Key points of investment
The company is transforming the Internet of Vehicles service provider based on automotive testing and diagnostic products. The company is the first high-tech enterprise dedicated to the R&D, production and sales of automobile diagnosis, testing and maintenance products in China. Research and development of connected car related products began to be stepped up in 2013, strategic transformation began, and the first connected car product “Golo” was officially launched in February of this year, marking the first shot.
The main business returned to the growth channel, and net profit turned a loss into a profit. In 2013, the company focused on developing the automotive diagnostic equipment business with a high gross margin, shrinking the product line related to low gross margin, so that performance returned to the growth channel. According to the performance announcement issued by the company (unaudited), it achieved main business revenue of 673 million yuan throughout the year, an increase of 11.08% over the previous year. However, as the first year of transformation, the high investment in the development of connected vehicle technology products brought net profit of only 7 million yuan.
The automotive aftermarket is developing rapidly, and traditional businesses can be expected to grow. Production and sales in the Chinese automobile market are booming, and ownership has risen rapidly. At the end of 2013, it reached 137 million vehicles. The output value of China's automotive aftermarket is expected to increase to 700 billion yuan in 2015, making it the world's largest automotive aftermarket. The company's products are technologically advanced, rich in variety and good compatibility, and are expected to achieve a growth rate higher than the industry average in the future.
Using Internet thinking to create products to grab users, Golo helped the company seize the opportunity. Taking into account the increase in the penetration rate of connected vehicle applications and services, the increase in the unit price of connected vehicle equipment and ARPU for services, and the market increase brought about by the Internet model, the market space will be at the level of 100 billion dollars. The company's newly released Golo was founded for the second time with an Internet mindset. The product uses car diagnostics as the core function, and adds various functions such as car owner communities, driving records, and navigation to it in the form of a mobile app. The interface is friendly, easy to use, and the user experience is excellent. At the same time, the price of 299 yuan has a clear cost performance advantage compared to other Internet of Vehicles products, and sales prospects are worth looking forward to. We are optimistic that the company will use this to transform into an Internet of Vehicles service provider.
Profit prediction and ratings: We agree that the company is transforming into a connected car product service provider using the Internet mindset. We expect the company's EPS to be 0.13, 0.20, and 0.24 yuan respectively in 13-15 years, corresponding to the current stock price PE of 189.37, 123.09, and 101.96 times. Although short-term valuations are too high, considering that the company's market capitalization is small and has the potential to become a platform for the Internet of Vehicles, the first coverage gave a rating to increase holdings, and it is recommended to buy on dips.
Risk warning: The growth rate of the automotive aftermarket has declined, product promotion has not met expectations, and new technology has changed the direction of development of the industry.