Bronco is one of the originators of off-road vehicles (ORVs) and one of the hottest-selling ORVs in the US, with over 100k annual sales in the market, ranking third among all ORV models. We believe that Bronco has a good chance to become a new hit in the domestic ORV market due to its high-cost performance, tough off-road capability and reputation as a legendary ORV after localization. As Bronco’s average selling price (ASP) is much higher than Jiangling’s other models, with visible high sales growth, it may release greater profit elasticity under the high operating leverage. Jiangling is likely to become Ford’s production base of ORVs, pickup trucks and other models in China, and its product tone and profitability may be significantly improved. We raise the net profit forecast in 2023E/24E/25E to Rmb1.19bn/1.93bn/2.80bn, and assign 12x-14x 2024E PE to derive the target market cap of Rmb24bn-26bn. Upgrade to "BUY" rating.

The US hardcore ORV Bronco relaunched in 2021 and ranking among the top three by sales in the US ORV market.

The Bronco marks Ford’s first-ever ORV, and it stands as one of the earliest and bestselling off-road models globally, originating in 1966 and temporarily discontinued in 1996. In 2021, Ford unveiled the sixth-generation Bronco, positioning it as a flagship model in the US ORV market. It competes directly with the Jeep Wrangler, solidifying its legendary status in the field. The sixth-generation Bronco retains the distinctive design features of its predecessor while incorporating contemporary enhancements, resulting in a more rugged appearance. Following its release, the Bronco received enthusiastic responses, with sales reaching 35k units in its debut year and skyrocketing to 117k units in the following year, reclaiming its dominance in the US ORV market. According to Marklines data for the 10M23, the top five best-selling ORVs in the US were Wrangler (135k units), 4Runner (97k units), Bronco (96k units), Tahoe (93k units), and Sorento (74k units). The US ORV market is highly concentrated, with the top five models accounting for over 50% of the entire market. The Bronco starts at a price of US$40,000 to 50,000, equipped with a standard 2.3L engine capable of delivering a maximum of 275 horsepower and 315 newton-meters of torque. Positioned as a mid-to-high-end ORV, the Bronco offers excellent value for money, meeting the needs of a broad range of off-road enthusiasts. It has gained immense popularity in the US, with scarce availability in the early days of its launch.

The upcoming domestically produced Bronco holds the potential to become the next popular ORV in the domestic market.

In Sep 2023, the Ford Bronco made its debut in the catalog of the Ministry of Industry and Information Technology (MIIT), signaling its imminent localization and production by Jiangling Motors. According to disclosures from the MIIT, the Jiangling Ford Bronco essentially replicates the design language of its overseas counterpart. The two configuration sizes are 4800/2070 (1990) /1990 (1840) mm, with a wheelbase of 2950mm for both. We anticipate that the Jiangling Ford Bronco is set to begin pre-sales in 4Q23, with official

deliveries expected in 1Q24. The current domestic ORV market is experiencing a surge in sales. According to data from the China Association of Automobile Manufacturers (CAAM), the sales of narrow-sense ORVs in China reached 208k units in 9M23. Among them, domestically produced vehicles accounted for 162k units (78%), while imported vehicles constituted 46k units (22%). Among domestic brands, the Tank series from Great Wall Motors (GWM) led the way with sales of 114k units in 9M23, capturing a commanding 71% of the domestic ORV market. Among the imported foreign brands, Prado, Pajero, Nissan Touareg and other models once occupied a high market share, but voluntarily withdrew from the Chinese market due to the implementation of the China VI emission standard. Following the post-pandemic supply chain adjustments, foreign ORV models led by the Ford Bronco are making a robust entry into the Chinese market through localization, offering a rare addition of high-quality supply from foreign brands. Considering the current explosive growth in domestic ORV sales, we believe that the potential for increased market demand, coupled with the introduction of the Bronco, could significantly contribute to Jiangling Motors’ market share.

Restructuring businesses and shifting focus to the light commercial vehicle brands JMC and Ford.

The Company is a joint venture (JV) between Jiangling Investment and Ford Motor, with 41% and 32% stakes, respectively. In order to improve operational efficiency, the Company temporarily suspended its heavy-duty truck (HDT) operations reduced investment in independent passenger car brands, and concentrated on the light commercial vehicle business in collaboration with Ford. In 2022, the revenue from light commercial vehicles accounted for approximately 70% of the total. The primary product lines consist of the independent brand JMC, primarily focused on light commercial vehicles, and the JV brand Jiangling Ford, with a focus on performance and passenger vehicles. According to data from the CAAM, the sales of Jiangling Ford brand vehicles reached 76k units in 9M23, accounting for 34% of the Company’s total sales. With the production and sales of models such as Ranger and Bronco, we anticipate that the proportion of Ford brand vehicles in the Company’s overall vehicle sales is poised to further increase.

Likely become a domestic production base for Ford’s ORVs, pickup trucks, etc.

At the Chengdu Motor Show in Aug, Ford unveiled a new China market strategy and announced the pre-sale of Ranger, the Jiangling Ford pickup truck model, and the new channel “Ford Beyond”. This channel incorporates flagship models such as Ranger and Bronco, aiming to create a top-tier off-road ecosystem. Ford plans to enter the Chinese market with ORVs, pickup trucks, and other performance models to build up a top-level ORV ecosystem. According to the Company’s announcement, by the end of 2022, its designed production capacity is 330k units, with a capacity utilization rate of 85.3%. Among them, the capacity utilization rates for non-load-bearing body production, including light commercial vehicles, pickup trucks, and light trucks, are 117.4%, 158.7%, and 69.8%, respectively. With double-shift production, there is still surplus capacity (Xiaolan plant) in the non-load-bearing body production capacity, and the Company has experience in producing non-load-bearing body models like Shaker, expecting no need for additional capacity expansion. Therefore, we believe that the production of Jiangling Ford Bronco and Ranger is not likely to significantly increase the Company’s depreciation and amortization (D&A), but with substantial profit flexibility. In the long term, the Company is likely to become Ford’s domestic production

base for ORVs, pickup trucks, and other performance models. Its product positioning and profitability are likely to see significant improvements.

Potential risks: Macro economy facing downside; less-than-expected sales recovery in the commercial vehicle segment; lower-than-expected consumer willingness in purchasing ORVs; Consumer acceptance of Bronco not up to expectations; slower-than-expected capacity ramp-up of Bronco.

Investment strategy: Bronco is one of the originators of ORVs and one of the hottest-selling ORVs in the US, with over 100k annual sales in the market, ranking third among all ORV models. We believe that after the localization of the Bronco, the pricing is likely to significantly decrease compared to its imported counterpart, ranging from Rmb500,000 to 800,000. The model may become a rare and quality addition to the market among foreign brands. Due to the expected relatively high ASP and correspondingly low depreciation and amortization (D&A), we expect that Bronco’s profitability will exhibit considerable flexibility.

Consequently, we raised our profit forecasts to Rmb1.19bn/1.93bn/2.80bn from the original forecasts of Rmb680mn/730mn/840mn in 2023E/24E/25E, corresponding to EPS forecasts of Rmb1.38/2.23/3.24. The Company has traded at 22x PE over the past three years. Considering the considerable increase in the profit base, the valuation level should be trimmed, hence we assign 12x-14x 2024E PE to the Company to derive the target market cap of Rmb24bn-26bn, and upgrade to “BUY” rating.