Zhongtai: Initiate coverage on CHERY AUTO (09973) with a "buy" rating. Initial success seen in domestic electric and intelligent integration.

Zhongtai released a research report stating that it initiates coverage of CHERY AUTO (09973) with a "buy" rating. The company has been deeply engaged in exports, with a clear first-mover advantage. With the orderly advancement of domestic new energy brands and deep cooperation with Huawei, it is expected to achieve growth in both volume and profit. Key points from Zhongtai's analysis: Discussion on the core capabilities of the automobile plant and transformation of investment research methodology From multiple models to winning. Since 2021, after full internal integration of independent and joint ventures, there has been a rapid and continuous increase in market share. After the change in landscape, the "product cycle" will gradually lose its effectiveness. The importance of demand control and the pace of electrification for increasing market share in the medium term is evident. The core of demand control capability is to break free from the inherent system of "wheelbase-type" and rethink and organize the ability of users, as well as to evoke empathy from the defined users of products introduced later. Review of Growth After 2017, focusing on exports and the simultaneous development of multiple brands domestically led to a high increase in market share. 1) Early period (08-12): relying on the domestic market, rapid expansion with low-priced small cars, but insufficient quality and brand premiums. 2) Transition period (13-16): proactive strategic adjustments, pursuit of quality improvement, and steady development of exports. 3) Recovery and growth period (2017-2021): improvement in product strength, successful sub-brand strategy (Jetour), continuous focus on exports. 4) Explosion period (2022-present): technological breakthroughs, accelerated transformation to new energy, leading in exports among Chinese brands, and continuous record-high sales volume. Current Development Support from the basic oil market, breakthrough in the Fengyun series, and growth in both volume and profit. 1) Oil vehicles-Chery Brand: good reputation and continued hot sales of the Arrizo and Tiggo series. 2) Chery's sub-brand Fengyun undertakes the task of transitioning to new energy, with initial effectiveness. 3) Jetour and Exeed develop independently, with Exeed achieving a brand upgrade. From a financial perspective, in recent years, the company has achieved double-digit growth in sales revenue and profits with continuous growth in sales volume. In 2024, the company achieved revenue of 269.9 billion yuan, a year-on-year increase of +65.4%; and a net profit attributable to shareholders of 14.14 billion yuan, a year-on-year increase of +18.3%. Core Competitiveness Early entry into exports builds a strong moat, leading engine technology innovation in the industry, and Huawei empowers intelligence and upward progress. 1) Exports: Clear first-mover advantage, stable sales growth, regional optimization, with the main growth focused on the European, Latin American, and Southeast Asian regions. Currently, overseas factory capacity is approximately 1 million units, with factories in Turkey, Spain, and Thailand still in production/expansion. 2) Technological Innovation: The new generation of Kirin engines has been released, with a thermal efficiency of 48% ranking first globally. The production line based on this engine has an annual capacity of 500,000 units, and it is expected that the capacity will increase to 1 million units by 2026. In addition, Huawei has released the GanKun intelligent driving ADS 4 solution, empowering the Exeed brand deeply, leading in intelligence capabilities in the industry. Outlook for Next Year Stationing in the market with equal rights to technology, focusing on oil vehicle models, and steady growth in exports. Integration of Chery brand's domestic businesses, integration of Xingtu, and coordinated development of the four major brands next year will mainly focus on the Aihu and Fengyun business divisions. 1) The Fengyun brand competes with Galaxy, seizing the market with equal rights to technology. The Kunpeng Super Energy Electric Hybrid CDM 6.0 version, with improved endurance, performance, and safety, is coming. The Fengyun A9, with advantages such as large space and long endurance, targeting consumer demand in the 150,000 price segment, has surpassed others. The Fengyun T11, competing with Galaxy M9, will be launched soon, and Chery will seize the market with equal rights to technology. 2) With continuous iteration of engines, Chery's domestic market share in oil vehicles has increased by 4.1 percentage points in the past three years, now ranking second among independent brands. 3) Core regions overseas in Europe, Latin America, and Southeast Asia are all expanding production continuously, contributing steady profits from overseas. Risk Factors Risks include macroeconomic recovery falling short of expectations, increased supply of new models leading to intense competition, lower-than-expected market acceptance of new models, lower-than-expected penetration of electrification, risks of distortion in third-party data, and risks of information lag or inadequate updates in publicly available data used in research reports.