Core Viewpoint - SenseTime's R-UniAD end-to-end autonomous driving solution is set to be unveiled at the Shanghai Auto Show in April, with real vehicle deployment completed and expected delivery by the end of the year [1][3]. Group 1: Company Developments - Wang Junping, former senior director of intelligent driving at Nezha Auto, joined SenseTime's autonomous driving division in February 2023, previously being part of Baidu's intelligent driving team [2]. - SenseTime has been collaborating with Nezha Auto since September 2021, focusing on intelligent driving and smart cockpit technologies [2]. - Wang Weibao, who took over from Shijianping as the head of intelligent driving, joined SenseTime at the end of 2023 and has a background in Apple's autonomous driving team and as CTO at New Stone Unmanned Vehicle Company [3]. Group 2: Industry Context - The autonomous driving sector is experiencing intensified competition, particularly for companies not in the top tier, highlighting the challenges faced by solution providers [3]. - SenseTime collaborates with over 30 automotive companies, including GAC, BYD, Honda, and NIO, with solutions already deployed in models like the Haobo and Nezha's super sedan [3].

Investment Rating - The report gives a "Buy" rating for SenseTime with a target market value of HKD 79.49 billion [6][7]. Core Insights - The report reviews the development of cloud computing over the past 20 years and anticipates changes brought by AI, highlighting rapid growth in traffic as a core factor [6][7]. - The report emphasizes the competitive landscape, noting the emergence of three tiers of cloud service providers and the expected stabilization of market shares among internet giants [6][7]. - The report identifies AI as a significant driver for structural changes in demand, with expectations for substantial growth in AI cloud services [6][7]. Summary by Sections Cloud Computing Development - The report outlines the evolution of cloud computing from 2006 to 2021, detailing phases from addressing traditional IT architecture issues to the rise of SaaS [8][10][21]. - It notes that IaaS investment and revenue saw high growth from 2017 to 2018, with a focus on government and industry clouds from 2019 to 2020 [21][23]. Competitive Landscape - The report categorizes cloud service providers into three groups: internet giants, telecom operators, and medium-sized cloud providers, with each group having distinct advantages [39][40]. - It highlights the intense price competition among major cloud providers, with significant price reductions observed in recent years [33][36]. Future Outlook - The report predicts that 2023 will be the "Year of AI," with internet giants benefiting first from AI cloud services, and anticipates a structural shift in demand with the introduction of open-source models by 2025 [41][42]. - It discusses the potential for medium-sized cloud providers to grow significantly, driven by the demand for differentiated services and the increasing importance of domestic computing resources [49][50]. Company Updates - SenseTime is highlighted as a leading player in AI, focusing on generative AI and restructuring its business model to enhance profitability [53][54]. - The report notes that SenseTime's revenue for 2024H1 is projected to reach CNY 1.74 billion, with a significant increase in revenue from generative AI [54][56].

Investment Rating - The report initiates coverage with a "Buy" rating for the company [1] Core Insights - The company is positioned as a leader in the AI2.0 era, focusing on generative AI and has strategically adjusted its business structure to enhance profitability [6][9] - The company has achieved significant revenue growth in generative AI, with a 255.70% year-on-year increase in revenue for this segment in the first half of 2024 [6][30] - The company is leveraging its large-scale AI infrastructure and advanced model capabilities to create competitive barriers in the market [6][9] Financial Data and Earnings Forecast - Revenue projections for 2024-2026 are estimated at 45.6 billion, 61.1 billion, and 81.5 billion RMB, with corresponding growth rates of 33.9%, 34.1%, and 33.4% [7][8] - The company anticipates a gradual narrowing of net losses from -42.0 billion RMB in 2024 to -19.9 billion RMB in 2026 [7][8] - The revenue for 2024 is expected to be driven primarily by generative AI, with traditional AI business continuing to shrink [7][8] Business Structure and Strategic Focus - The company has restructured its business into three main segments: generative AI, traditional AI, and smart automotive, with a clear focus on generative AI [6][23] - The generative AI segment's revenue share increased significantly from 20.62% in 2023H1 to 60.42% in 2024H1, indicating a successful business transformation [30][23] - The company has established a 1+X strategic framework, allowing for independent financing and development of various AI applications [6][40] Competitive Advantages - The company has built a robust AI infrastructure, with a total operational computing power exceeding 20,000 PetaFLOPS and over 54,000 GPUs deployed [6][51] - The company ranks third in the GenAI IaaS service market share, demonstrating its competitive position in the industry [6][56] - The rapid iteration of its large model, "日日新," has positioned the company to compete effectively against leading models like GPT-4 Turbo [6][61] Market Trends and Future Outlook - The demand for generative AI services is expected to continue growing, driven by advancements in AI applications across various sectors [6][47] - The company is well-positioned to capitalize on the increasing need for AI infrastructure and services, particularly in the context of the ongoing digital transformation [6][57]

