Description of the event

Changan issued an announcement stating that Avita Technology, a joint venture of Changan Automobile, plans to sign an “Equity Transfer Agreement” with Huawei in Chongqing on the morning of August 20, agreeing that Avita Technology will purchase 10% of Huawei's shares. The transaction amount is RMB 11.5 billion.

Incident comments

On August 19, 2024, Changan Automobile revealed the latest developments in the “Memorandum of Investment Cooperation” of cooperation with Huawei. Changan Automobile Joint Vita Technology plans to sign an “Equity Transfer Agreement” with Huawei in Chongqing on the morning of August 20, agreeing that Avita Technology will purchase 10% of Huawei's shares. The transaction amount is RMB 11.5 billion. The investment will be made through Avita's own capital, and the transfer price will be paid in 3 installments. After this transaction, Avita Technology's shareholding ratio was 10%, and Huawei's shareholding ratio was 90%.

The share share share is lower than previously anticipated, but recent adjustments have already been reflected, and the company still has additional investment rights in the future. Changan invests in Avita Technology, with a pre-investment valuation of 115 billion yuan, and Avita invested 11.5 billion to hold 10% of Avita's shares, making it currently the second-largest shareholder. As an important strategic partner of Huawei and Avita Hope, in this transaction, Avita will receive 1 seat on the board of directors. The implementation of the cooperation is expected to help Avita gain more empowerment from Huawei and strengthen the Avita brand. This transaction marks the strengthening of Changsecurity's strategic cooperation with Huawei.

Avita is built on the CHN platform co-created by Changan, Huawei, and Ningde Era. It has the three characteristics of “new architecture, strong computing, and high-voltage charging”. Huawei HI provides cutting-edge solutions for full-stack smart cars. Currently, Avita has two main models on sale. The Avita 11 is a medium to large SUV, selling at a price of 0.3008-0.3908 million yuan, with cumulative sales of over 0.026 million units until June 2024; the Avita 12 is a medium to large sedan, selling at a price of 0.2658-0.4008 million yuan, and has sold more than 0.02 million vehicles until June 2024. Looking ahead, the 2024Q3 will enter an intensive new vehicle cycle. The Avita 11&12 extended-range version, and the Avita 07, 15, and 16 will be launched one after another, continuing to improve the product matrix and further enhance the brand's competitiveness.

The company's new car cycle is strong, and the transformation of electric intelligence is accelerating, driving sales to continue to improve. The company is still in a new energy transition period, and the gradual realization of sales volume is currently the focus. The new energy product cycle begins, and with the launch of new vehicles, it will strongly drive sales growth, and the increased scale effect is expected to further enhance profitability. Intelligent transformation is progressing steadily, and cooperation with Huawei in the field of intelligence continues to be deepened; the pace of global layout is clear, and overseas production capacity continues to be built. The company's intelligent electric transformation is advancing at an accelerated pace, and expectations of increased sales continue to drive performance. The estimated net profit for 2024-2026 is 8.52, 11.09, and 13 billion yuan, and the corresponding PE is 14.0X, 10.7X, and 9.1X, respectively, maintaining a “buy” rating.

Risk warning

1. Market demand performance is lower than expected;

2. Increased competition in the industry weakens corporate profits.