven by the improvement in gross profit margin brought about by the scale delivery of the Wanjie series, as well as a decrease in operating costs. The company's performance is expected to improve quarter by quarter, leading to an upgrade to a "buy" rating. Founder stated that with three models selling well and prices and volumes rising, profits are expected to accelerate, giving a recommended rating. Gross profit margin reached 21% in the first quarter, far exceeding the industry average level In an industry experiencing intense competition, how was Chongqing Sokon Industry Group Stock able to achieve positive net profits in the first quarter? The strong growth in the new energy vehicle business was undoubtedly a key factor. In the first quarter of this year, Chongqing Sokon Industry Group Stock's sales of new energy vehicles reached 94,825 units, a year-on-year increase of 374.77%. Benefiting from the increase in sales of new energy vehicles, the net cash flow from operating activities in the first quarter of 2024 was 1.187 billion yuan. It is worth mentioning that Chongqing Sokon Industry Group Stock's gross profit margin significantly improved to 21.5% in the first quarter. This gross profit margin level has surpassed the average level of around 10% in the Chinese automotive industry, and is far higher than most new energy vehicle companies. Under the price war pressure leading to price reductions, Tesla's gross profit margin continued to decline to 17.4% in the first quarter of this year, while Chongqing Sokon Industry Group Stock achieved a higher gross profit margin level, reflecting the company's strong product power and competitiveness. The proportion of sales of the high-end new energy vehicles in the Wanjie series has expanded, driving continuous performance improvement. The effects of economies of scale are beginning to show. Among them, the AITO Wanjie new M7 and M9 models are currently hot-selling models in the market. Data shows that the AITO Wanjie new M7 has accumulated over 174,000 confirmed orders in seven months since its launch, while the Wanjie M9 has accumulated over 70,000 confirmed orders in three months since its launch. From confirmed orders to delivery takes time, and the sales boom dividend is concentrated in the first quarter, demonstrating the high growth potential of Chongqing Sokon Industry Group Stock is gradually being validated. Driving innovation through technological research and development to continuously enhance the company's competitive advantage Behind the rapid development of Chongqing Sokon Industry Group Stock is the continuous deepening of the cross-border integration and innovation model with Huawei, as well as the practical application of innovation brought about by continued high-intensity research and development investment. In terms of innovation models, the collaboration between the two, AITO Wanjie, has achieved "phenomenal" growth. In the first quarter, it ranked among the top five in sales of luxury brands in the Chinese market, becoming the highest-ranking Chinese brand on the list. Meanwhile, Chongqing Sokon Industry Group Stock, with an open cooperation gene, continues to deepen cooperation with partners such as Contemporary Amperex Technology, Bosch, and other ecological partners, actively building an interconnected and mutually beneficial automotive ecosystem. In terms of technology, Chongqing Sokon Industry Group Stock's research and development investment in 2023 was 4.438 billion yuan, accounting for 12.38% of its operating income. The number of R&D personnel is nearly 5,000, an increase of 18.6% year-on-year. As a company dedicated to becoming a technology-based automotive enterprise, the substantial investment in technology is converted into productivity, further enhancing the company's competitive advantage. This is reflected in the proactive layout of industry-leading range extender technology, achieving the industry's leading position in range extenders in 2024, with cooperation agreements reached with 12 industry partners. At the Beijing Auto Show on April 25th, Chongqing Sokon Industry Group Stock showcased a series of core technologies such as the Rubik's Cube platform, the new generation all-in-one super range extender assembly, the highly integrated electric drive seven-in-one assembly, and the integrated die-cast body of the AITO Wanjie M9. It is not difficult to imagine that under the combined effect of multiple factors, the accumulated strength of Chongqing Sokon Industry Group Stock has finally seen the light of day in the first quarter. With improvements in sales, products, technology, and other dimensions, the growth potential of Chongqing Sokon Industry Group Stock will further unfold. According to the latest research report from EB SECURITIES, as a pioneer in the intelligent selection cooperation model with first-mover advantages, with a faster pace of capacity climbing, the key to the volume of cooperative models besides the model cycle impact also lies in the depth of cooperation between both parties and the high delivery capacity. Considering the economies of scale, the company's performance is expected to improve quarter by quarter, leading to an upgrade to a "buy" rating and a forecast for net profit in 2024.