Guosheng Securities: Maintains a "buy" rating on LEAPMOTOR (09863) with a target price of HK$45.

Guosheng Securities released a research report stating that it is estimated that LEAPMOTOR (09863) will have sales of approximately 290,000/500,000/720,000 units from 2024 to 2026, with total revenue reaching 32.2/55/81.7 billion yuan; the net profit margin attributable to shareholders from 2024 to 2026 is expected to be -9%/-2%/2%. Calculated at the exchange rate on November 11th, LEAPMOTOR is given a target valuation of 59.5 billion Hong Kong dollars, corresponding to 1x2025e P/S, and a target price of 45 Hong Kong dollars is given, maintaining a "buy" rating. Guosheng Securities' main points are as follows: Impressive sales volume, Q3 gross profit margin exceeds expectations. Benefiting from the July trade-in policy, the introduction of new models such as C10 and C16, the company delivered 86,165 vehicles in Q3, an increase of 94%/62% year-on-year and quarter-on-quarter respectively. With the increase in sales volume, Q3 revenue increased by 74.3% year-on-year to 9.86 billion yuan. Due to 1) the rapid increase in sales of the relatively high-priced C10 and C16 models, as well as the optimization of product sales structure, 2) continuous improvement in cost management by the company, 3) economies of scale, the company's Q3 gross profit margin increased significantly by 6.9%/5.3% year-on-year and quarter-on-quarter to 8.1%, with gross profit increasing by 100%+ to around 800 million yuan. Overall expenses showed a slight increase, with a growth rate much lower than the revenue growth rate, resulting in a significant narrowing of the expense ratio. At the same time, the net loss attributable to shareholders in Q3 narrowed significantly, with a 30% decrease in the loss compared to the same period last year to 690 million yuan, and a 15% decrease in the loss ratio compared to the previous quarter to 7%; adjusted net loss was 540 million yuan, with an adjusted net loss ratio of around 5%. Optimized car sales structure, full-year sales volume likely to exceed target. Out of the 86,165 vehicles sold by LEAPMOTOR in Q3 of 2024, approximately 78.3% were C-series models, indicating an improvement in overall product structure. Monthly high-frequency sales data shows a continuous increase in LEAPMOTOR sales, with sales of 22,093/30,305/33,767 vehicles in July-September and 38,177 vehicles in October. It is expected that with the continued impact of the trade-in policy and further promotion at the end of the year, LEAPMOTOR's Q4 sales volume is expected to further increase to over 110,000, driving the company's full-year sales volume significantly beyond the previous target of 250,000 units. Looking ahead to next year, the company plans to launch three new B-series models, with the expectation that delivery will begin in Q2/Q3/Q4. Based on the ramp-up of new models and overseas sales, the company expects sales volume to exceed 500,000 units in 2025. Capacity expansion plans to open up new opportunities. Current production capacity at the company's Jinhua factory in Zhejiang has reached its limit, with a monthly capacity of around 40,000. The construction of the new Hangzhou factory is in progress, with the goal of starting production in the first half of 2025. Additionally, the company is planning to build a third factory in Jinhua, with the aim of reaching an annual production capacity of 1 million units by the end of 2025 or early 2026, providing ample support for sales in the coming years. The overseas sales target for 2024 is 8,000-12,000 units, with localization production expected to be achieved by the end of next year. After the T03 and C10 models completed EU WVTA certification, they officially went on sale in Europe on September 24, 2024. By the end of October, there were already 339 dealer outlets opened in Europe, exceeding the initial target. In the future, the company will gradually expand to the Asia-Pacific, Middle East, Africa, and South American markets, with plans to establish over 500 channels by 2025. With the EU's implementation of the anti-subsidy tariff scheme against China, LEAPMOTOR is determined to accelerate the localization of production. The company plans to leverage Stellantis' existing vehicle manufacturing facilities to promote localized production for LEAPMOTOR by the end of 2025. It is expected to exceed the 5% gross profit margin target for the full year. The company achieved an overall gross profit margin of 4.8% in Q1-Q3, with a Q3 gross profit margin exceeding expectations at 8.1%. The expectation is that with further improvements in economies of scale in Q4, there is a high probability of exceeding the 5% gross profit margin target for the full year. Looking ahead to next year, the expectation is that the domestic market will achieve a gross profit margin of over 10%, while the overseas segment is expected to achieve a 3% gross profit margin level (sales of LEAPMOTOR to ZERO RUN International), resulting in an average gross profit margin of around 9% for LEAPMOTOR in 2025.