Key points of investment:

Performance increased in the first half of 2024, with high-speed business accounting for the majority. 2024H1 revenue was 0.228 billion yuan, +2.52% year over year; net profit to mother was 0.016 billion yuan, +90.19% year over year; after deducting non-net profit of 0.003 billion yuan, +1046.65% year over year. The gross margin of 2024H1 is 36.40%, which is a significant increase compared to 31.36% last year. We believe that the main reason for the increase in gross margin was the adjustment of the product sales structure. Last year, high sales of OBU products in the high-speed business were high, and gross margin was low. RSU and intelligent charging robot series products (all roadside products) increased this year, and the gross margin improved significantly. 2024Q2 revenue was 0.158 billion yuan, +13.06% year over year; net profit to mother 0.016 billion yuan, -24.58% year over year; after deducting non-net profit of 0.013 billion yuan, -22.26% year over year.

By business split, 2024H1 Smart Express had revenue of 0.162 billion yuan, -14.41% YoY, accounting for 71.09%, gross profit margin of 38.98%; automotive electronics revenue of 0.054 billion yuan, +147.82% YoY, accounting for 23.67%, gross profit margin of 30.76%; and smart city 0.008 billion yuan, +10.74% YoY, accounting for 3.34%.

Smart high-speed digital transformation has accelerated, and the large-scale intelligent connected vehicle industry has entered a critical period. ① On April 29, 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”. The “Notice” states that starting in 2024, the implementation target will be to support about 30 demonstration areas over a period of about three years to build a number of integrated cable network demonstration channels and networks, and strive to promote the digital transformation and upgrading of about 85% of busy national highways, 25% of busy ordinary national highways, and about 70% of important national high-grade waterways. Demonstration channel traffic efficiency has been increased by about 20% in terms of smart capacity expansion; emergency response efficiency has been increased by about 30% in terms of safety and efficiency; a number of vehicle road cloud, shipshore cloud application scenarios and key technologies and standards with high promotion value in terms of integrated innovation; and promote the cultivation of a number of new business formats and models such as personalized customization, networked collaboration, and industrial integration in terms of institutional mechanism innovation. At the same time, the “Notice” clarifies that the Ministry of Finance will arrange funds according to a combination of rewards and supplements to strengthen the guiding and driving role of central funding and accelerate the formation of economies of scale. ② In July 2024, the Ministry of Industry and Information Technology released data showing that at present, more than 32,000 kilometers of intelligent connected vehicle test demonstration roads have been opened nationwide, more than 7,700 test demonstration licenses have been issued, the test mileage has exceeded 0.12 billion kilometers, and more than 8,700 intelligent roadside units (RSUs) have been deployed in various regions. In July 2024, five departments of the Ministry of Industry and Information Technology, the Ministry of Public Security, the Ministry of Natural Resources, the Ministry of Housing and Urban-Rural Development, and the Ministry of Transport jointly announced the list of pilot cities for the application of “vehicle-road cloud integration” for intelligent connected vehicles. They will launch pilot projects for intelligent connected vehicle “vehicle-road cloud integration” applications in 20 cities including Beijing, Shanghai, Guangzhou, Shenzhen, Chongqing, and Shenyang. Driven by the policy, construction of “vehicle road cloud integration” has begun to accelerate in places such as Beijing, Wuhan, Fuzhou, Chongqing, etc., and large-scale application of “vehicle road cloud” in some cities has gone from pilot to full deployment. This marks a substantial step in the industrialization process of intelligent connected vehicles in China.

The field of vehicle-road collaboration is expected to usher in a period of accelerated development, and the company's industrial chain is deeply laid out. ① The company's products are mainly used on the equipment side and application side of the vehicle-road collaboration industry chain. The company has built a complete vehicle, road and cloud product system, including vehicle-mounted V2X series products, road-side V2X edge system integrated products (including sensing, MEC edge computing, V2X roadside RSU, etc.), cloud-based vehicle-road collaborative cloud platform, and C-V2X vehicle-mounted HMI human-computer interaction system. ② The company's vehicle-road collaboration business customers mainly include traditional car manufacturers, new energy vehicle manufacturers, internet car builders, highway owners, and urban intelligent connectivity pilot zones. ③ According to the “Notice on Launching Pilot Work on the Application of Intelligent Connected Vehicles “Vehicle Road Cloud Integration” jointly issued by five departments including the Ministry of Industry and Information Technology and the Ministry of Transport in January '24, it is proposed to increase the assembly rate of vehicle terminals, install C-V2X vehicle terminals on 100% of the pilot vehicles, and encourage the transformation of existing public sector vehicles such as city buses, official vehicles, taxis, etc., to carry out C-V2X vehicle terminals. The installation rate of new vehicle terminals in new vehicles with L2 and above is encouraged.

l Profit forecast and investment advice. We believe that in recent years, government departments have frequently introduced favorable policies for intelligent connectivity to promote the development of intelligent connectivity, vehicle-road collaboration, and autonomous driving industries. The intelligent connectivity and vehicle-road collaboration industry is developing at an accelerated pace, and the number of test demonstration zone projects is gradually increasing, which is also driving the growth of related business revenue for enterprises in the industry. Meanwhile, the company's in-depth layout of the vehicle-road collaboration industry chain is expected to benefit deeply. We expect the company's net profit to be 0.078/0.114/0.148 billion yuan in 2024-2026, and the corresponding EPS will be 0.44/0.64/0.82 yuan respectively, giving the company 60-65 times PE in 2024, and a reasonable value range of 26.17-28.35 yuan in 2024, giving it a “superior to the market” rating.

Risk warning: Policy progress falls short of expectations; market competition intensifies; technology path changes.