SERES(SH:601127) EBSCN·2024-05-03 07:32Investment Rating - The report upgrades the investment rating of Seres (601127 SH) to "Buy" due to the strong performance of its AITO models and expected profitability improvements [1][2] Core Views - Seres achieved a turnaround in 1Q24 with revenue of RMB 25 65 billion (+421 8% YoY +38 6% QoQ) and net profit of RMB 220 million reversing from losses in previous quarters [1] - Gross margin improved significantly to 21 5% in 1Q24 (+12 6pcts YoY +8 0pcts QoQ) driven by economies of scale from AITO model deliveries and reduced expense ratios [1] - AITO model sales reached 83k units in 1Q24 (+617 3% YoY +29 7% QoQ) with strong order momentum for new M7 (174k cumulative orders) and M9 (70k cumulative orders) models [1] - The company has accelerated production capacity with three factories now operational capable of monthly deliveries of 30k M7 and 25k M9 units [1] Financial Performance - Revenue is forecast to grow 241% YoY to RMB 122 22 billion in 2024E with net profit projected at RMB 4 77 billion reversing from losses in 2023 [2][5] - Gross margin is expected to improve to 21 4% in 2024E from 10 4% in 2023 driven by higher AITO model sales [6] - ROE is projected to recover to 29 5% in 2024E from -21 5% in 2023 [6] - Operating cash flow is forecast to reach RMB 11 91 billion in 2024E compared to RMB 6 40 billion in 2023 [5] Valuation - The stock is trading at 30x 2024E PE and 8 9x 2024E PB [2][7] - EV/EBITDA is expected to improve to 15 6x in 2024E from -51 6x in 2023 [7] Strategic Cooperation - Seres maintains a deep collaboration with Huawei as a pioneer in the smart selection model benefiting from Huawei's technical resources and intelligent driving capabilities [1] - The potential equity cooperation with Huawei's car BU could further strengthen the partnership and competitive advantage in intelligent vehicles [1]