On track to book another year of strong growth

Leapmotor (9863 HK) On track tobookanother year of strong growth Maintain BUY.We view Leapmotor’s 1Q26 earnings as largely in line and its2Q26 sales volume and GPM guidance as positive. We project its D-series salesvolume to be 0.1mn units in FY26E and we revise up FY26Etotalsales volumeforecast by 8% to 0.97mn units due to strong overseas sales.We believeLeapmotor is still better positioned than most peers amid industry headwindswith itsstrong sales momentum. We stay neutral to its upcoming new brand fornow, awaiting more details. Target PriceHK$60.00Up/Downside32.7%Current PriceHK$45.22 China Auto Wenjing DOU, CFA(852) 6939 4751douwenjing@cmbi.com.hk 1Q26 earnings largely in line.Leapmotor’s 1Q26 revenue rose 8% YoY,or 1% higher than our prior forecast.GPM in 1Q26 fell 5.7ppts QoQ to 9.4%,or 2.4ppts lower than our forecast, likely due to lower-than-expected otherincome and diseconomies of scale. SG&A and R&D expenses werealsohigher than our projection, which was offset by greater government grants.Net loss of RMB390mn was about RMB23mn better than our forecast. Ji SHI, CFA(852)3761 8728shiji@cmbi.com.hk Austin Liang(852) 3900 0856austinliang@cmbi.com.hk Strong 2Q26 outlook.Management projects sales volume of0.24-0.25mnunits and GPM of 12-13% for 2Q26E during the earnings call. We view suchguidance as positive and we estimate Leapmotor to post an all-time highnet profit in 2Q26E. That gives us more confidence in itsFY26Eprofitability. Stock Data Overseas sales to contribute meaningful profit from FY27E.We reviseup Leapmotor’s FY26 sales volume forecast by 70,000 units to 0.97mnunits, largely due to stronger-than-expected overseas sales. Although theprofit contribution could be limited in FY26E as GPM for vehicles sold toLeapmotor International JV was lower than China market’s and the JV stillneeds time to ramp up, we expect the JV to contribute an equity income ofRMB871mn in FY27E with a sales volume of 0.28mn units. In addition, GPMfor vehicles sold to the JV would be higher than now from FY28E, accordingto the agreement with Stellantis (STLA US, NR).Revenue from other automakers could be underestimated.It appears that Leapmotor has been sacrificing profits from overseas due to thestrategicpartnershipwith Stellantis. We believe that such sacrifice is thefoundation of deeper and wider cooperation and could be more than offsetby other sourcesof income.It appears to us that the cooperation with FAWis also on the right track.Valuation/Key risks.We cut our FY26E net profit forecast by 3% to RMB3.5bn largely due to higher overseas sales.We revise up FY27E netprofit forecast by 10% to RMB5.0bn. We maintain our BUY rating and targetprice of HK$60.00, still based on 21 our FY26E P/E. Key risks to our ratingand target price include lower sales/GPM than we expect, as well as asector de-rating. Source: FactSet Disclosures& Disclaimers Analyst CertificationThe research analyst who is primary responsible forthe content of this research report, in whole or in part, certifies that with respect to the securities or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about the subject securities or issuer; and (2)no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific views expressed by that analyst in this report.Besides, the analyst confirms that neither the analyst nor his/her associates (asdefined in the code of conduct issued by The Hong Kong Securities and Futures Commission) (1) have dealt in or traded in the stock(s) covered in this research report within 30 calendar days prior to thedate of issue of this report; (2) willdeal in or trade in the stock(s) covered in this research report 3 business days after the date of issue of this report; (3) serve as an officer of any of the HongKong listed companies covered in this report; and (4) have any financial interests in the Hong Kong listed companies covered in this report. CMBIGM RatingsBUY : Stock with potential return of over 15% over next 12 monthsHOLD: Stock with potential return of +15% to-10% over next 12 monthsSELL: Stock with potential loss of over 10% over next12 monthsNOT RATED: Stock is not rated byCMBIGM :Industry expected to outperform the relevant broad market benchmark over next 12 months:Industry expected to perform in-line with the relevantbroad market benchmark over next 12 months:Industry expected to underperform the relevant broad market benchmark over next 12 months CMB InternationalGlobal MarketsLimited Address: 45/F, Champion Tower, 3 Garden Road,Hong Kong, Tel: (852) 3900 0888 Fax: (852) 3900 0800CMB InternationalGlobal MarketsLimited (“CMBIGM”) is a wholly owned subsidiary of CMB International Capital Corporation Limited (a wholly ownedsubsidiary of China Merchants Bank) ImportantDisclosuresThere are risks involved in transacting in any securities. The information contained in this report may not b