Maintain BUY. Leapmotor’s aggressive pre-sale price for its new B10 EV, along with its in-house autonomous driving (AD) and chassis capabilities, gives us more confidence about its sales. We revise up its FY25E sales volume by 7% to 0.48mn units. We also project a minimal net loss in FY25E and a net profit of RMB1.26bn in FY26E with more new A and D series models. We estimate its undervalued R&D capabilities in chassis and key components could make B series GPM beat some investors’ forecasts. Its investor day on 11 Mar to showcase its technologies could be a positive catalyst for its share price.
　　Competitive pricing for B10 with underestimated R&D capabilities. Leapmotor rolled out its B10 EV on 10 Mar with a pre-sale price range of RMB109,800-139,800. The model with LiDAR and city NOA functionality is priced as low as RMB129,800. We view such prices as competitive. We are of the opinion that many investors have still underestimated Leapmotor’s R&D capabilities, given its in-house AD development utilizing the Qualcomm 8650 chip. We therefore raise its B series sales volume by 25,000 units in FY25E. We revise up Leapmotor’s total sales volume by 30,000 units to 0.48mn units in FY25E.
　　A possible breakeven in FY25E amid greater economies of scale and strong 4Q24 margins. Leapmotor’s 4Q24 gross margin rose 5.2ppts QoQ to 13.3%, in line with its profit alert. Its 4Q24 revenue rose 37% QoQ to RMB13.5bn with a net profit of RMB81mn, even stronger than our prior forecast. We expect overall gross margin to rise 2.9ppts YoY to 11.2% in FY25E, as the Leap 3.5 architecture cuts costs to make B-series’ GPM at a similar level as C-series’. We lower our FY25E profit forecast for Leapmotor International, given that the company mainly targets overseas network expansion this year and a possible production delay in its overseas KD plant. We estimate that Leapmotor could be close to a breakeven in net profit in FY25E with management’s efforts in cost control.
　　Valuation/Key risks. We forecast Leapmotor’s revenue to rise 59%/13% YoY to RMB51.0bn/57.5bn, respectively, in FY25-26E. Although our net loss forecast of RMB98mn for FY25E could be a bit lower than management guidance, it still showcases Leapmotor’s superb cost reduction capabilities. We forecast its FY26E net profit to be RMB1.26bn, as it continues to launch the A and D series models. We raise our target price from HK$40.00 to HK$50.00, still based on 1.2x FY25E P/S, equivalent to the average FY25E P/S of Chinese NEV start-ups. Key risks to our rating and target price include lower sales volume/margins, as well as a sector de-rating.