Leading domestic autonomous driving domain controller company, deeply tied to high-quality downstream customers: The company is a leading third-party autonomous driving domain controller provider in China. In 2022, the company became the fourth largest autonomous driving domain controller provider in China with a market share of 8.6%. The company's products mainly cover autonomous driving domain controllers and iFC series products (smart front view cameras). Among them, the autonomous driving domain controller is the most important product, which includes two major series of products: SupervisionTM and IDC. The company has established close cooperation with high-quality downstream OEMs such as Geely, Great Wall, and Chery to deeply bind customers.

The penetration rate of intelligent driving is expected to continue to increase, and autonomous driving domain controllers have broad prospects: according to Frost & Sullivan's forecast, sales of autonomous passenger vehicles in China will reach 13.4 million units by 2024, and will reach 20.9 million units by 2027. As the scale of sales continues to increase, the penetration rate is expected to continue to increase. According to Frost & Sullivan's forecast, the penetration rate of autonomous driving in China is expected to reach 55.20% by 2024 and 81.70% by 2027. The autonomous driving domain controller market has broad prospects. According to Frost & Sullivan's forecast, China's autonomous driving domain controller market is expected to reach RMB 91.5 billion in 2027, with a CAGR of 56.33% in 2027.

Continued high R&D investment, overseas layout to expand business opportunities: The company continued to maintain high R&D investment. The company's R&D investment in 2021-2023 was 0.055/0.104/0.217 billion yuan respectively, with year-on-year growth rates of 24.48%/89.36%/108.20%, respectively. As of 1H2023, the company's R&D personnel accounted for 74.2%. The company has now developed two types of autonomous driving algorithms and independently developed software middleware to improve product adaptability and iterative efficiency. The company cooperates with leading third-party map makers to form a closed loop of cloud platform data and achieve continuous algorithm iteration. In October 2023, the company established a subsidiary in Germany to continuously explore overseas business opportunities.

Investment advice: The company is a leading enterprise in the field of autonomous driving domain controllers in China. In the future, with mass production of self-developed products and increased market penetration, its performance is expected to reach an inflection point. We expect the company to achieve operating income of 1.759/2.395/2.642 billion yuan and net profit to mother of -0.103/-0.006/0.059 billion yuan in 2024-2026. The PS valuation corresponding to 2024-2026 was 2.82/2.07/1.88 times, respectively, and the corresponding 2026 PE was 85.31 times. It was covered for the first time and gave an “increase” rating.

Risk warning: Risk of lifting the ban on restricted shares; risk of developing autonomous driving solutions falling short of expectations; risk that a single customer accounts for relatively high sales revenue; may be affected by industry regulatory policies.