Investment Rating - The report initiates coverage with a "Buy" rating for SenseTime (00020) [1] Core Insights - SenseTime is positioned as a leader in the AI2.0 era, transitioning from AI1.0 to a generative AI universal platform, with a strategic focus on generative AI and a significant increase in revenue from this segment [6][19][25] - The company has strategically adjusted its business structure, leading to a rapid growth in generative AI revenue, which reached 1.051 billion RMB in H1 2024, a year-on-year increase of 255.70% [8][25] - The report highlights the company's core advantages, including a large-scale AI infrastructure and advanced model capabilities, which create competitive barriers [8][19][45] Financial Data and Profitability Forecast - Revenue projections for 2024-2026 are estimated at 45.6 billion, 61.1 billion, and 81.5 billion RMB, with corresponding growth rates of 33.9%, 34.1%, and 33.4% [9][10] - The net loss is expected to narrow from -42.0 billion RMB in 2024 to -19.9 billion RMB in 2026, indicating improving profitability [9][10] - The gross margin is projected to stabilize around 45.6% for 2025 and 2026, despite a slight decline due to increased operational costs [7][10][35] Business Structure and Strategic Focus - The company has restructured its business into three main segments: generative AI, traditional AI, and smart automotive, with a clear focus on generative AI [25][39] - The traditional AI segment is expected to continue shrinking, while the smart automotive segment is projected to grow significantly, with revenue reaching 1.68 billion RMB in H1 2024, a 100.40% increase year-on-year [8][25][39] Competitive Positioning and Market Trends - SenseTime ranks third in the GenAI IaaS service market, indicating a strong competitive position among peers [20][59] - The report emphasizes the importance of the generative AI market, which is expected to see continued high demand, driving growth for the company's services [8][49] Research and Development - The company maintains a high level of R&D investment, with a focus on developing large models and AI applications, which is crucial for sustaining its competitive edge [8][60] - The rapid iteration of the SenseNova model series demonstrates the company's commitment to advancing its AI capabilities [64][65]

Group 1 - The core point of the article is that SenseTime-W announced a placement of new Class B shares to raise HKD 27.98 billion [1] - The number of shares to be placed is 1.865 billion, with a placement price of HKD 1.50 per share [2] - The net proceeds will primarily be used for the company's core business development, including AI cloud construction, enhancement of SenseTime's large-scale devices, and development of generative artificial intelligence, as well as for general working capital [2]

Investment Rating - Maintains a **Buy** rating for SenseTime with a target price of **HK$2.00**, up from HK$1.36, based on a 9.0x EV/Sales multiple for FY25E [1][18] Core Views - SenseTime has completed a strategic reorganization, adopting a "1+X" structure to focus on its core AI cloud services, large models, and AI applications, while other ecosystem businesses (smart cars, home robots, smart healthcare, smart retail) operate independently with flexible incentives and financing [1] - The reorganization is expected to accelerate SenseTime's path to breakeven, with breakeven now projected in FY26E (previously expected adjusted net loss of RMB 1.7 billion) [1] - The core AI cloud and Gen AI businesses grew 256% YoY in H1 2024, contributing 60% of total revenue, with significant cost reductions expected as core business headcount is reduced to less than 2,000 (50% of pre-reorganization total) [2] - SenseTime's Gen AI business is expected to grow at a 68% CAGR from FY24 to FY26, driven by increasing computing power and strong demand for AI computing [5] - SenseTime's total operational computing power reached over 20,000 PetaFLOPS in August 2024 (up 233% YoY), with management targeting over 25,000 PetaFLOPS by the end of FY24 [5] Financial Summary - Revenue is projected to grow from RMB 4,541 million in FY24E to RMB 7,498 million in FY26E, with adjusted net profit turning positive at RMB 84.1 million in FY26E [4] - Gross margin is expected to improve from 42.8% in FY24E to 39.0% in FY26E, while adjusted net profit margin is forecasted to turn positive at 1.0% in FY26E [15] - Operating cash flow is expected to improve significantly, turning positive at RMB 199 million in FY24E and reaching RMB 2,798 million by FY26E [25] Valuation - SenseTime's target EV/Sales multiple of 9.0x for FY25E is higher than the industry average of 7.8x, reflecting its leading position in China's Gen AI cloud services market and strong AI infrastructure [18] - The company's EV/Sales multiple is expected to decline from 9.8x in FY24E to 6.8x in FY26E, indicating improving profitability and valuation [25] Market Position - SenseTime ranks third in China's Gen AI IaaS market with a 15% market share as of Q2 2023 [5] - The company's strong AI infrastructure positions it to benefit from the growth of Gen AI, with significant investments in computing power and large models [5]

