Investment Rating - The report assigns a "Buy" rating for the company, marking its first coverage [2]. Core Viewpoints - The company is positioned as a comprehensive intelligent driving solution provider, focusing on both software and hardware integration, which is expected to drive a new growth cycle through product expansion and customer acquisition [3][9]. - The management team has a strong technical background, with significant experience from Bosch, enhancing the company's research and development capabilities [3][20]. - The company is transitioning its focus from primarily supporting Geely to expanding its partnerships with other domestic automakers like Chery, with new products expected to contribute to revenue growth [3][29]. Financial Performance - The company's revenue is projected to grow from 1.4 billion CNY in 2024 to 2.98 billion CNY in 2026, reflecting a compound annual growth rate (CAGR) of approximately 50% [2]. - The net profit is expected to improve significantly, moving from a loss of 194 million CNY in 2024 to a profit of 18 million CNY by 2026 [2]. - The earnings per share (EPS) is forecasted to turn positive by 2026, indicating a recovery in profitability [2]. Product and Market Development - The company has developed a product matrix that includes IFC and IDC series, covering low to high-level intelligent driving capabilities, with a focus on expanding its customer base [22][24]. - The introduction of regulations mandating Automatic Emergency Braking (AEB) in vehicles is anticipated to create a significant market opportunity for the company's IFC products, particularly in the lower price segments [5][59]. - The IDC series products are expected to benefit from the trend towards intelligent driving equality, driven by competitors like BYD, which will accelerate the adoption of intelligent driving technologies across various automakers [6][11]. Industry Trends - The penetration rate of L2 and above intelligent driving systems is on the rise, with expectations for further growth as regulations evolve and consumer demand increases [4][40]. - The market for intelligent driving solutions is shifting towards centralized domain control systems, which are more efficient and capable of supporting advanced driving features [45][46]. - The company is well-positioned to capitalize on the growing demand for integrated intelligent driving solutions, as evidenced by its strategic partnerships and product development initiatives [26][55].

Investment Rating - The report initiates coverage on Zhixing Automotive Technology (01274 HK) with a "Buy" rating [1] Core Views - Zhixing Automotive Technology is a leading full-stack autonomous driving solution provider in China, driven by both product innovation and customer expansion [2] - The company has secured over 40 vehicle models for its autonomous driving solutions, with Geely being its largest customer [2] - The global autonomous driving solutions market is expected to reach nearly RMB 10 trillion by 2030, with China accounting for a significant portion [3] - Zhixing is expected to achieve revenue of RMB 1 58 billion in 2024, with a year-on-year growth of 30%, and turn profitable by 2026 [4] Financial Performance and Valuation - Revenue for 2024E is projected at RMB 1 576 million, with a year-on-year growth of 29 54% [1] - Net profit for 2024E is expected to be -RMB 140 85 million, improving significantly from -RMB 195 11 million in 2023A [1] - The company's revenue in 2023 was RMB 1 216 million, a decline of 8 27% year-on-year, but actual product deliveries increased by 58% [50] - In H1 2024, revenue reached RMB 636 million, up 17 11% year-on-year, with autonomous driving solutions contributing RMB 613 million [51] Product and Market Analysis - Zhixing's product portfolio covers L2 to L2++ autonomous driving levels, with iFC, iDC, and SuperVision™ series [2] - The company has established a subsidiary in Germany to support domestic automakers in enhancing their competitiveness in overseas markets [2] - The global autonomous driving solutions market is expected to grow significantly, with L3-L5 solutions projected to reach RMB 966 6 billion by 2030 [3] - China's L3-L5 autonomous driving penetration rate is expected to reach 80 2% by 2030, surpassing the global average by 16 7 percentage points [3] Competitive Advantages - Zhixing has a strong R&D focus, with 250 R&D personnel accounting for 74 18% of its workforce [45] - The company has a comprehensive product matrix, including SuperVision™, iDC Mid, and iDC High, with plans to launch iFC 3 0 