HAXC Holdings is a pioneer in the vehicle display sector, initially positioned as a tier-2 supplier with abundant downstream customer resources. Currently, the sector shows two major trends: 1) Larger, multiple and high-definition screens in the intelligent cockpits. This trend will likely drive the triple growth of vehicle display in volume, price and profitability. This, in turn, will lead to a continuous increase in average selling price (ASP) per vehicle, further promoting the steady growth of the market. According to KPMG, China's vehicle display market will grow to Rmb106.4bn in 2026 from Rmb64.9bn in 2022, corresponding to a 13% CAGR; 2) Multiscreen interaction controlled by one chip. The Company takes the lead in collaborating with upstream panel manufacturers BOE Tech and Tianma Microelectronics and establishing respective joint venture subsidiaries with them, which makes it transform into a tier-1 supplier. This positions the Company to directly engage with the original equipment manufacturers (OEMs), facilitating a seamless transition from customization, development and integration to integrated production. This comprehensive approach eliminates intermediate links, reduces costs, enhances profitability and consequently increases the OEMs' market share in supplying to entire vehicle manufacturers. We believe that the Company boasts first-mover advantages, and cutting edges in resources, cost control and customer base. The Company has received designated orders with a total value of Rmb13.5bn, which will likely underpin the Company's stable growth. We forecast the Company's 2023E/24E/25E EPS at Rmb-0.16/0.55/0.95, respectively.

A pioneer in the vehicle display industry transforms into a tier-1 supplier.

Founded in 2013, HAXC Holdings initially positioned itself as a tier-2 service provider in the automotive display sector. It integrates upstream display components with customized solutions, incorporating them into a complete set of electronic products for downstream tier-1 system integrators. Ultimately, these products are integrated into the final assembly of whole vehicles by automotive manufacturers. In line with the industry trend of multiscreen interaction controlled by one chip, the Company established joint ventures and self-built factories in collaboration with core upstream display component suppliers BOE Tech and Tianma Microelectronics in 2021 and 2022, respectively. This strategic move signifies the Company's transformation into a tier-1 supplier, engaging in independent business deals with automotive manufacturers. HAXC Holdings possesses abundant downstream customer resources, including leading domestic automotive companies such as BYD, Changan Automobile, Great Wall Motors (GWM), Chery, GAC, Geely, XPeng, etc.

Intelligentization drives in-car display growth of volume, price and profitability, and multiscreen interaction controlled by one chip reconstructs industrial chain layout.

The vehicle display industry currently presents two major trends: 1) Larger, multiple and high-definition screens in the intelligent cockpits. This trend will likely drive the triple growth of vehicle display in volume, price and profitability.

The intelligent cockpit is an important part of vehicle intelligentization, and vehicle displays are an integral part of intelligent cockpits. Electrification and intelligentization are promoting vehicle display to upgrade towards larger, multiple and higher definition, thereby increasing display demand and value.

In addition, head-up display (HUD) and streaming rearview mirrors with higher security level are likely to see greater penetration rates. 2) Multiscreen interaction controlled by one chip. This emerging trend will reconstruct the industrial chain layout. We believe that under the trend, upstream panel makers can directly establish joint ventures with tier-2 or tier-1 suppliers to complete the entire process from customization, development, integration to integrated production, reducing intermediate links, improving profitability and reconstructing the value chain layout. Ultimately, we expect the increases in volume, price and profitability of vehicle display market to drive the continuous growth of market size. KPMG expects China's vehicle display market to grow from Rmb64.9bn in 2022 to Rmb106.4bn in 2026, corresponding to a CAGR of 13%. Companies along the value chain will benefit greatly from this.

Seizing industry opportunities with four major advantages and substantial backlog orders with high value supports steady growth.

We believe that the core competitive factors in the automotive display industry are cost, technology and resources, and the Company possesses four major advantages, ie 1) accurate assessment of the "multiscreen interaction controlled by one chip" trend in the automotive display industry, accumulating first-mover advantages; 2) in-depth integration with upstream display manufacturers, establishing a resource advantage; 3) cost advantages through technological and model innovations, as well as integrated production; and 4) abundant customer resources. We believe that these four advantages will help the Company seize the opportunities presented by the transformation in the automotive display industry. Additionally, according to the Company's announcement, the investment in constructing the Nantong intelligent production line is underway, aiming to create an integrated manufacturing base with an expected annual output value of Rmb5bn. As of Apr 26, 2023, the Company has substantial designated orders of approximately Rmb13.5bn, and the subsequent translation of these orders into revenue is likely to support the Company's long-term stable growth.

Potential risks: Intensified industry competition; slower-than-expected translation from designated orders into earnings; less-than-expected new customer expansion; disappointing performance of the joint ventures with the panel makers; lower-than-expected production capacity release of new production lines; less-than-expected development of the automobile sector.

Investment strategy:

HAXC Holdings is a pioneer in the vehicle display sector, initially positioned as a tier-2 supplier with abundant downstream customer resources. Currently, the sector shows two major trends: 1) Larger, multiple and high-definition screens in the intelligent cockpits. This trend will likely drive the triple growth of vehicle display in volume, price and profitability. This, in turn, will lead to a continuous increase in average selling price (ASP) per vehicle, further promoting the steady growth of the market. According to KPMG, China's vehicle display market will grow to Rmb106.4bn in 2026 from Rmb64.9bn in 2022, corresponding to a 13% CAGR; 2) Multiscreen interaction controlled by one chip. The Company takes the lead in collaborating with upstream panel manufacturers BOE Tech and Tianma Microelectronics and establishing respective joint venture subsidiaries with them, which makes it transform into a tier-1 supplier. This positions the Company to directly engage with the original equipment manufacturers (OEMs), facilitating a seamless transition from customization, development and integration to integrated production. This comprehensive approach eliminates intermediate links, reduces costs, enhances profitability and consequently increases the OEMs' market share in supplying to entire vehicle manufacturers. We believe that the Company boasts first-mover advantages, and cutting edges in resources, cost control and customer base. The Company has received designated orders with a total value of Rmb13.5bn, which will likely underpin the Company's stable growth.We forecast the Company's 2023E/24E/25E EPS at Rmb-0.16/0.55/0.95, respectively. Considering that the Company's transition to a tier-1 supplier is still pending further validation and the timing of designated order fulfillment remains uncertain, we are currently refraining from providing a target price and rating.