Incident Overview

On August 17, Wanji Technology released its 2024 semi-annual report. In the first half of 2024, the company achieved operating income of 0.378 billion yuan, a year-on-year increase of 17.28%; net profit to mother was -0.15 billion yuan, a year-on-year decrease of 17.33%, after deducting non-return net profit of 0.158 billion yuan, a year-on-year decrease of 13.85%.

The revenue side of 24H1 picked up significantly, and there is still a lot of pressure on the cost side of 24H1's revenue side. By business, dedicated short-range communication, dynamic weighing, laser inspection, and intelligent connected electronic products achieved revenue of 2.39, 0.083, 0.038, and 0.017 billion yuan respectively, with year-on-year increases of 38.06%, 2.80%, -4.52%, and -35.93%, respectively. We believe that the biggest driving force behind the company's significant revenue recovery is that the automotive ETC-OBU business has come out of the bottom of the cycle and sales continue to pick up. It is expected that this trend will continue throughout the year. On the other hand, we have observed that there is still a lot of pressure on the cost side of the company. 24H1 gross margin was 28.09%, down 11.38 pcts from the same period last year, mainly due to increased market competition. Furthermore, in order to cope with vehicle-road cloud integration and the development of the highway business in the second half of the year, the company increased its market expansion efforts at 24H1, which led to a year-on-year increase in sales expenses.

Actively seize the opportunities of vehicle road cloud integration and digital transportation transformation and construction. On May 1, 2024, the Ministry of Finance and the Ministry of Transport jointly issued the “Notice on Supporting and Guiding the Digital Transformation and Upgrading of Highway and Waterway Transport Infrastructure”. According to the notice, starting in 2024, about 30 demonstration areas will be formed in about 3 years, and efforts will be made to promote the digital transformation and upgrading of about 85% of busy national highways, 25% of busy ordinary national highways, and 70% of important national high-grade waterways. In addition, the notice also clarifies the specific method of financial subsidies, that is, allocating funds according to a “combination of rewards and supplements”. The maximum limit for the highway sector is 1 billion yuan, and the maximum limit for the waterway sector is 0.2 billion yuan. We believe that this “Notice” is quite clear in terms of financial support, project goals, implementation time, etc., and is expected to bring a new round of construction opportunities to digitize transportation. On July 3, 2024, the five ministries and commissions “Notice on Announcing the List of Pilot Cities for Intelligent Connected Vehicle “Vehicle-Road Cloud Integration” applications. Twenty cities (consortia) including Beijing, Shanghai, and Chongqing were selected, and cities such as Beijing, Wuhan, Hangzhou, Ordos, and Fuzhou have successively opened project tenders. We believe that the recent intensive promotion of “vehicle road cloud integration” construction in several cities marks the “Notice on Launching Pilot Work on the Application of “Vehicle Road Cloud Integration” jointly issued by the Ministry and the Commission on January 5, 2024, entering the actual construction cycle.

As a leading enterprise in the domestic intelligent transportation industry, on the one hand, the company has a deep layout in roadside equipment such as ETC, lidar, and V2X antennas. On the other hand, it has also participated in many intelligent construction projects, including the first smart highway with continuous tracking of the entire road section in China - Chongqing Yuxiang Expressway, Zhejiang Digital Twin Tunnel Construction Verification Key Pilot Project - Hangzhou-Jinqu Expressway, Zhejiang Xinling Tunnel, and the first smart toll demonstration station in Shandong Province - Gushan toll gate, etc. We believe that with a comprehensive product line layout and rich project experience, the company can actively seize the opportunities of vehicle road cloud integration and digital transportation transformation and construction.

Investment advice:

The company is a leading enterprise in the domestic intelligent transportation industry. Currently, the ETC business is at the bottom of the cycle, driving performance improvement, and superimposing opportunities for vehicle-road cloud integration and digital transportation transformation and construction. We expect the company's revenue for 2024-2026 to be 1.241/1.929/2.707 billion yuan, and net profit of -0.211/-0.008/0.208 billion yuan, respectively. Maintaining the buy-A investment rating, the target price for 6 months is 34.96 yuan, which is equivalent to 6 times the dynamic market sales ratio of 2024.

Risk warning: 1) ETC front-end penetration falls short of expectations; 2) the company's lidar development progress falls short of expectations; 3) policy implementation falls short of expectations; 4) V2X promotion progress falls short of expectations.