in 2024 [39] - Zhixing's SuperVision™ solution, which supports point-to-point navigation, has been deployed in Geely's popular models, including the Zeekr 001 and 009 [2] - The company has a strong cost control strategy, with iDC Mid achieving a gross margin of 15 1% in H1 2023 [95] Industry Trends - The global autonomous driving solutions market is expected to grow rapidly, driven by increasing demand for high-level autonomous driving (L3-L5) [3] - China's autonomous driving market is expected to lead globally, with L3-L5 penetration rates projected to reach 80 2% by 2030 [3] - The average selling price (ASP) of L3-L5 autonomous driving solutions is around RMB 10,000, significantly higher than that of L1-L2 solutions [86] Strategic Partnerships and Expansion - Zhixing has partnered with Mobileye to develop advanced autonomous driving solutions, including the SuperVision™ system [26] - The company has established a joint venture with Hangsheng Electronics to develop integrated cockpit and autonomous driving products [111] - Zhixing's German subsidiary has helped a major domestic automaker pass the EU's new GSR regulations, enhancing its competitiveness in overseas markets [49]

Investment Rating - The report assigns an "Accumulate" rating for the company, marking its first coverage [1][47]. Core Insights - The company is a leading provider of autonomous driving domain controllers in China, with a strong binding to high-quality downstream customers [2][3]. - The penetration rate of intelligent driving is expected to continue rising, indicating a broad market prospect for autonomous driving domain controllers [2][3]. - The company maintains high R&D investment, with a focus on expanding its business opportunities both domestically and internationally [2][3]. Summary by Sections Company Overview - The company was established in December 2016 and specializes in autonomous driving solutions, achieving a market share of 8.6% in 2022, making it the fourth-largest provider in China [8][2]. - The management team has extensive industry experience, with the chairman holding 21.57% of the shares, ensuring a clear ownership structure [8][9]. Market Trends - The market for autonomous driving domain controllers is projected to grow significantly, with estimates suggesting a market size of RMB 915 billion by 2027, reflecting a CAGR of 56.33% from 2022 to 2027 [2][21]. - The penetration rate of autonomous driving passenger vehicles in China is expected to reach 55.20% by 2024 and 81.70% by 2027 [2][18]. Financial Performance - The company's revenue grew from RMB 0.48 billion in 2020 to RMB 13.26 billion in 2022, with a CAGR of 425.59% [14][3]. - The projected revenues for 2024, 2025, and 2026 are RMB 17.59 billion, RMB 23.95 billion, and RMB 26.42 billion, respectively, with corresponding growth rates of 44.6%, 36.2%, and 10.3% [37][45]. R&D and Product Development - The company has significantly increased its R&D investment, with expenditures rising from RMB 0.44 billion in 2020 to RMB 2.17 billion in 2023, achieving a CAGR of 70.22% [26][27]. - The product matrix includes autonomous driving domain controllers and iFC series products, with the SuperVisionTM product line contributing 89% of revenue in 2023 [11][31]. Competitive Position - The company is the second-largest third-party provider of autonomous driving domain controllers in China, with a market share of 26.20% [24][2]. - The company has established partnerships with major OEMs, including Geely and Chery, and is expanding its international presence [32][34].

Financial Performance - The company reported a revenue of RMB 500 million for the first half of 2024, representing a 25% increase compared to the same period last year[6]. - Revenue for the first half of 2024 reached RMB 636.16 million, representing a year-on-year increase of 17.11% compared to RMB 543.21 million in the same period of 2023[10]. - Revenue for the reporting period was RMB 636.16 million, an increase of RMB 92.95 million or 17.11% compared to the same period in 2023[26]. - Revenue from autonomous driving solutions and products amounted to RMB 613.26 million, a 17.74% increase from RMB 520.86 million in the previous year[18]. - Revenue from autonomous driving-related R&D services was approximately RMB 19.61 million, an increase from RMB 12.08 million in the previous year, accounting for about 3.08% of total revenue[19]. - The company reported a pre-tax loss of RMB (98.60) million, slightly improved from a loss of RMB (99.75) million in the previous year[10]. - The loss for the reporting