Maintain BUY. We view Leapmotor’s 3Q25 vehicle gross margin of 13.3% as resilient, although its net profit of RMB150mn missed our expectation due to lowerthan- expected other revenue. We believe Leapmotor could accomplish both of its sales volume and net profit targets in FY25E, and expect its strong sales momentum to continue throughout FY26E. We project its overseas sales volume to more than double YoY in FY26E while domestic sales could be fuelled by two A-series and two D-series models. FY26E NP may surge 4x YoY to RMB3.5bn, based on our estimates.
3Q25 profitability of auto business still solid. Leapmotor’s 3Q25 revenue rose 37% QoQ to RMB19.5bn, stronger than our prior forecast by 5%, due to higher-than-expected average selling price. Gross margin in 3Q25 rose 0.9ppts QoQ to 14.5%, lower than our forecast, as other revenue including CO2 credits in Europe and service income from FAW missed. The SG&A and R&D expense ratios combined fell 1.8ppts QoQ to 14.3% in 3Q25, largely in line with our forecast. Its 3Q25 net profit remained largely flat QoQ at RMB150mn, lower than our expectation, mainly due to non-auto businesses.
4Q25E earnings could be more resilient. We revise up our FY25E sales volume forecast by 20,000 units to 0.62mn units, implying 4Q25E sales volume of 224,000 units (+29% QoQ). We project 4Q25E net profit to surge 4.5x QoQ to RMB677mn after taking into account the potential income from CO2 credits of RMB500mn.
Strong sales momentum to continue in FY26E. Leapmotor targets overseas sales volume to be 0.10-0.15mn units in 2026, which could be attainable in our view, as new orders already exceed 25,000 units in Oct-Nov 2025. We expect Leapmotor’s total sales volume to rise 52% YoY to 0.94mn units in FY25E, driven by the Lafa 5 and four brand-new models (two D-series and two A-series models). The pre-launch deposits for the brand-new D19, which had its debut on 16 Oct, have far exceeded management’s expectation. The success of B10 and B01 also gives us more confidence in its upcoming A-series. Therefore, we expect its FY26E net profit to surge 4x YoY to RMB3.5bn.
Valuation/Key risks. We maintain our BUY rating and cut target price from HK$80.00 to HK$73.00, based on 1.0x our FY26E P/S (prior 1.1x FY26E P/S), to reflect investors’ recent concerns about industrywide sales slowdown in 2026. Our target price also corresponds to a 28x FY26E P/E and 20x FY27E P/E. Key risks include lower sales volume/gross margin than we expect, as well as a sector de-rating.