Occupy the ADAS front supply high growth track, the layout of millimeter wave radar to enhance the competitiveness of ADAS.
Suzhou Zhihua, the holding company of the company, with its own brand vehicle factory as its main customer base, is committed to the R & D and sales of camera-based ADAS and driving recorders. In addition, the company recently established a joint venture holding company Kymati GmbH, which specializes in the research and development of millimeter wave radar and is expected to master the independent production process of millimeter wave radar and accelerate the promotion of high-grade ADAS products such as AEB. We believe that the growth prospect of China's ADAS market is huge (estimated that 2017-2030E Cagr is about 22.2%). We are optimistic about Suzhou Zhihua's ADAS development and the long-term business coordination driven by millimeter wave radar.
Wholly-owned acquisition of communications module giant Telit vehicle business, improve the V2X layout. In July 2018, the company acquired the Telit vehicle communication module business (Telit,2017 market share is about 5%) for US $105 million (corresponding to about 8.8 x 2018E P/EBITDA). Telit mainly supplies 2G/3G/4G LTE/4.5GLTE-An on-board communication modules, and its customer base includes global first-class auto parts suppliers and whole vehicle factories. We believe that the in-vehicle communication module is the basic hardware of the end layer of the vehicle networking industry chain (it is estimated that the domestic 2017-2030E Cagr is about 20.0%). We are optimistic about the growth prospect of Telit product extension / business expansion. The company will officially merge its Teliet business in 2019, which is expected to lead to a turnaround.
Participate in the construction of a national demonstration cloud control platform and achieve a high degree of coordination with other businesses. The company's cloud control business includes the development of intelligent network-connected automobile cloud control platform technology, the promotion of cloud control platform construction, and road infrastructure upgrade / development of high-precision map dynamic maintenance technology. We believe that the company has a first-mover advantage in platform construction / planning, and the landing of the cloud control project is expected to have a high degree of coordination with the company's increasingly rich ADAS product line / millimeter wave radar, as well as vehicle communication modules, so as to improve the industrial chain layout of its automobile intelligent network connection. We expect that the software development of cloud control platform / roadside equipment procurement is expected to bring higher gross profit margin and become the main driver of the company's performance growth.
"overweight" rating for the first time: we expect the company 2018E-2020E 's fully diluted EPS to be about HK $0.10, respectively, and the current share price to be about 23.1x/6.3x, corresponding to 2019E/2020E PE. We believe that the current valuation does not fully reflect the growth potential of the company's ADAS/ millimeter wave radar / cloud control business and the turnaround outlook driven by Telit consolidation in 2019. We are optimistic about the medium-and long-term business growth trend of 872.HK, covering the target price of HK $0.75 for the first time (corresponding to about 26.0x 2019e PE/ 7.0x 2020E PE) and giving an "overweight" rating.
Risk tips: exchange rate risk, downstream demand risk, policy risk, R & D risk, liquidity risk