period was RMB 98.63 million, a decrease of 1.12% from RMB 99.75 million in the same period of 2023[37]. - The loss attributable to equity holders of the parent company for the reporting period was RMB 98.61 million, a decrease of 1.14% from RMB 99.75 million in the same period of 2023[38]. - The company reported a net loss of RMB (99,748,000) for the six months ended June 30, 2023, and a projected loss of RMB (98,629,000) for the six months ended June 30, 2024[85]. User Growth and Market Expansion - User data indicates a growth in active users to 1.2 million, up 30% year-over-year[7]. - Market expansion plans include entering Southeast Asia by Q4 2024, targeting a 15% market share in the region[6]. - The company secured 18 contracts from well-known OEM clients, including Chery and Geely, with production expected in 2024 and 2025, enhancing market share[22]. - The company is focused on expanding its market share in the electric vehicle industry through strategic partnerships and investments[77]. Research and Development - The company is investing RMB 100 million in R&D for new technologies, focusing on electric vehicle components[10]. - Significant investment in advanced algorithms is ongoing, with the deployment of a perception model based on BEV + Transformer on the iDC500 and plans for the next-generation product iDC510[56]. - The company reported research and development expenses of RMB 3,078,000 for the six months ended June 30, 2024, compared to RMB 3,059,000 for the same period in 2023[117]. Cost Management and Profitability - The company has implemented cost-cutting measures expected to save RMB 50 million annually, improving overall profitability[9]. - Selling expenses decreased by 14.85% to RMB 11.55 million, accounting for 1.82% of revenue, down from 2.50% in the previous year[32]. - Administrative expenses decreased by 39.55% to RMB 23.20 million, representing 3.65% of revenue, down from 7.07% in the previous year[33]. - The gross margin decreased to 7.05% in the first half of 2024, down from 7.55% in the same period of 2023, reflecting a decline of 0.50 percentage points[10]. Strategic Partnerships and Acquisitions - A new partnership with a leading battery manufacturer aims to improve supply chain efficiency and reduce costs by 10%[8]. - The company is exploring strategic acquisitions to enhance its technology portfolio, with a budget of RMB 200 million allocated for potential deals[7]. - The company is actively exploring partnerships in the autonomous driving industry and plans to enhance vertical integration through mergers or acquisitions of synergistic companies[58]. Cash Flow and Financial Position - The net cash outflow from operating activities for the reporting period was RMB 406.91 million, compared to RMB 80.88 million in the same period of 2023[40]. - The net cash outflow from investing activities for the reporting period was RMB 168.73 million, an increase from RMB 80.17 million in the same period of 2023[40]. - The group's net current assets as of June 30, 2024, were RMB 849.62 million, down from RMB 998.43 million as of December 31, 2023[41]. - Total borrowings as of June 30, 2024, were RMB 299.33 million, an increase of 32.65% from RMB 225.66 million as of December 31, 2023[43]. Shareholder Information - The company reported a total of 226,330,340 shares outstanding as of June 30, 2024[75]. - The major shareholders include 混改基金 with 8.14% and 中國誠通 with 8.14% of the domestic shares[70]. - The company has a significant shareholder, Li Xiang, who controls 9,308,980 H shares, representing 4.11% of the total shares[74]. - The company has multiple controlled entities, including HKL and HL Mando, each holding 15,316,080 H shares, which is 6.77% of the total shares[73]. Regulatory and Market Environment - The Chinese government has introduced multiple policies to promote the development of autonomous driving and intelligent connected vehicles, enhancing the industry’s growth prospects[14]. - The geopolitical risks and changes in EV tariff policies have impacted the Chinese automotive industry, prompting the company to advance overseas production capacity to mitigate these effects[59]. Future Outlook - Future outlook remains positive, with anticipated growth driven by increased demand for electric vehicles and smart automotive solutions[10]. - The autonomous driving industry is a national strategic development direction, with L3/L4 level autonomous driving technology expected to accelerate mass production due to national standards and local government pilot policies[53].

