Maintain BUY. We view Leapmotor’s 4Q25 earnings as largely in line and management guidance upbeat. We believe the upcoming two D-series models could be key to its margins and valuation, although A-series may contribute more sales volume. We maintain our FY26E sales volume forecast of 0.9mn units. We also expect revenue and profit from other automakers including R&D support, CO2 credits and component sales to beat market expectation.
4Q25 earnings largely in line. Leapmotor’s 4Q25 revenue rose 56% YoY to RMB21bn, 2% lower than our prior forecast. GPM in 4Q25 widened to the historical high level of 15.1%, in line with our projection. Vehicle GPM of about 12% was slightly lower than our forecast. Selling expenses in 4Q25 were higher than our estimates whereas G&A and R&D expenses were lower than expected, which led to an in-line R&D and SG&A combined ratio. Accordingly, net profit in 4Q25 reached RMB355mn, in the positive territory for three quarters in a row, or RMB68mn lower than our prior forecast.
D-series could be key to FY26E margins and valuation. We maintain our FY26E sales volume forecast of 0.9mn units, with the D19 SUV and D99 MPV combined contributing 0.1mn units. We are of the view that our sales volume assumption for the D-series is crucial to our forecast of vehicle GPM lift (FY25: 12.2%, FY26E: 12.7%) and 2% YoY growth in vehicle average selling price in FY26E, despite industry headwinds with rising component prices. D-series could also be crucial to Leapmotor’s valuation, in our view, as such success could convince investors that the automaker could go upscale and seize larger market share with wider price range.
Income from other automakers could be higher than expectation of some investors. We expect Leapmotor’s revenue from R&D support, CO2 credits and sales of components to be RMB3.5bn with a blended GPM of 70%, which is another reason for FY26E GPM lift and a significant portion of net profit in FY26E. We believe such income could even provide a positive surprise in FY26-27E. We also expect the joint venture with Stellantis (STLA US, NR) to contribute meaningful profit from FY27E, offsetting Leapmotor’s lower GPM from overseas sales.
Valuation/Key risks. We revise up our FY26E/27E net profit forecasts by 20%/2% to RMB3.6bn/4.6bn, respectively. We maintain our BUY rating but cut target price from HK$73.00 to HK$60.00, based on 21x our FY26E P/E. We change our valuation method from P/S to P/E given its positive net profit outlook from FY26E. We lower our multiples to reflect current market sentiment. Our target price corresponds to 16x our FY27E P/E. Key risks to our rating and target price include lower sales/GPM than we expect, as well as a sector de-rating.