Investment Rating - The report maintains a "BUY" rating for SenseTime, with a target price raised to HK$2.00, reflecting a potential upside of 17.0% from the current price of HK$1.71 [3][10]. Core Insights - SenseTime has completed a strategic organizational restructuring to focus on its generative AI business, which is expected to accelerate its path to breakeven by FY26E [1]. - The revenue from the core AI Cloud and generative AI businesses grew by 256% year-over-year, accounting for 60% of total revenue in 1H24 [1]. - The restructuring is anticipated to lead to significant expense reductions, with the core business headcount reduced to below 2,000, representing less than 50% of the total group headcount prior to restructuring [1]. Financial Summary - Revenue projections for FY24E, FY25E, and FY26E are RMB4,541 million, RMB5,955 million, and RMB7,498 million respectively, indicating a growth trajectory [2][13]. - Adjusted net profit is expected to improve from a loss of RMB3,615.9 million in FY24E to a profit of RMB84.1 million in FY26E [2][13]. - The adjusted net margin is forecasted to improve from -79.6% in FY24E to +1.1% in FY26E, driven by robust growth in the generative AI business and a significant decline in operating expenses [1][2]. Market Position - SenseTime is positioned as the third largest generative AI IaaS service provider in China, holding a market share of 15% as of 2H23 [1]. - The company’s total operating computing power exceeded 20,000 PetaFLOPS in August 2024, with expectations to surpass 25,000 PetaFLOPS by the end of FY24 [1]. Valuation - The target price of HK$2.00 is based on a valuation of 9.0x FY25E EV/Sales, which is at a premium to the sector average of 7.8x, reflecting SenseTime's leadership in the generative AI cloud services market [10].

Financial Performance - Total revenue for the first half of 2024 reached RMB 1,739.7 million, representing a year-on-year increase of 21.4%[19] - Gross profit amounted to RMB 766.8 million, with a gross margin of 44.1%, up 18.2% year-on-year[19] - The company reported a net loss of RMB 2,477.2 million, a decrease of 21.2% compared to the previous year[21] - Revenue from generative AI business surged by 255.7% to RMB 1,051.2 million, accounting for 60.4% of total revenue[21] - Revenue from the "Zhi Ying" smart vehicle business increased by 100.4% to RMB 168.1 million[21] - The company's overseas business grew steadily, with a year-on-year revenue increase of 40.1%, contributing 18.5% to total revenue[21] - The adjusted EBITDA loss was RMB 1,889.6 million, a reduction of 6.7% year-on-year[19] - Operating loss for the first half of 2024 was RMB 2,721.5 million, an improvement from RMB 3,347.3 million in the same period of 2023[27] - Adjusted EBITDA for the first half of 2024 was RMB (1,889.6) million, compared to RMB (2,025.9) million in the first half of 2023[27] Revenue Breakdown - Revenue from the generative AI business reached RMB 1,051.2 million in the first half of 2024, representing a year-on-year growth of 255.7% and contributing over 60.4% to the group's overall revenue[22] - Traditional AI revenue decreased from RMB 1,053.7 million in the first half of 2023 to RMB 520.4 million in the first half of 2024, representing 29.9% of total revenue[29] - Smart vehicle business generated RMB 168.1 million in revenue, a 100.4% year-on-year increase, with 705,000 units delivered, up 80.0%[24] Expenses and Costs - Research and development expenses rose by 6.1% to RMB 1,892.2 million, with a total of 3,399 R&D personnel[21] - Sales expenses decreased by 21.2% to RMB 329.2 million, while administrative expenses fell by 7.7% to RMB 734.9 million[21] - Cost of sales increased by 24.0% from RMB 784.4 million for the six months ended June 30, 2023, to RMB 973.0 million for the six months ended June 30, 2024, primarily due to higher hardware costs and subcontracting services[31] - Gross profit increased by 18.2% from RMB 648.7 million for the six months ended June 30, 2023, to RMB 766.8 million for the six months ended June 30, 2024, with a slight decrease in gross margin from 45.3% to 44.1%[33] Cash Flow and Liquidity - The total cash and cash equivalents decreased from RMB 9,423.5 million at the beginning of the period to RMB 7,626.5 million at the end of the period, representing a reduction of approximately 19.1%[44] - Net cash used in operating activities for the six months ended June 30, 2024, was RMB 3,523.8 million, compared to RMB 1,804.8 million for the same period in 2023, indicating a significant increase in cash outflow[45] - Net cash used in investing activities was RMB 1,068.2 million for the six months ended June 30, 2024, primarily due to purchases of property, plant, and equipment, as well as debt and equity investments[47] - Net cash generated from financing activities was RMB 2,722.7 million, mainly from the proceeds of ordinary share placements[48] Assets and Liabilities - Total assets as of June 30, 2024, were RMB 32,550,214 thousand, a slight decrease from RMB 32,888,024 thousand at the end of 2023[62] - As of June 30, 2024, total liabilities increased to RMB 9,845,655 thousand from RMB 9,732,551 thousand as of December 31, 2023, representing a growth of approximately 1.16%[63] - The company reported a total of approximately RMB 4,270.4 million in collateralized assets as of June 30, 2024[55] - The aging of trade receivables showed a deterioration, with amounts over 3 years increasing from RMB 1,541.6 million to RMB 2,435.7 million[43] Investments and Financial Instruments - The fair value of financial assets measured at fair value through profit or loss amounted to RMB 7,399,101,000, while financial liabilities totaled RMB 1,954,203,000[76] - The Group's Level 2 financial assets were valued at RMB 6,960,980,000, and Level 3 financial assets were RMB 7,399,101,000 as of June 30, 2024[76] - The total fair value of Level 3 financial instruments decreased to RMB 5,006,777,000 from RMB 5,475,517,000 as of June 30, 2023, reflecting a change of approximately 8.56%[81] Employee and Management Compensation - The total compensation for key management personnel was RMB 10,810 thousand for the six months ended June 30, 2024, compared to RMB 14,975 thousand for the same period in 2023, reflecting a decrease of approximately 27.7%[197] - Employee benefits expenses totaled RMB 1,709,503,000, a decrease of 10.5% from RMB 1,909,104,000 in the previous year[98] Strategic Initiatives and Future Plans - The company aims to enhance its industry-leading AI infrastructure and support further development of generative AI with the allocated funds[54] - The company continues to focus on expanding its artificial intelligence software and related services across various regions, including Northeast Asia and Southeast Asia, as part of its growth strategy[68] Government and Regulatory Matters - The effective tax rate for the group’s entities in mainland China is 15% due to their qualification as "high-tech enterprises," compared to the standard rate of 25%[105] - Government subsidies received amounted to RMB 101,665 thousand, a significant increase from RMB 76,476 thousand in the same period last year, representing a growth of 32.9%[99]