Revenue and Profitability - Revenue for the reporting period was RMB 636.16 million, a 17.11% increase compared to the same period in 2023[1] - Gross profit was RMB 44.85 million, up 9.29% year-over-year, with a gross margin of 7.05% (7.55% in 2023)[1] - Net loss attributable to equity holders of the company was RMB 98.61 million, a 1.14% decrease from RMB 99.75 million in 2023[1] - Basic and diluted loss per share was RMB 0.44, compared to RMB 0.49 in the same period last year[1] - Revenue from autonomous driving solutions and products increased to RMB 613,257 thousand in the first half of 2024, up from RMB 520,856 thousand in the same period of 2023, representing a growth of approximately 17.7%[16] - Revenue from autonomous driving-related R&D services rose to RMB 19,610 thousand in the first half of 2024, compared to RMB 12,083 thousand in the same period of 2023, marking a significant increase of approximately 62.3%[16] - Revenue from autonomous driving solutions and products reached RMB 613.26 million, a 17.74% increase compared to the same period in 2023, accounting for 96.40% of total revenue[46] - Sales of autonomous driving domain controllers contributed RMB 597.94 million, a 15.98% increase year-over-year, remaining the largest revenue source[46] - Revenue from intelligent front-view cameras surged 187.97% to RMB 15.32 million, driven by mass production deliveries for new models from Dongfeng, Geely, and Chery[46] - Autonomous driving-related R&D services revenue grew 62.29% to RMB 19.61 million, accounting for 3.08% of total revenue[47] - PCBA product sales declined 67.97% to RMB 3.29 million, representing only 0.52% of total revenue[48] - Total revenue for the reporting period was RMB 636.16 million, a 17.11% increase year-over-year[52] - Gross margin for the period was 7.05%, down from 7.55% in the same period of 2023[54] - The company reported a net loss of RMB 98.63 million, a 1.12% decrease compared to the same period in 2023[61] Costs and Expenses - Research and development expenses were RMB 99.587 million, a slight decrease from RMB 103.987 million in the same period last year[2] - Total expenses increased to RMB 725,643 thousand in the first half of 2024, up from RMB 658,107 thousand in the same period of 2023, driven by higher raw material and consumable costs, which rose to RMB 661,178 thousand from RMB 308,617 thousand[24] - Sales expenses decreased by 14.85% to RMB 11.55 million, accounting for 1.82% of revenue, down 0.68 percentage points from the previous year[57] - Administrative expenses decreased by 39.55% to RMB 23.20 million, accounting for 3.65% of revenue, down 3.42 percentage points from the previous year[58] - R&D expenses decreased by 4.23% to RMB 99.59 million, accounting for 15.65% of revenue, down 3.49 percentage points from the previous year[59] - Employee costs decreased by 19.92% to RMB 96.36 million, with the number of employees increasing to 460 from 337 in the previous year[72] Cash Flow and Financial Position - Cash and cash equivalents decreased significantly to RMB 212.39 million from RMB 720.453 million at the end of 2023[3] - Operating cash outflow increased significantly to RMB 410.6 million in H1 2024, compared to RMB 82.9 million in H1 2023[6] - Investment cash outflow rose to RMB 168.7 million in H1 2024 from RMB 80.2 million in H1 2023, driven by higher payments for property, plant, and equipment[6] - Financing activities generated a net cash inflow of RMB 65.4 million in H1 2024, compared to a net outflow of RMB 58.6 million in H1 2023[6] - Cash and cash equivalents decreased by RMB 510.3 million in H1 2024, more than double the decrease of RMB 219.6 million in H1 2023[6] - Net cash outflow from operating activities was RMB 406.91 million, compared to RMB 80.88 million in the same period of 2023[62] - Capital expenditures surged by 392.85% to RMB 82.28 million, driven by increased payments for property, plant, and equipment as well as intangible assets[69] Assets and Liabilities - Total assets decreased to RMB 1,599.205 million as of June 30, 2024, from RMB 1,672.552 million at the end of 2023[3] - Total liabilities increased to RMB 574.110 million from RMB 548.844 million at the end of 2023[4] - Total contract liabilities decreased to RMB 8,444 thousand as of June 30, 2024, down from RMB 12,097 thousand as of December 31, 2023, primarily due to reduced contract activities[20] - The total value of assets recognized from contract acquisition costs decreased to RMB 6,125 thousand as of June 30, 2024, from RMB 7,000 thousand as of December 31, 2023[17] - The total value of assets recognized from contract fulfillment costs decreased to RMB 36,954 thousand as of June 30, 2024, from RMB 45,188 thousand as of December 31, 2023[19] - The company allocated RMB 178,134 thousand to unfulfilled performance obligations as of June 30, 2024, down from RMB 229,627 thousand as of December 31, 2023, with most expected to be recognized as revenue within the next 12 months[22] - Inventory increased by 35.37% to RMB 346.56 million, with average inventory turnover days rising to 92 days from 58 days in the previous year[64] - Borrowings increased by 32.65% to RMB 299.33 million, with secured bank borrowings rising to RMB 62.25 million[65][66] - The company's trade receivables as of June 30, 