Key points of investment

The performance of automotive electronics solutions providers continues to rise due to new energy drivers. Yingheng Technology is a leading automotive electronics solution provider in China. It was listed on the Hong Kong Stock Exchange in 2018 with the goal of becoming the largest service platform for the automotive electronics industry. The company's business covers various fields such as new energy, body systems, safety systems, power systems, smart driving networking, cloud servers, etc. In 2022, the company achieved revenue of 4.83 billion yuan, +52% year on year; net profit of the mother was 415 million yuan, +107% year on year.

Intelligent core card slots, product expansion volume and price have risen sharply. Intelligent business is the company's fastest growth engine. In 2022, the company's smart driving networking business achieved revenue of 250 million yuan, +151% year on year. The company collaborated deeply with Horizon to strengthen development and application capabilities in autonomous driving and AI technology to provide L2+ level autonomous driving solutions. The company has established a vehicle-level autonomous driving test laboratory and an autonomous driving simulation test and verification platform.

Asset-light operations are compounded by high investment in R&D, and business models are relatively scarce. The company has a unique business model. By purchasing semiconductor devices and combining its own program design to provide solutions for automotive OEMs or Tier 1 or automotive electronics PCB-A, gross margin reached 21.5% in 2022. The company is an asset-light model. Manufacturing is outsourced. It has its own large-scale R&D center in Shanghai, covering electrification (three electronic controls, auxiliary control, thermal management), intelligence (smart driving range, millimeter wave radar, cockpit controller), hydrogen fuel vehicle products, etc. Judging from the direct business model benchmarking, the company does not have a completely consistent comparable company. Its advantages are control of upstream chips, its own R&D strength and asset-light operation, and extensive layout and experience accumulation of automobile product lines.

In-hand orders are full, and the impact of the vehicle price war is limited. The company's customers include Chinese automakers and 981 active tier 1, 22H1 customers, including traditional passenger car brands such as BYD, SAIC, Great Wall, and GAC Aian, as well as new power brands such as Xiaopeng, Ideal, and Zero Run. The company “is close to customers, developed in many places”, has outlets in 16 cities across the country, and customer stickiness is strong. Under the downturn in the automobile industry and the overall price war, the company was relatively unaffected. Currently, there are plenty of orders in hand, and it is expected that it will maintain a high level of growth.

Profit forecast and investment rating: We expect the company's net profit for 2023-2025 to be 540 million yuan, 680 million yuan, 80 million yuan respectively, +31%, +25%, and +19%, respectively. The corresponding current price (April 3) PE is 9 times, 7 times, and 6 times respectively. Considering the company's abundant customer resources and full on-hand orders, it is expected that it will enter Hong Kong Stock Connect and improve liquidity for the first time, covering the “buy” rating for the first time.

Risk warning: downstream automobile competition heightens risks, risk of changes in automakers' business models, risk of Hong Kong stock liquidity