LI AUTO(2015.HK)：1Q24 EARNINGS MISSED ON HEFTIER OPEX;BEV DELAY HURTS SENTIMENT BUT ORDER INTAKE COUNTS MORE FOR NEAR-TERM VALUATION-格隆汇

机构：中银国际
研究员：LOU Jia/Olivia NIU/Catherine Sun

　　1Q24 revenue rose by 36.3% YoY with gross margin staying healthy at above 20%, but non-GAAP net profit dropped 9.4% YoY to RMB1.28bn, missing expectations on heftier fixed OPEX outlay. At the earnings call, management guided the vehicle margin will pull back by over 1ppt to c.18% in 2Q24. The delivery guidance of 105-110k units for 2Q24 comes in line with monthly sales back to around 40k units in May/June, while management aims for monthly deliveries back to 50k units in July/August. On the other hand, management indicates the delay of BEV release till 1H25, aiming to make adequate preparations on charging network/sales network/marketing tactic, in a bid for the success of BEV line-up after the hiccup of MEGA. Given the 2Q24 results may be difficult to turn around, we anticipate near-term valuation could still face headwind until order intake picks up solidly to support monthly deliveries back to 50k units. Maintain BUY but lower TP to US$35.00/HK$135.00.
　　Key Factors for Rating
　　1Q24 revenue slightly missed on softer ASP whereas blended margin held steady at above 20%. In 1Q24, total revenue climbed 36.4% YoY to RMB25.6bn, lower than sales volume growth of 52.9%, given the softer vehicle ASP that slipped 13.5% YoY to RMB301k. The vehicle margin dipped from 22.7% in 4Q23 to 19.3% in 1Q24, dented by weaker economies of scale, wider discounts for old models and additional cash refunds for the price adjustments of 2024 L series and MEGA announced in late April, whereas the blended gross margin held steady at 20.6% QoQ underpinned by lucrative other sales business.
　　2Q24 vehicle margin face headwind from larger sales proportion of cheaper L6 model. Despite QoQ sales volume recovery, we see continued downward pressures on 2Q24 vehicle margin given the larger sales proportion of lower-priced L6 model that yields much lower margin at the initial ramp-up stage than other mature L series models. At the earnings call, management guided the vehicle margin will pull back by over 1ppt to c.18% in 2Q24 before recovery in 2H24 backed by potential deliveries expansion.
　　The company swung to an operating loss due to heftier OPEX bills. In 1Q24, the company swung to an operating loss of RMB585m, falling short of expectations, essentially due to the heftier fixed OPEX outlay. The R&D/SG&A expenses remained lofty at RMB3bn/3bn, leading to a sudden spike in OPEX ratio of 23.5% vs. 18.6% in 1Q23. Dragged by deteriorating working capital, the overall free cash flow flipped to negative RMB5bn vs. RMB6.7bn in 1Q23 and RMB14.6bn in 4Q23. In fact, the company has launched a new round of workforce layoffs recently to spur operational efficiency amid demand slowdown, but we anticipate its positive effects on OPEX may not be seen till 2H24.
　　2Q24 delivery guidance largely in line. The company guided 2Q24 delivery to be 105k-110k units, suggesting average monthly sales may recover to around 40k units in May/June, in line with our initial forecast. During the earnings call, the mgmt. said that the initial weaker order intake for 2024 L series could be attributed to insufficient resources allocation for EREV lineups in readiness for MEGA’s launch. Therefore, the company is now actively adding booth coverage for L series in a bid to boost sales recovery. For the full-year sales outlook, the mgmt. now retains the guidance of 560k-640k units, with an ambition to see monthly sales back to 50k units or above in July/August.
　　The delay of BEV release suggests more prudent attitude to scale up BEV pipelines after MEGA’s backfire. At the earnings call, the mgmt. indicated that they would entirely reconsider the BEV strategy and delay the BEV model launch schedule till 1H25, instead of prior agenda to launch three BEV models in 2H24 successively, which indicates the company’s more prudent attitude to scale up BEV pipelines after MEGA’s backfire. Firstly, they would like to build up a broad ultra-fast charging network that rivals Tesla’s charging network accessibility before the massive BEV releases. Secondly, the company plans to get adequately prepared for BEV sales network with abundant showrooms/booths. In addition, management implied they are considering the differentiated new retail mode for BEV models. All these together could lay a favourable foundation for the success of its upcoming BEV models in 1H25.
　　Earnings Forecast and Valuation
　　We revise down our sales volume forecasts for 2024-25 to 500k/665k units from 530k/730k units. Coupled with lower ASP assumptions amid the stiffening competition, we cut our 2024-25 revenue forecasts by 9-14% to RMB140bn/ 182bn, respectively. Given the heftier OPEX outlay YTD, extra layoff severance payments alongside workforce cuts, and the company’s affirmative tone to enhance charging station accessibility and expand sales network, we lift our SG&A assumption for the forecast period. All together, we slash our non-GAAP net profit forecasts for 2024-25 by 22%-25% to RMB10.6bn/13.0bn, respectively.
　　Currently, its ADRs are trading at 1.4x 2024E P/S and 17.9x 2024E P/E. Given the 2Q24 results is difficult to turn around in spite of sales recovery, we anticipate near-term valuation may still face headwind until order intake picks up solidly to support monthly deliveries back to 50k units. Over the long term, we still favour the company's distinct product philosophy, strategic positioning in premium NEV segment, and swift response/execution capacity to tackle operational challenges. Thus, we maintain BUY but lower TP to US$35.00/ HK$135.00, based on 25x 2024E P/E.