2024, were RMB 386.04 million, compared to RMB 222.81 million as of December 31, 2023[33] - The company's total borrowings as of June 30, 2024, were RMB 299.33 million, compared to RMB 225.66 million as of December 31, 2023[34] - The company's short-term bank borrowings as of June 30, 2024, were RMB 129.43 million, with an effective annual interest rate of 2.95%[35] - The company's import financing from a Chinese bank as of June 30, 2024, was RMB 106.96 million, with an effective annual interest rate of 2.75%[36] - The company's short-term borrowings affected by interest rate changes and contract repricing or maturity dates amounted to RMB 201.89 million as of June 30, 2024, compared to RMB 24.93 million as of December 31, 2023[37] - Trade payables for materials decreased to RMB 136.42 million as of June 30, 2024, from RMB 184.65 million as of December 31, 2023[37] - The company's other payables and accrued expenses totaled RMB 101.96 million as of June 30, 2024, down from RMB 105.44 million as of December 31, 2023[39] - The company agreed to collect service fees from an OEM customer and pay suppliers for R&D services related to autonomous driving products, with uncollected service fees amounting to RMB 28.10 million as of June 30, 2024[39] - The company will pay USD 300,000 to a supplier in November 2025 as part of a software acquisition contract, reclassified to the non-current portion of other payables and accrued expenses[40] Market and Industry Trends - China's automotive market saw balanced growth in the first half of 2024, with production and sales of 13.89 million and 14.05 million vehicles, up 4.9% and 6.1% year-on-year, respectively[42] - New energy vehicle production and sales in China reached 4.93 million and 4.94 million units in the first half of 2024, up 30.1% and 32.0% year-on-year, with a market share of 35.2%[42] - Tesla's FSD V12, launched in January 2024, became the first end-to-end autonomous driving system in mass-produced vehicles, setting a new benchmark for the industry[43] - Autonomous driving is a national strategic development direction, with rapid growth expected due to nationwide standards and local government policies, accelerating the mass production of L3/L4 autonomous driving technologies[75] - Over 50% of consumers consider intelligent features as a key factor in car purchases, with advanced autonomous driving and smart cockpit experiences ranking as top priorities[75] Strategic Initiatives and Future Plans - The company successfully completed its IPO in December 2023, with H-shares listed on the Hong Kong Stock Exchange[7] - The company operates as a single segment focused on autonomous driving products and solutions in China[13] - All major operations, revenues, and non-current assets are concentrated in mainland China, with no regional segment data presented[14] - The company delivered over 96,000 sets of autonomous driving solutions and products, a year-on-year increase of 92.9%[44] - The company recorded revenue of approximately RMB 636.16 million, a year-on-year increase of 17.11%, with a gross profit of RMB 44.85 million, up 9.29% year-on-year[44] - The company secured 18 project contracts from OEMs including Chery, Geely, Dongfeng, and Polestar, with most models set for production in 2024 and 2025[49] - The iDC300 autonomous driving domain controller, using domestic chips, achieved mass production in H1 2024, expanding the iDC series to three platforms[50] - The German subsidiary is operational, supporting Chinese clients in Europe and securing EU GSR certification for two Chinese models in H1 2024[51] - The company will continue to lead in the large-scale commercialization of autonomous driving solutions and products, leveraging full-stack R&D capabilities and cost-efficient solutions[76] - Increased R&D investment will focus on advanced algorithms, with the deployment of BEV + Transformer perception models on iDC500 and the development of iDC510, a next-generation autonomous driving domain controller[77] - The company has secured several new customer contracts in H1 2024 and aims to deepen existing customer relationships while expanding into international OEM markets[78] - The company plans to enhance value chain integration by collaborating with top international SoC suppliers and exploring domestic SoC options, alongside potential mergers and acquisitions[79] - To mitigate geopolitical risks and tariff impacts, the company is actively advancing overseas production capacity in regions like Southeast Asia, Europe, and South America[80] - The company is diversifying its business model, with recent customer contracts in the light commercial vehicle sector and exploring opportunities in public transport, logistics, and specialized scenarios[81] - Global offering net proceeds amounted to approximately RMB 575.83 million (equivalent to HKD 595.23 million), with RMB 331.90 million remaining unused as of June 30, 2024[86][87] - 45% of the net proceeds (RMB 259.12 million) allocated to R&D for autonomous driving solutions, with RMB 102.71 million utilized and RMB 156.41 million remaining unused[86] - 35% of the net proceeds (RMB 201.54 million) allocated to capital expenditures for R&D headquarters, production facilities, and new production lines, with RMB 90.38 million utilized and RMB 111.16 