Key points of investment

Numerous mergers and acquisitions have made it a global automotive safety and automotive electronics giant. Through numerous mergers and acquisitions in international markets, the company formed two major business segments of automotive electronics+car safety, and became the second largest supplier of automotive passive safety systems in the world. Overseas mergers and acquisitions have enabled the company to continuously improve the global industrial chain, have R&D centers and supporting factories around the world, and have formed a complete supply chain system. New orders received in the year have been restored to 70 billion yuan +, and the total amount of new orders received by the company throughout the life cycle in 2023 is about 73.7 billion yuan. In the Chinese market, partnerships with leading independent brands/new forces have been continuously strengthened, and the share of order amounts has increased significantly. In 2023, the domestic business team received about 29 billion yuan in new orders from the global market, which increased to about 40%. The automotive safety business has completed full coverage of the top 10 customers in the NEV sales list.

Vehicle safety: Accelerate integration and reverse performance. The company's safety business mainly includes three components: seat belts, airbags (including gas generators), and passive safety for smart steering wheels, as well as active safety and integrated safety. Due to the subsequent impact of the merger and acquisition of Takata in 2019-2021, the size of safety orders declined, and order size began to rise significantly in 2022. According to Autoliv's annual report, the global passive safety market share is about 23 billion US dollars (about 162.1 billion yuan) in 2023, and is expected to grow from about 23 billion US dollars in 2023 to more than 25 billion US dollars in the next three years. According to Autoliv's 2023 annual report, the global safety value (CPV) of cars and bicycles reached approximately US$261 (approximately RMB 1,839), showing a continuous upward trend. According to Autoliv's annual report data, on the one hand, the safety value CPV of bicycles is increasing year by year; on the other hand, China's CPV still has a big gap with developed countries, and there is strong room for growth. Compared with the global leader Autoliv, the company's profit level still has a lot of room for improvement; we expect that with the accelerated integration of overseas supply chains and the increase in the value of intelligent cars and passive safety bikes after the pandemic, the company's safety sector revenue is expected to develop steadily, and the performance is expected to reverse rapidly.

Automotive electronics: More blossoms, lots of orders in hand. (1) Smart cockpit HMI: Establish stable cooperation with major global car manufacturers, including BMW, Volkswagen, Tesla, etc. (2) Intelligent cockpit domain control: Long-term cooperation with leading car brands such as Volkswagen, Audi, and Ford, and supplying cockpit domain control to Huawei. (3) New energy management: One of the earliest suppliers in the world to achieve mass production of 800V technology. In 2023, 800V orders surpassed 10 billion yuan. We expect 25-27 to be an order-intensive implementation period. (4) Intelligent Connected V2X: As the world's first supplier to achieve mass production of 5G+V2X technology, its subsidiary Junlian Zhixing has received nearly 10 billion intelligent connected V2X cycle orders in the past two years. (5) Intelligent driving domain control: Established partnerships with Qualcomm, Horizon, Black Sesame, Nvidia, etc. to release the nDrive H series, an intelligent driving domain product based on Qualcomm Snapdragon Ride.

Investment suggestions: The company relies on a global layout, and the safety sector accelerates integration and stable development; the electronic sector benefits from the intelligent development of overdue vehicles, has plenty of orders in hand, and is expected to continue to transform. The profit forecast is as follows: The estimated revenue for 2024-2026 is 58.008/62.395/67.739 billion yuan, and net profit to mother is 1.46/1.81/2.23 billion yuan, corresponding to the closing price of 13.60 yuan on September 13, 2024. PE is 13/11/9 times, respectively, giving a “buy” rating.

Risk warning: Global vehicle delivery falls short of expectations, rising raw material prices, changes in the macro environment, and industry risks.