Maintain BUY. Leapmotor posted a net profit of RMB163mn in 2Q25, beating our forecast by RMB115mn. We expect its strong sales momentum to continue throughout FY26E, aided by new models rollout and overseas production. The B01 sedan could be well received given management’s 3Q25 sales volume guidance. The success of the C16 also gives us more confidence in its upcoming D-series models. We raise our FY25-26E net profit forecasts by 220%/129% to RMB927mn/3.3bn, respectively, amid greater economies of scale and more meaningful contribution from high-margin other revenue.
　　2Q25 earnings beat on higher GPM and other income. Leapmotor’s
　　2Q25 revenue rose 42% QoQ to RMB14.2bn, in line with our prior forecast.
　　Gross margin in 2Q25 only fell 1.3ppts QoQ to 13.6% despite wider discounts amid model transition and prolonged price war, 0.9ppts stronger than our estimates. Leapmotor achieved a positive operating profit of RMB61mn in 2Q25, the first time in history, partially aided by government grants. Although we projected a positive net profit in 2Q25, it still beat our forecast by RMB115mn.
　　Strong sales momentum throughout FY26E. Management’s guidance of
　　170,000-180,000 units in 3Q25, or a monthly volume of 60,000-65,000 units in Aug-Sep, was stronger than our prior expectation. We raise our FY25E sales volume forecast by 50,000 units to 0.6mn units, following such strong sales momentum. The new D-series SUV is scheduled to debut in Oct 2025 and start deliveries in 1Q26, which is earlier than we had expected. The success of the C16, a typical example to showcase Leapmotor’s value-for- money brand image, gives us more confidence in its D-series models. We project its strong sales volume growth to continue in FY26E with our new forecast of 0.9mn units (+50% YoY), as overseas sales volume could also double YoY in FY26E with local production in Malaysia and Europe.
　　Sustainable profit to start from FY25E. We raise our FY25E GPM
　　forecast by 1.6ppts to 14.5%, following the beat in 2Q25. We believe greater economies of scale and more meaningful high-margin other income (CO2 credits and income from strategic cooperation with other automakers) could continue to drive GPM higher in 2H25E and FY26E. We revise up our FY25E net profit forecast by 220% to RMB927mn. We also project FY26E net profit to surge 257% YoY to RMB3.3bn in FY26E.
Valuation/Key risks. We maintain our BUY rating and raise target price from HK$72.00 to HK$80.00, based on 1.1x our FY26E P/S (prior 1.5x FY25E P/S). Our target price also corresponds to a 30x FY26E P/E and 22x FY27E P/E. We are of the view that such target P/Es are justified given its high growth potential. Key risks include lower sales volume/gross margin than we expect, as well as a sector de-rating.