Report highlights

At this stage, we have covered and given a “buy” rating. We have mainly seen the following changes in investment logic:

1) Tesla's autonomous driving accelerates into the commercial phase. Tesla is expected to officially launch Robotaxi on October 10 this year and take the lead in launching advanced FSD autonomous driving services in China and Europe on 25Q1. Along with the development of the FSD business, Tesla will speed up the construction of a computing power center. As a core supplier of Tesla's automotive PCB boards and Dojo computing power chip boards, the company is expected to benefit. Furthermore, the company is actively expanding domestic car manufacturers and has successfully entered industrial chains such as Jikrypton, Ideal, and Xiaopeng. With the support of the controlling shareholder Shunde Holdings, it is expected to further open up the domestic NEV market.

2) Dojo supercomputing brings flexibility in performance. Tesla's self-developed computing power chip Dojo was mass-produced in '23, but the cost and output were not ideal in the early stages due to TSMC's Info-SOW yield. Currently, there are signs that TSMC's process yield is improving, and Dojo chip production is expected to accelerate. Tesla may increase the use of self-developed Dojo chip platforms in its computing power center to replace accelerators from other manufacturers. According to Tesla's plan, the total computing power of the 24Q4 Computing Power Center will exceed 100 EFLOPS. As the main supplier of PCB boards for Tesla Dojo, the company is expected to develop greater revenue flexibility with the construction of the Tesla Computing Power Center.

3) Expand production to meet customer needs, and state-owned holdings help develop the domestic market. The first phase of the company's 3 million square meter production capacity project has a planned production capacity of 1 million. The production capacity of the second phase of the project is planned to be 1.5 million and will soon be put into operation. The planned production capacity of the third phase of the project is 0.5 million square meters, which will be promoted according to customer order requirements. After the overall project is completed, the production capacity of the Heshan headquarters will increase to 7 million square meters. Furthermore, the state-owned enterprise Shunde Holdings acquired 25.9% of the company's shares as the controlling shareholder. The company is expected to use the industrial resources of state-owned enterprises to further open up the state-owned market and achieve domestic and external two-wheel drive development.

Investment advice and profit forecasting

In a neutral/upward situation, the company is given a 20x/25x valuation, corresponding to a target price of 26/33 yuan/share, respectively.

Risk warning

Upside risks: downstream prosperity accelerates; downstream customer project progress accelerates; the company's production capacity is being released at an accelerated pace

Downside risk: increase in raw material costs and prices; customer project progress falls short of expectations; risk of dilution of convertible debt-for-equity swaps