Key points of investment

Company announcement: The company released a performance forecast for the third quarter of 2024. Q3 2024 is expected to achieve net profit of 1.63 to 0.188 billion yuan, +41% to +62% year over year, net profit of 1.58 to 0.183 billion yuan after deducting non-return net profit of 1.58 to 0.183 billion yuan, +42% to +64% year over year, exceeding expectations.

Independent customers continue to increase volume, and on-hand orders are released at an accelerated pace. 2024Q3's downstream autonomous customer volume, and the core volume customers Chery, Geely, Celis/ Ideal 24Q3 produced +13%/+14%/+17%/+62% month-on-month respectively. At the same time, the company's automotive electronics orders were released at an accelerated pace this year, and new products such as cockpit domain control accelerated entry, and the company's performance exceeded expectations. The Ledao L60 was launched in September, and the company, as a HUD supplier, also benefited from an increase in the new car cycle.

Supporting customers have a strong new vehicle cycle, and the internationalization strategy is beginning to pay off. According to the company's 2023 annual report, the company is expanding new customer groups in the international market by deepening partnerships with existing customers, breaking through overseas customers such as Volkswagen SCANIA, FAW-Toyota, SAIC Volkswagen, and Maserati, and expanding new energy customers such as Ideal, ZEEKR, Cyrus, Aeon, NIO, and BYD on the basis of the original independent customers. The customer structure is diverse, and incremental customers contribute more revenue growth.

Released the latest domain control products and entered the first tier of domain controllers. In 2023, the company's R&D investment reached a record high. Among them, automotive electronics R&D investment accounted for 12.08% of its revenue, and new products accelerated iterative upgrading and mass production. In 2024, the Beijing Auto Show Company debuted the “Qualcomm Snapdragon 8255 Domain Control Solution”. The chip may be applied to an integrated cabin and parking solution. The company expects the product to be further implemented in the second half of 2024. We believe that the integration of cabin driving may become the next direction of domain control integration. The company's layout in cockpit domain control and smart driving domain control is expected to have a first-mover advantage.

Profit forecast and investment rating: We maintained the company's 2024-2026 revenue forecast of 9.03/11.23/13.28 billion yuan, +27%/+24%/+18% year over year; maintained the 2024-2026 net profit forecast of 0.65/0.89/1.12 billion yuan, +40%/+37%/+25% year over year, corresponding PE was 24/17/14 times, respectively, maintaining a “buy” rating.

Risk warning: Overseas market expansion fell short of expectations; the recovery in downstream passenger car demand fell short of expectations, and the passenger car price war exceeded expectations.