The year 2024 marks a significant policy year for the two-wheeled electric vehicle industry. The Ministry of Industry and Information Technology (MIIT) has initiated the revision of new national standards, with the formal implementation of the "Regulations on the Standardization of the Electric Bicycle Industry" and the enforcement of the mandatory new national standard for "Safety Technical Specifications for Lithium-ion Battery Packs for Electric Bicycles." The increase in industry barriers is expected to lead to higher concentration and also create development opportunities through a new round of product and service upgrades.

On August 30th, Green Source Group Holdings (hereinafter referred to as "Green Source") released its interim financial results for 2024, with revenue reaching 2.334 billion yuan, a year-on-year increase of approximately 3.2%; gross profit was 303 million yuan, a year-on-year increase of about 2.5%; profit for the period was 66 million yuan, a year-on-year increase of about 9.6%, indicating a steady growth in Green Source's overall business performance in the first half of the year.

With a strong technological barrier, the first-half performance further validates growth potential. The financial report for the first half of 2024 shows that despite intensified competition among the top players, Green Source continues to maintain growth, indicating that its market share is still increasing. Moreover, with the current business volume, the profit growth rate is faster than the revenue growth rate, reflecting Green Source's strong economies of scale and product competitiveness.

Looking back from the implementation of the new national standard in 2019, the industry has accelerated its clearance, and Green Source, as a leader, has maintained a clear alpha growth that outperforms the industry. According to statistical calculations, from 2019 to 2023, Green Source's revenue CAGR reached 15.30%, and the CAGR of profit attributable to shareholders reached 15.96%, maintaining an industry-leading level.

So, what are the deeper reasons for Green Source's ability to lead the industry for the long term and continuously increase its market share?

From an industry perspective, since 2019, the industry has accelerated its return to a "value war," with resources concentrating towards the top. Whether a company has technology is no longer the key factor in competition; instead, different technological routes and technological ecosystems determine the new industry landscape.

Whether it is new energy vehicles or two-wheeled electric vehicles, the three major electrical systems have always been the core. As the main cost part of electric vehicles, their performance and quality highly influence consumers' purchasing decisions. Green Source has chosen to firmly develop electric vehicle motors with liquid cooling technology, released the new generation of liquid cooling 2.0 system in 2023, and gradually explored the technological iteration of liquid cooling 3.0 and 4.0, and the liquid cooling technology will empower Green Source's entire category and product line.

It is worth noting that this year, Green Source has made significant breakthroughs in digital battery technology, achieving the maximization of battery performance through further software and hardware integration. In low-temperature environments, digital batteries still maintain excellent performance, with no reduction in winter endurance; in high-temperature environments, the design of digital batteries can protect the stability of their own structure, thereby improving battery safety and lifespan. Previously, the "Product Reliability Report" under the State Administration for Market Regulation pointed out that Green Source's digital batteries have superior safety.In the author's view, technologies such as liquid cooling and digital battery technology are used by Green Source to build two-wheeled electric vehicles with automotive-grade standards. Amidst the trend of high-quality development in the industry, upgrading products to durable goods can touch more consumers and stand out in the competition.

Therefore, the essence of Green Source's technological route is user-centered. Through independent research and development, Green Source continuously strengthens the performance, durability, safety, and intelligence of two-wheeled electric vehicle products in multiple dimensions, addressing long-standing industry-wide pain points and promoting the healthy development of the market. Reflected on the demand side, Green Source has brought product experience improvements through technology, which will ultimately lead to continuous performance growth.

As of June 30, 2024, Green Source has a total of 623 patents, with double-digit growth in R&D expenses, 38 new patent applications in the first half of the year, and 76 new patent authorizations. Based on the continuous rise in R&D reinforcement, Green Source will maintain the competitiveness of its products, thereby driving continuous sales growth.

In summary, through technological innovation to form a differentiated advantage, driving Green Source's performance to improve, and being able to further invest in technological innovation, it is evident that Green Source has entered the "snowball" moment. Combined with the expansion of the distribution network in the first half of the year, bringing service upgrades, and actively opening up the B-side market, the development potential is full.

How to view Green Source's potential from a value investment perspective?

Returning to value investment, what is the quality of Green Source? It is worth looking forward to the prospects from the following aspects:

On the policy side, recently, the nationwide large-scale equipment "trade-in" has stimulated the demand for renewal, and the state has introduced industry standards and management methods in a dense manner. It will become a trend for enterprise operating indicators to be strict, and it is expected that small and medium-sized enterprises will further clear out. This will clearly benefit enterprises with competitive advantages, and industry leaders represented by Green Source are expected to seize this development opportunity.

Not long ago, Green Source was selected as the white list of the Ministry of Industry and Information Technology, and it is one of the first four industry standard enterprises that meet the "Electric Bicycle Industry Standard Conditions". Under the trend of "trade-in", Green Source has enhanced the competitiveness of new products through technological innovation, invested more than 100 million yuan in technology benefits, carried out promotional activities around policies, and will seize more consumer renewal demands, and is expected to enjoy the dividends of industry development first.

According to Deloitte data forecasts, 62.1% of the electric two-wheeler industry's consumption demand in 2024 will come from replacement demand. According to data from the China Bicycle Association, last year China's two-wheeled electric vehicle ownership had reached 420 million. If calculated based on the number of households nationwide, every 5 households own about 4 electric two-wheelers, which can stably release a large scale of old car replacement demand.In the market segment, first consider the supply side. As the market enters a "value war," only independent research and development and intelligence can drive sales growth and brand premium. Looking at demand, for the C-end market, two-wheeled electric vehicles remain a necessity for medium and short-distance travel; for the B-end market, Tianfeng Securities points out that the rapid development of commercial applications such as instant delivery and shared mobility, which have a high dependence on electric two-wheelers, and the characteristics of high-frequency use, promote a shortening of the vehicle purchase and replacement cycle, bringing new demand to the electric vehicle market.

Through performance, it has been proven that Lv Yuan has the ability to supply high-quality products. Lv Yuan focuses on product quality and R&D investment, with strong strength to win in subsequent competition and continue to achieve a joint increase in business scale and quality.

On the corporate side, Lv Yuan's technical R&D strength brings a complete core technology matrix, which allows it to avoid technological homogenization and maintain an insurmountable competitive barrier in the head-to-head competition, thus possessing differentiated competitiveness. It can be seen that Lv Yuan, as an investment target, has a certain "scarcity."

Therefore, it is worth re-evaluating the intrinsic value of Lv Yuan.

Lv Yuan has accumulated and continuously improved business management strength, product strength, technical strength, etc., for many years. With the upgrading and expansion of production capacity, the scale effect continues to be released. Lv Yuan's multi-dimensional advantages are further demonstrated in front of more consumers, enjoying the dividends brought by policies, thus opening up a broad space for imagination.

At present, Lv Yuan's cash realization ability is becoming stronger, and its growth posture is particularly clear. For long-term investors, it will be a rare value opportunity.