Key investment points

Deeply involved in smart car driving solutions, leading technology to help the company continue to grow in revenue: Since its establishment, Horizon has focused on developing smart car driving solutions. Currently, the company's products cover software and hardware solutions from advanced assisted driving to advanced autonomous driving. Downstream automotive customers include well-known car companies such as SAIC, BYD, Ideal, Chery, and GAC Aian. As of June 30, 2024, the company's smart driving solution products have been targeted for 275 models, which is expected to help the company achieve rapid revenue growth. In the first half of 2024, the company achieved total revenue of 0.94 billion yuan, an increase of 152% over the previous year, and achieved a net operating profit loss of 1.1 billion yuan. Currently, the company is still in the stage of accelerated technology iteration, and high R&D investment is dragging down the company's profits. In the future, along with the company's product expansion, it is expected that profits will gradually turn losses into profits due to scale effects.

High-end smart driving penetration is accelerating, and smart driving solutions welcome opportunities for volume and price increases: High-end smart driving models are penetrating faster. As the most important component of high-end smart driving models, smart driving solutions have ushered in opportunities for volume and price increases. According to Insight Consulting statistics, the global market size of advanced assisted driving and advanced autonomous driving solutions is expected to increase from 61.9 billion yuan in 2023 to 1017.1 billion yuan in 2030, with a CAGR of 49% in 2023-2030. According to Black Sesame's prospectus, the global ADAS autonomous driving SOC market is expected to grow from 19.4 billion yuan in 2022 to 71.3 billion yuan in 2028. Currently, Nvidia and Tesla occupy a high market share. Judging from the domestic market, smart driving chips from domestic manufacturers such as Huawei, Horizon, and Black Sesame are speeding up domestic replacement, and their market share is gradually increasing. According to Horizon's prospectus, as of the first half of 2024, the company ranked 4th among all global advanced assisted driving and advanced autonomous driving solution providers in China, with a market share of 15.4%.

A leading domestic smart driving solution company, has achieved a comprehensive software and hardware layout around smart car driving: Currently, there are three main types of smart driving solutions for Horizon cars: Horizon Mono, Horizon Pilot, and Horizon SuperDrive, which position active and safe advanced assisted driving, highway NOA, and full-scene urban NOA, respectively. The company's smart driving chip has been iterated from Journey 1 to Journey 5, and is currently accelerating the development of next-generation products Journey 6. Horizon's integrated software and hardware solutions, including Tiangong Development Platform and Eddy Software Platform, provide customers with comprehensive support from hardware to software, and greatly enhance the company's market competitiveness. As of June 30, 2024, the company's smart driving solutions have been adopted by 27 OEMs (42 OEM brands), loaded more than 285 models, and have been targeted for 275 models.

Profit forecast and investment rating: As a leading supplier of smart driving software and hardware integrated solutions in China, Horizon is expected to fully benefit from the increase in sales of high-end smart driving models in China. Based on this, we expect the company's revenue for 2024-2026 to be 2.12/3.05/4.58 billion yuan, respectively, and net profit to mother of 8.97/-0.59/0.1 billion yuan, respectively. For the first time, coverage gave it an “increase in wealth” rating.

Risk warning: Increased competition, uncertainty in R&D investment and return, high customer concentration, supply chain risk; risk of the company not being able to turn profits into profits in the short term.