million remaining unused[86] - 10% of the net proceeds (RMB 57.58 million) allocated to expanding sales and service networks, with RMB 9.29 million utilized and RMB 48.30 million remaining unused[86] - 10% of the net proceeds (RMB 57.58 million) allocated to working capital and general corporate purposes, with RMB 41.55 million utilized and RMB 16.03 million remaining unused[86] - The company expects to fully utilize the remaining net proceeds by the end of 2025, subject to market conditions and business needs[86][87] Other Financial and Operational Information - The company did not recommend an interim dividend for the reporting period, consistent with the previous year[1] - The company recognized government subsidies of RMB 2,198 thousand in the first half of 2024, a decrease from RMB 4,224 thousand in the same period of 2023, mainly for R&D and construction of advanced industrial bases[23] - The company's financial income net of expenses was RMB 1,463 thousand in the first half of 2024, slightly lower than RMB 1,801 thousand in the same period of 2023[25] - The company incurred a net loss of RMB 11,077 thousand in the first half of 2024, compared to a net gain of RMB 6,133 thousand in the same period of 2023, primarily due to foreign exchange losses and other financial instrument losses[23] - The company's effective corporate income tax rate for the six months ended June 30, 2024, and 2023, was 20% due to its qualification as a small and micro-profit enterprise[26] - The company's basic loss per share for the six months ended June 30, 2024, was RMB 0.44, compared to RMB 0.49 for the same period in 2023[28] - The company's diluted loss per share for the six months ended June 30, 2024, was the same as the basic loss per share, as there were no potential dilutive ordinary shares outstanding during the period[30] - The company's inventory recognized as cost of sales for the six months ended June 30, 2024, was approximately RMB 566.37 million, compared to RMB 482.36 million for the same period in 2023[31] - No purchase, sale, or redemption of listed securities by the company or its subsidiaries during the six months ended June 30, 2024[88] - The audit committee reviewed the unaudited interim financial statements and confirmed compliance with applicable accounting standards, laws, and regulations[89] - No significant events affecting the company's operations or financial performance occurred after June 30, 2024, up to the announcement date[89]

Financial Performance - The company reported a revenue of RMB 1.2 billion for the fiscal year 2023, representing a year-over-year increase of 15%[14] - The company's revenue for the year ended December 31, 2023, was RMB 1,216,287 thousand, a decrease of 8.27% compared to the same period in 2022[15] - The revenue from sales of autonomous driving solutions and products decreased by 9.78% to RMB 1,130,440 thousand, while revenue from autonomous driving-related R&D services increased by 66.28% to RMB 63,112 thousand[15] - The company's total revenue for the year ended December 31, 2023, was RMB 1,216,287 thousand, a decrease of RMB 109,595 thousand or 8.27% compared to 2022[39] - Revenue from the sale of autonomous driving solutions and products was RMB 1,130,440 thousand, down RMB 122,509 thousand or 9.78% year-on-year, accounting for approximately 92.94% of total revenue[29][39] - The net loss for the year was RMB 195,108 thousand, a reduction of 43.01% from RMB 342,376 thousand in 2022[55] - The company recorded net losses of RMB 53.8 million, RMB 464.2 million, RMB 342.4 million, and RMB 195.1 million for the years 2020, 2021, 2022, and 2023 respectively[188] User Growth and Market Expansion - User data indicates that the active user base has grown to 500,000, up from 400,000 in the previous year, marking a 25% increase[14] - Market expansion plans include entering the Southeast Asian market, targeting a market share of 10% within the first year[14] - The company plans to expand its products and solutions into Southeast Asia, the Middle East, and Europe in 2024, with further expansion into North America, South Korea, and Japan[20] - The company is committed to an overseas expansion strategy, planning to extend its products and solutions to North America, South Korea, and Japan in 2024[79] Product Development and R&D - New product launches include the iMotion X1, which is expected to contribute RMB 300 million in revenue in the first year[14] - The company is investing RMB 200 million in R&D for advanced autonomous driving technologies over the next two years[14] - The company is focusing on R&D investments to maintain its technological leadership, with plans to deploy BEV Transformer for mass production in 2024[76] - The company is committed to research and development in automotive safety technology and driving assistance systems, with a focus on innovation in autonomous driving[82] Cost Management and Profitability - The company has implemented cost-cutting measures that are projected to save RMB 100 million annually[14] - Gross profit for the period was RMB 120,953 thousand, an increase of 9.39% year-on-year, with a gross margin of 9.94% compared to 8.34% in 2022[15] - The gross margin for sales of autonomous driving solutions and products improved to 8.24% from 7.45% in 2022, while the gross