Report summary:

Deeply involved in the ETC industry, high performance growth was driven by policies in 2019. Wanji Technology started with intelligent sensing and dynamic weighing in the ETC industry. In 2019, it benefited from the “abolition of provincial toll gates on highways across the country” policy. The company's ETC sales volume surged, and performance jumped. In that year, the company's car-side ETC sales reached 28.631 million units, and the number of roadside RSU antennas sold reached 33,945 sets. In 2020-2022, we returned to a stable development stage. Since the main ETC business is cyclical, the company actively lays out a second growth curve for V2X, lidar, automotive electronics, etc.

The V2X industry has a market space of 10 billion dollars, and 10,000 units are expected to benefit the core. V2X mainly benefits from policy drivers. According to China's launch of the “Intelligent Connected Vehicle Technology Roadmap 2.0” in November 2020, the assembly rate of China's V2X terminals is expected to reach 50% in 2025. Recently, the Ministry of Industry and Information Technology's pilot document autonomous driving road application puts forward clear requirements for the V2X infrastructure layout. We believe that the V2X industry is about to expand. We estimate that the V2X roadside RSU market is expected to reach 13 billion yuan in 2025.

Considering that the V2X vehicle side and roadside equipment have the same roots as ETC, the underlying logic is similar, and the downstream purchaser is consistent, we believe that V2X will develop in the form of ETC-V2X dual mode within the next 3-5 years, so the V2X equipment circuit is expected to continue the competitive pattern in the ETC sector, and Wanji is expected to benefit the core.

Lidar quickly penetrated with L3 autonomous driving, and 10,000 episodes were released first. We believe that long-term autonomous driving solutions tend to be lidar. Based on pure vision solutions, since the collected data is limited to visual data, it is easy to misjudge road conditions in low light/extreme weather. Furthermore, from the perspective of delivery volume, collected data volume, computing power, financial strength, etc., we believe that autonomous driving solutions with pure visual algorithms are still dominated by Tesla in the short term, and domestic manufacturers tend to use lidar. L3 autonomous driving and price reduction are expected to open up lidar market space. According to our statistics, lidar has become “standard” for models over 300,000 yuan. According to insight consulting, the lidar industry CAGR is expected to reach 103% in 2022 to 2030. Wanji itself had an early deployment of roadside lidar and robotic lidar. Currently, the company has mass-produced 8-line, 32-line, and 64-line mechanical lidars, and the 128-line mirror lidar has received a confirmation letter in 2023. In the context of tight financing, the company's monetary capital and cash flow from operating activities are superior to those of companies in the same industry, and it is expected that technological breakthroughs will be made quickly.

Profit forecast: The performance of intelligent driving and lidar two-wheel drive companies will increase. We expect the company to achieve revenue of 9.16/11.92/1,552 billion yuan in 2023-2025, respectively, and the corresponding PS is 5/4/3 times, respectively. A PS valuation of 4 times the operating income of 2024E was given, corresponding to the target price of 22.4 yuan. It was covered for the first time, and a “buy” rating was given.

Risk warning: progress in L3 autonomous driving falls short of expectations; profit forecasts and valuation models fall short of expectations