CICC: Maintains "outperform" rating on LEAPMOTOR (09863) with a target price raised to 48 Hong Kong dollars.

CICC released a research report, maintaining a "outperform the industry" rating for LEAPMOTOR (09863) and raising its 2025 net profit forecast by 30.6% to 410 million yuan. Considering the strong new car cycle, the target price was raised by 58.4% to 48 Hong Kong dollars. The company announced its 3Q24 performance: operating income increased by 74.3% quarter-on-quarter and 83.9% year-on-year to 9.86 billion yuan. Due to a significant increase in gross profit margin, the performance exceeded market expectations. CICC's main points are as follows: The delivery of C16 drove sales to reach a historical high in 3Q24, with strong revenue growth. 3Q24 revenue increased by 74.3% quarter-on-quarter and 83.9% year-on-year to 9.86 billion yuan, mainly due to: 1) volume: the delivery of C16 started in July, enriching the product matrix, with total sales in 3Q24 increasing by 94.4% quarter-on-quarter and 61.7% year-on-year to 86,165 units, of which C-platform models accounted for 78.3% of sales; 2) price: average revenue per vehicle increased by 13.8% quarter-on-quarter to 114,000 yuan. 3) The marketing network continued to expand. As of 3Q24, the company had a total of 672 stores nationwide, including 493 sales stores and 183 Zero Run centers that combine sales, delivery, and service. Looking ahead, the bank believes that the company's continued enrichment of the product matrix is expected to drive stable sales growth. The gross profit margin in 3Q24 improved significantly quarter-on-quarter, with strong operational cash flow performance. On the profit side, the gross profit margin in 3Q24 increased by 6.9 percentage points quarter-on-quarter and 5.3 percentage points year-on-year to 8.1%, with a gross profit per vehicle of 9,269 yuan, reaching a historical high. The bank believes that the improvement in profitability is mainly due to: 1) the release of scale effects, cost and expense dilution, combined with the company's enhanced lean management capabilities, resulting in a quarter-on-quarter sales and management expense ratio decrease of 2.5 and 5.4 percentage points to 9.0%; 2) continuous optimization of product structure, with the proportion of high-margin C-platform models increasing to 78.3%. The company has increased its investment in intelligent driving, launching the end-to-end large-scale model ADAS system development. R&D expenses in 3Q24 increased by 64.5% quarter-on-quarter and 11.2% year-on-year to 780 million yuan. Operational cash flow increased significantly to 1.96 billion yuan. The bank believes that with high R&D efficiency and rapid cost reduction advantages, the company's profit elasticity is expected to be further released. The B-platform has multiple models waiting to be launched, and overseas business expansion is accelerating. The company plans to launch its first global model B10, based on the LEAP 3.5 architecture with higher integration and intelligence level, capable of achieving advanced intelligent driving functions such as city and highway navigation. The company plans to launch B10 domestically at the end of 1Q25 and has planned to release two additional B-series models globally. In September, Zero Run C10 and T03 were officially launched in 13 European countries, and the company plans to achieve a global distribution scale of over 500 channels by 2025, fully leveraging its deep cooperation capabilities in distribution network, after-sales service, logistics, and parts with Stellantis Group. The bank believes that B-platform models targeting the 100-150 thousand yuan mass market have greater sales potential. As Zero Run gradually establishes brand awareness overseas, global deployment is expected to gradually enter a harvest period.