margin for PCBA products decreased to 5.57% from 11.43%[15] - Research and development expenses increased by 108.20% to RMB 216,624 thousand, representing 17.81% of total revenue, up from 7.85% in 2022[50] Governance and Management - The company has established a robust governance framework with experienced professionals in key positions to drive strategic initiatives and ensure compliance[91][103] - The management team includes experienced professionals with nearly 20 years in the automotive industry, enhancing strategic planning and business direction[81] - The company emphasizes independent judgment in its governance structure, with multiple independent directors providing oversight[91][93] - The board consists of three executive directors, three non-executive directors, and three independent non-executive directors, ensuring a balanced composition[109] Risks and Challenges - The company faces significant risks due to its dependency on a limited number of solutions and products for the majority of its revenue[186] - The company has a concentrated revenue risk, with Geely Group being its largest customer, which poses a threat to financial stability if revenue from this client decreases[185] - The company acknowledges the challenges of maintaining competitiveness in a rapidly evolving autonomous driving market[186] - The company faces credit risk due to revenue concentration among a few customers, which could impact cash flow and profitability[199] Environmental and Social Responsibility - The company is committed to enhancing its environmental and energy management systems, certified under ISO 14001:2015[181] - The company has implemented various environmental measures, including the installation of activated carbon adsorption devices to manage production waste[181] - The company emphasizes the importance of gender diversity and equality within its workforce and senior management team[133] Strategic Partnerships and Collaborations - A strategic partnership with Mobileye is expected to enhance the company's ADAS capabilities, aiming for a 30% improvement in system performance[14] - The company is exploring potential mergers and acquisitions to enhance its technology portfolio, with a budget of RMB 500 million allocated for this purpose[14] - The company is actively exploring diversified business models, focusing on autonomous driving solutions for passenger vehicles and expanding into public transport, freight logistics, agricultural machinery, industrial and warehousing, mining, and port operations[80]

Financial Performance - The company's revenue for the year ended December 31, 2023, was RMB 1,216,287 thousand, a decrease of 8.27% compared to RMB 1,325,882 thousand in 2022[3]. - Revenue from the sale of autonomous driving solutions and products decreased by 9.78% to RMB 1,130,440 thousand from RMB 1,252,949 thousand in the previous year[3]. - Revenue from providing autonomous driving-related R&D services increased by 66.28% to RMB 63,112 thousand from RMB 37,956 thousand in 2022[3]. - The total comprehensive loss for the period was RMB (195,100) thousand, compared to a loss of RMB (195,108) thousand in the previous year, showing a slight improvement[11]. - The company reported a loss attributable to equity holders of RMB 195,108 thousand for the year ended December 31, 2023, compared to a loss of RMB 342,376 thousand in 2022, representing a 43% improvement[41]. - The basic loss per share for 2023 was RMB (0.95), an improvement from RMB (1.77) in 2022, indicating a reduction in losses per share by approximately 46.3%[41]. - The company reported a significant increase in research and development service revenue to RMB 63,112 thousand, up from RMB 37,956 thousand in 2022, marking a growth of 66.5%[22]. - The company recorded revenue of approximately RMB 63,112 thousand from autonomous driving-related R&D services in 2023, a 66.5% increase from RMB 37,956 thousand in 2022, accounting for about 5.19% of total revenue[65]. Assets and Liabilities - Total assets increased to RMB 1,672,552 thousand in 2023 from RMB 1,251,401 thousand in 2022[6]. - Cash and cash equivalents rose significantly to RMB 720,453 thousand from RMB 365,745 thousand in the previous year[6]. - The company had total borrowings of RMB 225,657 thousand as of December 31, 2023, significantly up from RMB 49,004 thousand in 2022, indicating a substantial increase in leverage[50]. - The company’s total liabilities related to contract liabilities decreased to RMB 12,097 thousand from RMB 33,295 thousand in the previous year, indicating improved contract management[24]. - The net value of current assets as of December 31, 2023, was RMB 998,432 thousand, up from RMB 583,050 thousand as of December 31, 2022[88]. Operational Metrics - The largest customer, Geely Group, contributed RMB 1,135.1 million to total revenue, accounting for approximately 93.3% of total revenue for the year[23]. - The company delivered over 130,000 autonomous driving solutions and products, representing a 58% increase compared to 2022[61]. - The average inventory turnover days increased to 87 days in 2023 from 82 days in 2022, attributed to lower sales costs in 2023[89]. - Trade receivables decreased to RMB 222,813 thousand in 2023 from RMB 293,978 thousand in 2022, a decline of approximately 