理想汽车：Is the Mega lesson worthwhile？

Investment Rating - The report maintains a BUY rating for Li Auto Inc. with a target price reduced from US$48.00 to US$26.00, reflecting a 19.8% upside from the current price of US$21.71 [2][3]. Core Insights - Li Auto has deprioritized FY24E profitability in favor of establishing a stronger foundation for its BEV strategy, following disappointing sales from the Mega model. The company is expected to recover EREV sales in 2H24 and achieve sales growth in FY25, despite postponing BEV launches [2][3]. - The 1Q24 results showed a revenue increase of approximately 3% compared to previous forecasts, primarily driven by other sales and services, while net profit fell short by about RMB1.4 billion due to higher R&D and SG&A expenses [2][3]. - The company anticipates a challenging 2Q24, guiding for a vehicle gross margin of 18%, down from 19.3% in 1Q24, and has adjusted FY24E sales volume down by 22% to 0.51 million units [2][3]. Financial Summary - Revenue projections for FY24E are set at RMB149.24 billion, with a year-on-year growth of 20.5%. For FY25E, revenue is expected to reach RMB193.27 billion, reflecting a growth of 29.5% [3][8]. - The net profit for FY24E is estimated at RMB7.23 billion, a decrease of 38.2% compared to FY23, while FY25E net profit is projected at RMB12.27 billion, indicating a recovery with a growth of 69.7% [3][8]. - Gross margin is expected to be 20.1% in FY24E and slightly improve to 20.3% in FY25E, maintaining stability in profitability metrics [3][8]. Earnings Revision - The report revises FY24E revenue down by 26.1% to RMB149.24 billion and FY25E revenue down by 26.5% to RMB193.27 billion, reflecting adjustments based on recent performance and market conditions [7][9]. - Net profit estimates for FY24E have been halved to RMB7.23 billion, while FY25E net profit is revised to RMB12.27 billion, both reflecting a cautious outlook amid operational challenges [7][9]. Valuation Metrics - The report indicates a P/E ratio of 21.7x for FY24E, decreasing to 12.9x for FY25E, suggesting a more favorable valuation as the company aims for recovery [3][8]. - The P/B ratio is projected to decline from 2.3x in FY24E to 1.9x in FY25E, indicating a potential undervaluation as the company stabilizes its operations [3][8].