Investment advice
We believe that there is still a big gap in market expectations for the company's autonomous driving technology leadership and medium- to long-term profitability improvement. The 3Q22 company is expected to be catalyzed one after another: urban NGP planning OTA, G9 listing and delivery, and Guangzhou factory SOP; looking ahead to next year, integrated die-casting technology and mass production of third-generation model platforms are all expected to drive the company's profitability steps forward. We suggest poor expectations and medium- to long-term investment opportunities.
rationales
Expectations are poor 1. The market is not yet fully aware of the pace and experience of mass production of urban NGP: we believe that the renewal of urban NGP progress is expected to be the core catalyst for stock prices. The reason is: 1) In low-level autonomous driving, the technical advantages of the company's full-stack self-research did not make the market and consumers feel obvious technological differences; 2) It is expected that mass production of urban NGP will be reflected in obvious differences in indicators such as user experience, city coverage, and road condition handling capacity, based on the company's deep technical reserves. Win the intellect First batch of tickets for half time.
Expectations are poor 2. The market's interpretation of the company's software payment model is overly pessimistic: we believe that canceling software payments in the current period does not mean that the autonomous driving profit model is difficult to run, but rather that the company intends to lower the usage threshold -> increase software penetration rate-> cultivate user habits+data accumulation speed up algorithm iteration to accumulate large-scale users for the mass production of subsequent xPilot4.0 software versions and achieve leadership in advanced autonomous driving. From a financial perspective, while the software charges were abolished, the company abolished free charging and free home charging benefits. Furthermore, the proportion of high-spec models sold increased markedly. We think the impact on gross margin was neutral and optimistic.
Expectations are 3. From leading smart driving to accelerated surpassing of electrification and traditional car building technology: starting with G9, a number of flagship technology plans took the lead in mass production. We expect the company to rely on leading technological advantages to further close the product power gap. Furthermore, in the subsequent new platform, the company plans to achieve independent design and deep integration of hardware, and carry out deep horizontal cross-domain technical capability integration for smart driving, cockpits, chassis, power systems, etc., which is expected to improve comprehensive technical strength and reduce costs.
Expectations are poor 4. The new platform is expected to drive structural improvements in profitability in the medium to long term: the current market is concerned that under conditions where the company leads in delivery volume, the gross margin of automobile sales is still at a low level of 10+%. We believe that the company's current low gross margin is mainly limited by the age of the existing model platform. In the short term, the increase in gross margin comes from the release of models such as P7 and G9 driven by product structure improvements. In the medium to long term, it comes from the combined promotion of various factors such as reduced procurement costs, new manufacturing processes, and especially new platforms.
Profit forecasting and valuation
The current stock price corresponds to 4.8/2.0 times EV/revenue for 2022/23, which remains unchanged in outperforming industry ratings and profit forecasts. Considering the upward sector valuation and the strong valuation catalyst of urban NGP, the target price of US and Hong Kong stocks was raised by 45.2%/43.9% to 45 US dollars/177 Hong Kong dollars respectively. There is room for 28%/30% of the current stock price, corresponding to 6.1/2.6 times EV/revenue of 2022/23.
risks
The pandemic and chip shortages have affected production and sales; new car launches have fallen short of expectations.