24.2%[45]. - The company reported a net cash outflow from operating activities of RMB (261,790) thousand for 2023, compared to RMB (65,567) thousand in 2022, indicating a significant increase in cash burn[13]. Research and Development - R&D expenses increased by 108.20% to RMB 216,624 thousand, representing 17.81% of total revenue, up 9.96 percentage points from the previous year[81]. - Significant R&D investments are being made to solidify the company's technological leadership, with the deployment of the BEV Transformer algorithm expected to enter mass production in 2024[104]. - The company has seen a significant increase in service fees collected from an OEM customer for R&D services related to autonomous driving products, rising from RMB 12,920 thousand in 2022 to RMB 21,713 thousand in 2023[57]. Market and Strategy - The company has adjusted its strategy to focus on the development of L2 to L4 level autonomous driving solutions, responding to the growing market demand for autonomous passenger vehicles[61]. - The Chinese government has implemented policies to support the development of autonomous driving and intelligent connected vehicles, which is expected to accelerate the commercialization of high-level autonomous driving[59]. - A global expansion strategy is in place, with plans to extend products and solutions to North America, South Korea, and Japan by 2024, supported by strategic overseas partnerships[107]. - The company aims to deepen and diversify its OEM customer base, expanding its products and solutions to more vehicle models while increasing the sales and marketing team size[105]. Corporate Governance - The company was listed on the Hong Kong Stock Exchange on December 20, 2023, and has adopted the corporate governance code as its own[119]. - The audit committee, composed of three independent non-executive directors, has reviewed the financial statements for the year ending December 31, 2023, and confirmed compliance with applicable accounting standards[121]. - The auditor, PwC, confirmed that the preliminary results align with the audited financial statements for the year ending December 31, 2023[122]. Future Outlook - The company plans to enhance its autonomous driving solutions and products for large-scale commercialization, focusing on optimizing existing product lines and expanding manufacturing capabilities[103]. - The company is actively exploring diversified business models, particularly in public transport, logistics, agriculture machinery, and industrial applications for autonomous driving solutions[108].

Investment Rating - The report assigns a "Buy" rating to the company, with a target price of 117.17 HKD per share based on a projected PS ratio of 11 times for 2024 [150][164]. Core Insights - The company is positioned as a leading player in the autonomous driving sector, with a market share of 26.2% in 2022 and a focus on full-stack self-research capabilities for autonomous driving solutions [161][164]. - The company has established a diverse customer base, having secured letters of intent from 16 well-known OEMs, including Geely, Great Wall, and Chery [125][161]. - The report highlights the company's strong R&D capabilities, with a significant increase in R&D investment, which reached 1.04 billion CNY in 2023H1, reflecting a year-on-year growth of 123.97% [110][111]. Summary by Sections 1. Industry Overview - The autonomous driving industry is rapidly evolving, driven by technological advancements and decreasing hardware costs, making it a core competitive advantage for OEMs [174][175]. - The penetration rate of mainstream intelligent driving functions is steadily increasing, with significant growth potential for higher-level autonomous driving features [187]. 2. Autonomous Driving Domain Controller - The company has developed a comprehensive range of autonomous driving solutions, including L2 to L2++ level products, with plans to launch L3 solutions [164][165]. - The market for intelligent driving domain controllers is expected to grow significantly, with a projected market size of 48 billion CNY by 2025, reflecting a CAGR of 109.9% from 2021 to 2025 [60]. 3. Financial Performance and Growth Potential - The company has experienced rapid revenue growth, with a CAGR of approximately 425.59% from 2020 to 2022, and expects to continue this trend with projected revenues of 1.35 billion CNY in 2023 [100][140]. - The gross margin is expected to improve as higher-margin products are launched, with forecasts indicating a gross margin of 20.23% by 2025 [140]. 4. R&D and Market Expansion - The company emphasizes its R&D strength, with a focus on developing proprietary algorithms and software solutions that enhance product adaptability and efficiency [110][125]. - The company is actively expanding its international presence, having established a subsidiary in Germany to support overseas market development [128][136]. 5. Valuation and Investment Recommendation - The report compares the company's valuation with peers like Mobileye and Luminar, indicating that the company is undervalued relative to its growth potential [145][150]. - The investment recommendation is based on the company's strong product pipeline, expanding customer base, and the anticipated profitability turning point in the near future [150][164].