Incident: Recently, the development of intelligent driving for cars at home and abroad, such as Tesla, Huawei, and Xiaomi, has accelerated. At the same time, the company's important customer Huawei's Hongmeng Zhixing New Car Smart World R7 pre-sale order has performed well. We are commenting on the company's various business developments as follows:
The new Huawei Smart World R7 car was released, and the pre-sale performance was good, which is expected to drive the company's Q3 automotive business performance. Recently, HUAWEI Hongmeng Zhixing's new Smart World R7 was released and pre-sale began on September 10. The starting price was 0.268 million yuan, and the 24-hour pre-sale was over 10,000. In addition, in August, the entire Hongmeng Zhixing series delivered 0.0337 million vehicles, ranking second among the new car companies; of these, Qianjie delivered 0.0312 million vehicles. Denlink is closely cooperating with Huawei. We determine that Denlink's high-frequency high-speed connector products account for a high share of Huawei's Hongmeng Zhixing, and it is expected that the Q3 car-end product release will be achieved along with the release of new Huawei vehicles.
Domestic and foreign manufacturers are accelerating smart driving, driving medium- and long-term development opportunities for the company's automotive business. Tesla released a technology roadmap in September. FSD is expected to enter China in 25Q1 and is currently awaiting regulatory approval; in addition, Bloomberg revealed that Tesla RoboTaxi is expected to be released in October. China's smart driving progress is also progressing. Starting in September, Huawei Hongmeng Zhixing will upgrade all models to ADS 3.0 to achieve end-to-end architecture optimization; as of August 28, Xiaomi's smart driving total active equipment was about 0.0434 million, and the smart driving user activity rate was as high as 88%; the media said that the Xiaomi smart driving team recently completed the restructuring, and the target is to deliver end-to-end smart driving within the year.
As a leading domestic automotive high-frequency high-speed connector, the company is expected to benefit from customer smart driving penetration and sales breakthroughs. In addition, the company will also strengthen the introduction of overseas tier 1 and joint ventures and overseas automakers to help the medium- to long-term development of overseas business.
The growth in the automotive business is compounded by the peak consumer electronics season in the second half of the year, and we are optimistic about full-year performance growth. Looking ahead to 24H2, along with the launch of new automotive terminals and the continued popularity of smart driving, the automotive business is expected to resume rapid growth in the second half of the year. At the same time, the consumer electronics industry enters a peak season, and the company's performance is expected to grow worry-free year-on-year. In the long run, the company's automotive connectors have been successfully introduced among leading customers, and it is expected to open up more room for growth in the future; in addition, traditional business demand in the consumer electronics sector is picking up, and the newly expanded BTB connector and e-cigarette businesses are gradually being implemented to contribute to performance, and the long-term growth logic is clear.
Maintain a “Highly Recommended” investment rating. Benefiting from the accelerated penetration of automotive intelligence, domestic replacement of automotive connector products driven by reduced terminal prices, and outstanding sales volume for core customers, the company's automotive business is expected to continue to grow; in addition, the utilization rate of traditional businesses in the consumer electronics sector has increased, and the BTB connector, e-cigarette and other businesses are progressing smoothly. The company's performance is expected to grow rapidly throughout 2024. We expect revenue for 2024-2026 to be 4.61/6.361/8.629 billion yuan, net profit to mother 0.701/0.941/1.227 billion yuan, corresponding EPS of 1.66/2.22/2.89 yuan, corresponding PE of 20.6/15.3/11.8 times, maintaining a “highly recommended” rating.
Risk warning: Demand recovery falls short of expectations, technological progress falls short of expectations, market competition intensifies, and the risk of price increases for upstream raw materials.