Investment Rating - The report maintains a "Buy" rating for SenseTime-W (0020) with a target price of HKD 2.25 [1][3]. Core Insights - The company achieved steady growth in the first half of 2024, driven by significant growth in its generative AI business, which has become a key growth driver. The smart automotive business is also experiencing rapid growth and is expected to exceed expectations [3]. - The report forecasts revenues of RMB 45.76 billion, RMB 60.05 billion, and RMB 77.06 billion for 2024, 2025, and 2026 respectively, maintaining the target price of HKD 2.25, which corresponds to a 15.16x price-to-sales ratio for 2024 [3]. - In the first half of 2024, the company reported revenue of RMB 18.49 billion, a year-on-year increase of 29.04%, and a net loss attributable to shareholders of RMB 24.57 billion, with the loss margin reduced by 21.33% [3]. Financial Summary - The company's revenue for 2024 is projected to be RMB 45.76 billion, with a growth rate of 34% compared to 2023. The gross profit is expected to be RMB 1.968 billion, with a net loss of RMB 4.538 billion [4]. - The generative AI business generated revenue of RMB 10.51 billion in the first half of 2024, a substantial year-on-year increase of 255.7%, accounting for 60.4% of total revenue, up 39.8 percentage points year-on-year [3]. - The smart automotive business achieved revenue of RMB 1.68 billion in the first half of 2024, a year-on-year increase of 100.4%, with a revenue share of 9.7%, up 3.8 percentage points year-on-year [3].

Investment Rating - The report maintains an "Outperform" rating for the company [8] Core Views - The company has achieved significant revenue growth, with its generative AI business contributing 60.4% of total revenue in H1 2024, reflecting a 255.7% year-on-year increase [8][10] - The overall revenue for H1 2024 reached 1.74 billion, marking a 21.4% increase compared to the previous year [8] - The company is well-positioned for future growth, leveraging its core strengths in large models and AI cloud services [8][10] Financial Summary - Revenue for 2024 is projected to be 4.65 billion, with a year-on-year growth of 37% [10] - The net profit for 2024 is expected to be -4.048 billion, showing an improvement from -6.440 billion in 2023 [10] - The gross margin is anticipated to improve from 44.07% in 2023 to 53.74% in 2024 [10] Market Performance - The generative AI sector is experiencing rapid growth, with the company capturing a 16% market share in large models, ranking second in the industry [8][10] - The company's AI-driven services are being adopted across various industries, including smart hardware, electric vehicles, and finance, indicating a broadening market presence [8][10] Strategic Developments - The company has successfully transitioned to generative AI, with over 3,000 leading enterprises utilizing its large model and AIDC services [8][10] - The "日日新" large model has undergone significant iterations, achieving a 400% increase in overall usage in H1 2024 [8][10] - The company aims to establish a large model for autonomous driving by 2026, enhancing its position in the smart automotive sector [8][10]