Key points of investment:
1. Incidents
Recently, the company released its 2017 annual report. In 2017, the company achieved operating income of 1.5 billion yuan, an increase of 57.64% over the previous year; the net profit returned to the mother was 140 million yuan, an increase of 85.81% over the previous year.
At the same time, the company released a report for the first quarter of 2018. During the reporting period, the company achieved operating income of 399 million yuan, an increase of 63.92% over the previous year; the net profit returned to the mother was 28.39 million yuan, an increase of 35.80% over the previous year.
2. Our analysis and judgment
(1) Performance is growing steadily, overseas revenue is growing faster, and R&D investment is increasing
In 2017, the company's performance achieved steady growth, which was in line with overall expectations. The company achieved significant growth in operating income and net profit, mainly due to the rapid growth of the front-loading business and the merger of the company's acquisitions of Sanqi Communications, Inca Technology, and Shanghai Hangsheng. Among the main revenue, the company's vehicle information system product revenue increased 34.22% year-on-year. By region, the company's domestic and overseas revenue increased by 38.91% and 90.26%, respectively.
During the reporting period, the company's gross sales margin increased by 2.96 percentage points compared to last year, to about 33.37%; the cost rate for the period decreased by 1.05 percentage points, and overall cost control was good. The company invested 116 million yuan in R&D, an increase of 138.48% over the previous year. The share of total R&D investment in operating income increased by 2.63% compared to last year, mainly due to the company's increased investment in front-loading business and the higher proportion of R&D investment in Sanqi Communications and Shanghai Hangsheng in operating income.
(2) Intelligent driving is driven by policies, and the company's smart cockpit and market development are expected to become new growth points
In January 2018, the National Development and Reform Commission announced the “Smart Vehicle Innovation and Development Strategy” (draft for comments). It is planned that by 2020, smart cars will account for 50% of new smart cars, and that mid-level smart cars will be marketed. We believe that the main application of new cars is L2 level autonomous driving, and it is expected that ADAS systems will experience an explosion of demand. The company successfully set up the first fully automatic smart cockpit production line in the domestic industry in July 2017 and launched the first generation of smart cockpit products. The company has increased R&D investment in deep learning, millimeter wave radar, computer vision, visual radar integration, etc., and has formed autonomous driving product systems such as forward ADAS systems based on monocular vision, in-vehicle ADAS systems, vehicle full blind spot management, and millimeter wave radar.
In terms of market development, the company will continue to increase investment in domestic and overseas front-end markets and commercial vehicle networking solutions. In the domestic front-end market, the company plans to gradually move from the front-end market dominated by independent brands to the front-end market dominated by joint venture brands on the basis of expanding the share of existing front-end customers. In the overseas front-end market, the company will draw on the experience of cooperating with Japan's Fujitsu Sky and strive to enter a global supplier system for first-tier overseas brands represented by Toyota and Honda. At the same time, the company will continue to increase investment in commercial vehicle networking research and development to gradually develop comprehensive application solutions for the Internet of Vehicles industry, such as buses, taxis, logistics vehicles, school buses, long-distance buses, police cars, engineering vehicles, etc.
3. Investment advice
After years of hard work, the company has gradually transformed from a mainly future installation business to a business model based on the previous installation business, and has become a company with the world's leading integrated vehicle intelligence solution of “CID System+Internet of Vehicles Service+Autonomous Driving System”. The company's domestic front-loading business will continue to grow rapidly in 2018, and smart cockpits and market development are expected to become new growth points. The company's net profit for 18-19 is estimated to be 241 million yuan and 308 million yuan respectively, and the EPS for 18-19 is 0.57 and 0.73 yuan respectively, maintaining the “recommended” rating.
4. Risk warning
(1) Risk of increased market competition (2) Risk that new business progress falls short of expectations
