Review: Valuation is relatively low, and performance growth is highly deterministic. Revenue profit: The rate of revenue and profit growth after 2022 is well in line with the GDP growth rate. We believe the correlation between the two is expected to decline as the company's overseas revenue volume continues to grow. Furthermore, the company's current revenue volume and market share are still at a low level in the global market, and there is huge room for future growth, which is expected to become an important source of growth for the company in the future. Valuation level: Since 2021/Q2, the company's valuation changes are highly compatible with the intelligent driving sector's valuation changes. Since 2024 Q4, sector hot+company valuation has declined. Based on this report's 2024 profit forecast of 570 million, PE is currently at the bottom of historical relative valuation, and the margin of safety is high.
Emerging businesses have been launched one after another, and the domestic business environment continues to be iterated, and the domestic business environment is marginally improving emerging businesses: RTK achieved major breakthroughs in 2010, and began combining high-precision positioning technology with various applications to enter deformation monitoring in 2009; entered precision agriculture, 3D lasers, etc.; acquired Tianchen Lida in 2014 to further develop precision agriculture and digital construction; increased capital in Wuhan Smart Bird in 2018 to strengthen drone capabilities; announced the passenger car intelligent driving business in 2021.
Traditional business: Multi-star multi-frequency RTK was launched in 2008; Weigen Group RTK was launched in 2018; lightweight and compact pocket RTK was launched in 2020; AR visual RTK was launched in 2022; video RTK pioneered non-contact measurement in 2023; SLAM&RTK products were released in 2024, integrating lidar and RTK. Marginal improvement: The main application areas of the company's RTK products are building construction, surveying and mapping, etc., and the key investment direction of trillion treasury bonds, such as earthquakes and dam monitoring, was deployed early, and is expected to benefit deeply.
Going overseas+low altitude economy+intelligence to build three main lines of growth
Main line 1: Overseas markets are characterized by large space, high gross profit, and high growth rate. In 2023, Huazu Navigation's share of overseas revenue has reached 27%, and the gross margin is nearly 20 pct higher than the domestic market. Currently, it has a presence in non-North American markets. Based on current volume, its overseas market share is still low, and there is plenty of room for growth in the future. Main line 2: The low-altitude economy is expected to significantly increase the demand for 3D smart devices. The company's 3D intelligent products have now basically completed domestic replacement of core devices and product refinement, and the development of the low-altitude economy will significantly raise the demand for high-precision 3D maps, which is expected to drive the growth of the 3D surveying and mapping equipment business. Main line 3: There are differences in sensors that are relied upon for intelligence in different scenarios, but as the degree of intelligence increases, there are higher requirements for the accuracy of data collected by external sensors, and multi-sensor fusion will also greatly reduce the difficulty of decision-making. At present, the focus is on areas such as assisted driving of agricultural machinery and intelligent driving of passenger cars.
Yunxin Network-side integrated layout, enhanced technology same-source collaboration
The company has a layout in the fields of high-precision positioning terminal integration, core algorithms, SWAS enhanced networks, basic devices, cloud services, etc. Currently, the cloud, network, and terminal have the same origin, which greatly enhances the user experience of terminal products and enhances accurate cost control capabilities. For example, there was a large-scale price war in the agricultural machinery auxiliary driving equipment industry in 2021. The gross margin of the company's resources and utilities sector fell by only 7.26 pct, and quickly returned to normal in 2022. In 2020, the chip successfully developed itself or played a critical role in cost optimization. We believe that as the company's capabilities in core devices such as chips continue to improve in the future, the improvement of the company's overall strength is expected to be further strengthened.
Investment advice and profit forecasting
According to the company's 2023 annual report, the net profit operating target for 2024 is 550 million yuan, +25% over the same period last year, which is higher than the target growth rate in 2023, or reflects a more optimistic business environment in 2024 than in 2023. After the review in 2020-2023, the company's profit and operating target was at least 98%, and the level of confidence was high. We expect the company to achieve net profit of 570, 7.55, and 1,004 million yuan in 2024-2026, +27%/32%/33% over the same period last year. The corresponding valuation is 28x/21x/16x. We focus on recommending and maintaining a “buy” rating.
Risk warning
1. Overseas market expansion falls short of expectations;
2. Intelligent upgrades in key industries fall short of expectations.