An enabler of automotive intelligence, a major opportunity has been ushered in under the wave of intelligence. The company was founded in 1986. It is a leading automotive electronics enterprise in China. The strategic transformation focuses heavily on smart cockpit, intelligent driving and connected services. It is the first local autonomous driving Tier 1 supported by Nvidia in China to provide global customers with overall mobile travel solutions and services. The compound growth rate of net profit from 2020 to 2023 was 31.46%. As the penetration rate of new energy vehicles accelerated and demand for intelligent automotive products increased, the company's three major business products ushered in rapid growth. In 2023, the company's market share in smart cockpit and intelligent driving domain control was 17.3% and 25.0% respectively, making it a leading supplier of intelligent domain controllers in China.

Smart cockpits have evolved into a “third living space”, and there is plenty of room for growth in the cockpit domain control market. As smart cockpit technology continues to advance, consumer demand for in-vehicle infotainment systems continues to expand, so that smart cockpit configurations continue to be upgraded. The cockpit domain controller is the core of smart cockpit development. With the increase in passenger car sales in China and the increase in the penetration rate of cockpit domain controllers, the smart cockpit domain controller market is expected to reach 13.5 billion yuan in 2026. According to Gaogong Intelligent Vehicle, the 2024Q1 cockpit domain control model accounts for the largest share of the 0.1-0.2 million model, accounting for a total share of 46.14% of the overall market, but its penetration rate is only about 20%, further highlighting the potential space for the subsequent market.

Industry and policy resonate with the evolution of intelligent driving to a higher level, driving the iterative upgrading of smart driving domain control. In June 2024, the “Notice on Launching Pilot Work on Intelligent Connected Vehicle Access and Road Traffic”, four departments including the Ministry of Industry and Information Technology identified a consortium of 9 L3 autonomous driving pilot projects. It is expected that L3 level autonomous driving will be officially implemented and put into use after the pilot. According to Gaogong Intelligent Vehicle, the 2024Q1 has a standard NOA penetration rate of 5.21% for passenger cars in the Chinese market. As L2+ advanced assisted driving continues to be implemented, the penetration rate is expected to continue to increase. The level of intelligent driving of newly launched models continues to improve, driving the smart driving domain controller market to continue to grow. As smart driving levels increase, the required computing power is also gradually increasing to meet more complex driving scenarios and safety requirements. Sullivan expects the domain control market to reach 91.5 billion yuan by 2027.

The launch of high-end smart driving products drives the improvement of the business structure, and the international layout opens up new development space. In 2023, the annual revenue of the company's smart cockpit business and annualized sales of new project orders exceeded 15 billion yuan. The share of the company's intelligent driving business continued to rise to 20.47%, revenue increased 74.43% year-on-year, and sales of new project orders exceeded 8 billion yuan, mainly due to cooperation between the company and Nvidia to create high-performance products IPU03 and IPU04, and received new project orders from more than ten car companies. The company continued to advance its internationalization strategy. In major automobile markets such as Europe, North America, Japan and Southeast Asia, etc. Layout, breaking through white spot customers such as Audi and Tata Motors in 2023, and receiving orders for new projects from customers such as Volkswagen and Suzuki. 2024H1's revenue increased 34.02% year on year, and net profit to mother increased 38.11% year on year. Mainly, the smart cockpit business continued to expand categories. Products such as body domain control, HUD, and electronic rearview mirrors continued to receive new orders, and key customer products such as Ideal, Xiaomi, and Extreme Krypton continued to expand in the intelligent driving business.

Investment advice: We expect revenue for 2024-2026 to be 28.913/36.615/45.116 billion yuan, corresponding growth rates of 32.0%/26.6%/23.2%, respectively; net profit to mother is 2.026/2.621/3.309 billion yuan, corresponding growth rates of 31.0%, 29.4%, and 26.3%, respectively. Referring to comparable company valuations, plus adjustments to the company's product production capacity, internationalization is being further promoted, and the competitive advantage is constantly increasing. The company was given 30 times PE in 2024, corresponding to a target price of 109.5 yuan, and maintained a “strong promotion” rating.

Risk warning: risk of volatility in the automotive industry, risk of increased market competition, risk of overseas expansion.