A pioneer in domestic production of humanoid robots, riding the Dongfeng in industrial development

Preferential Choice is a leading humanoid robot company in China. Its products target AI education, smart logistics, smart health, business services, etc. We believe that with increased support from the policy side and the software side being supported by large models, it is expected that after large-scale mass production and localization, the hardware side can be rapidly iterated to drive down terminal prices through cost reduction. Humanoid robots may welcome the first year of the industry. We are optimistic that Premium Choice will be the leading domestic enterprise and take the lead in benefiting from industry development dividends. We expect the company's 24-26 revenue to be 1.68/2.39/3.5 billion yuan. Considering that the humanoid robot circuit still requires a large R&D investment and the product is basically unprofitable, we use PS valuation. Wind agreed that the average PS valuation of comparable companies in 24 years was 30 times. Considering that the company was the first listed company in China to explore the commercial application of robots, we gave the company 30 times PS in 24 years, which is comparable to the average valuation level of comparable companies, corresponding to the target price of HK$131.42, and gave a purchase rating for the first time.

The technology verification period has entered the commercial testing period, and the industrialization of humanoid robots is accelerating. The humanoid robot industry has moved from the early technical verification stage to the commercial testing stage. Currently, 1X and other manufacturers have successfully implemented commercialization scenarios with relatively low requirements. Tesla and FIGURE products have good performance capabilities and amazing iteration speed. Tech giants Nvidia and OpenAI are all actively laying out humanoid robot tracks to speed up product launch. We believe that as the iteration of Al technology drives the upgrading of robot software layer capabilities, the accuracy requirements of core hardware are expected to decrease, thereby driving the cost reduction of the machine, and the supply side is expected to produce more amazing products. The domestic industry trend started later than overseas development but is developing strongly. At the end of '23, Preferred Choice Hong Kong stock was listed, and OEMs such as Yushu and Fourier began pre-sales, and corresponding support policies continued to be introduced. We are optimistic that the pace of industrialization of domestic robots driven by both supply and policy will accelerate.

The full chain of technology self-development+commercialization has been opened, and we believe that the company's core advantage is that it has developed a full stack of technology and has opened up a full chain of R&D, production, and sales, which is a model for commercialization of humanoid robots. The company's technical team is strong. In terms of software, AI technology is deeply integrated at the level of navigation/vision/operation/training/development. Product performance and development efficiency are superior. At the hardware level, servo motors are self-developed and produced, and sufficient design/control/optimization experience has been accumulated in stable operation in industrial scenarios. At the same time, the company's strategy is technology-driven from actual application, and the product commercialization experience is sufficient. In addition, the company's various business lines are rich in categories, sufficient reserves of new products, and the sales network is being improved at an accelerated pace, we believe that the company's robot products have sufficient potential for commercialization.

The big model empowers the intelligent era. With the advantage of data and business perception, companies have large-scale delivery potential, and the big market is worried that there will be many robot participants, or homogenized competition. We believe that the core competitiveness of Preferred Choice lies in the accumulation of actual data and a clear understanding of commercialization. It is one of the few enterprises that have opened up the whole chain of technology-production-terminal scenarios. At present, the company's humanoid robot products have cooperated with many car companies to explore industrial applications. In actual combat, they have accumulated sufficient real data, optimized product reliability and cost control experience, and can be effectively iterated in a timely manner according to customer needs. With large-scale product delivery, the company is expected to continue to consolidate competitive barriers.

Risk warning: Technology progress falls short of expectations; commercialization progress falls short of expectations; industry competition intensifies; risk of losing core technical teams; exports fall short of expectations.