Competitive pricing for B10 with strong 4Q24 margins

零跑汽车(09863)\r

Maintain BUY.Leapmotor’s aggressive pre-sale price for its new B10EV,alongwith its in-house autonomous driving(AD)and chassis capabilities,gives usmore confidence about its sales.We revise up its FY25E sales volume by7%to0.48mn units.We also project a minimal net loss in FY25E and a net profit ofRMB1.26bn in FY26E with more new A and D series models.We estimate itsundervalued R&D capabilities in chassis and key components could make Bseries GPM beat some investors’forecasts.Its investor day on11Mar toshowcase its technologies could be a positive catalyst for its share price.\r

Competitive pricing for B10with underestimated R&D capabilities.Leapmotor rolled out its B10EV on10Mar with a pre-sale price range ofRMB109,800-139,800.The model with LiDAR and city NOA functionality ispriced as low as RMB129,800.We view such prices as competitive.We areof the opinion that many investors have still underestimated Leapmotor’sR&D capabilities,given its in-house AD development utilizing theQualcomm8650chip.We therefore raise its B series sales volume by25,000units in FY25E.We revise up Leapmotor’s total sales volume by30,000units to0.48mn units in FY25E.\r

A possible breakeven in FY25E amid greater economies of scale andstrong4Q24margins.Leapmotor’s4Q24gross margin rose5.2ppts QoQto13.3%,in line with its profit alert.Its4Q24revenue rose37%QoQ toRMB13.5bn with a net profit of RMB81mn,even stronger than our priorforecast.We expect overall gross margin to rise2.9ppts YoY to11.2%inFY25E,as the Leap3.5architecture cuts costs to make B-series’GPM at asimilar level as C-series’.We lower our FY25E profit forecast for LeapmotorInternational,given that the company mainly targets overseas networkexpansion this year and a possible production delay in its overseas KDplant.We estimate that Leapmotor could be close to a breakeven in netprofit in FY25E with management’s efforts in cost control.\r

Valuation/Key risks.We forecast Leapmotor’s revenue to rise59%/13%YoY to RMB51.0bn/57.5bn,respectively,in FY25-26E.Although our netloss forecast of RMB98mn for FY25E could be a bit lower than managementguidance,it still showcases Leapmotor’s superb cost reduction capabilities.We forecast its FY26E net profit to be RMB1.26bn,as it continues to launchthe A and D series models.We raise our target price from HK$40.00toHK$50.00,still based on1.2x FY25E P/S,equivalent to the average FY25EP/S of Chinese NEV start-ups.Key risks to our rating and target priceinclude lower sales volume/margins,as well as a sector de-rating.