smart driving: from adas to unmanned driving
TRANSCRIPT
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Auto Industry Thematic Report
Smart driving: From ADAS to unmanned
driving
28 Jun 2016 OUTPERFORM (Reiterate)
Investment Highlights
As technology evolves, we will soon head into an era of “Internet
of Things”. Smart driving, which ultimately culminates in pilotless
driving, seems the best-fitting theme under the concept of
“Internet of Everything”. Tech companies are accelerating the pace of
technological advances and product iteration related to smart driving,
and ADAS (Advanced Driver Assistant Systems) currently stands as the
best point of exposure to the new theme. We take note of increased
investor attention on smart driving names driven by: 1) Tech companies
beyond the automotive industry, led by Tesla Motors, Apple Inc., and
China’s BAT (i.e. Baidu, Alibaba, Tencent) have accelerated
technological advances in the universe of smart driving, and consumer
and investor attention have come along with these new developments;
2) Interconnected vehicles on a real-time basis and unmanned driving
are made possible thanks to 5G communication technologies and
up-to-date sensor technologies available at a lower cost; and 3)
Conventional auto OEMs are also making efforts toward smart driving
via R&D or M&A to deal with the competition.
Smart driving will gear up on evolving technologies, clarity on
regulation and production vehicle rollouts. We estimate that the
hardware necessary for fully automatic smart vehicles may come into
mass production in 2020-2025, while smart driving services integrating
mobile internet, big data and cloud computing technologies will likely be
available in a decade. Technological progress and product iteration
related to smart driving will pace up as tech players and conventional
auto OEMs jostle to snatch a slice of the big pie. Tesla Motors added
autopilot hardware to its models in mass production at the end of 2015.
China-funded tech firms, including NextEv Limited, Future Mobility,
LeEco’s automotive arm, may launch mass production of their smart
vehicles in 2017-2018. Simultaneously, road tests and regulations will
come out to catch up with the progress in smart driving.
Listed companies may gain presences in ADAS by acquiring
shares of related companies. Despite user-oriented product
development and more flexible organizational structure, the tech
players still follow in the steps of traditional automakers in the
manufacturing process. Vehicles equipped with ADAS modules could
become important transitory smart vehicles from their traditional
counterparts in the evolution towards self-driving technologies. We
estimate a market of c.Rmb200bn for ADAS modules in China by
2020E, where traditional component suppliers will maintain its
leadership while start-ups will also cut into the market. With a strategy
that combines “imitation and independent innovation”, Chinese ADAS
manufacturers will likely develop rapidly. Given the scarcity of
CITICS Research
XU Yingbo
Tel: 010-60838704
Email: [email protected]
Practicing license:S1010510120041
CHEN Junbin
Tel: 010-60836703
Email: [email protected]
Practicing license:S1010512070001
GAO Deng
Tel: 010-60836729
Email: [email protected]
Practicing license:S1010514070004
CUI Yushuo
Tel: 010-60836750
Email: [email protected]
Practicing license: S1010516050002
Performance relative to the
index
Source: CITICS Quantitative Investment
Analysis System
Auto CSI 300
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outstanding ADAS manufacturers, listed companies will likely gain presence in the business by investing
in related companies.
ADAS sensors and actuators are also worthy of attention. We expect start-ups to focus on
technologies related to bird’s eye view systems based on camera image recognition technologies as well
as sensing applications involving automotive radars, such as collision warning. An ADAS module
consists of sensors, algorithms, and actuators. We expect ADAS sensors, such as millimeter-wave
radars, lidars, cameras, and ultrasonic radars, to represent a market of tens of billions. ADAS actuators,
including those used in the braking system, will create a market of a similar size. We also see investment
opportunities in smart-driving technologies, such as high resolution maps, Internet of Vehicles, big data
and cloud computing.
Potential risks: 1) Most listed companies entered the smart driving segment by way of either equity
investment or M&A activities. They need time to prove their operational capabilities and potential to
consolidate/integrate the newly-acquired business; 2) Profit contribution from smart driving could be
restricted given the limited number of new product offerings in the coming 1-2 years; 3) The high
valuation levels of some target companies provide minimal safety margins; and 4) Potential sell-downs
by the senior executives of listed companies.
Investment recommendations and sector rating: In our view, unmanned driving represents the
ultimate direction of the auto industry, but may only deliver a small profit over the next 1-2 years. We
think the smart driving segment will likely maintain high valuation levels driven by thematic opportunities.
Therefore, the market position of the target company will become an important valuation benchmark in a
potential acquisition deal. We reiterate our OUTPERFORM call on the sector, and advise investors to
watch the following names: Zhejiang Vie Science & Technology (002590), Tuopu Group (601689),
Asia-Pacific Mechanical & Electronic (002284), Xingyu Automotive Lighting Systems (601799), Joyson
Electronic (600699) and Shuanglin Auto Parts (300100).
Earnings forecast, valuation and investment rating of key listed companies
Company Share price (Rmb) EPS (Rmb) PE (x)
PB (x) Rating 15 16E 17E 18E 15 16E 17E 18E
Vie Science & Technology (002590) 28.94 0.19 0.24 0.31 0.37 152 121 93 78 8.5 O/W
Ningbo Tuopu Group (601689) 26.54 0.63 0.76 0.88 1.04 42 35 30 26 5.3 O/W
Asia-Pacific Mechanical& Electronic (002284) 18.18 0.19 0.25 0.29 0.34 94 73 63 53 5.3 O/W
Xingyu Automotive Lighting Systems (601799) 45.59 1.22 1.46 1.69 1.95 90 46 27 23 6.6 O/W
Joyson Electronic (600699) 36.73 0.41 0.79 1.34 1.60 70 48 39 33 7.8 O/W
Shuanglin Auto Parts (300100) 42.57 0.61 0.84 1.00 1.18 70 51 43 36 7.8 O/W
Source: Wind, CITICS Research forecast Note: Closing price as of 14 Jun 2016
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Contents
Smart driving: Full speed ahead into a reality ............................................................... 1
Smart driving gives rise to fresh opportunities .................................................................... 2
Dual paths of technology evolution: Tech firms vs. traditional OEMs ................................. 3
ADAS: The first module to be commercialized .............................................................. 8
Auto safety regulations help accelerate ADAS growth ........................................................ 8
ADAS will likely be the first to be commercialized ............................................................ 10
First-movers are likely to be the ultimate winners .............................................................. 11
Components: Domestic companies will likely be able to produce sensor/map
modules in the future ...................................................................................................... 15
Sensor modules: integration of multiple sensors .............................................................. 15
Sensor modules: Millimeter wave radar ............................................................................ 16
Sensor modules: lidar (light detection and ranging) .......................................................... 18
Sensor modules: camera .................................................................................................. 21
Sensor modules - infrared night vision: Huge growth potential; focus on domestic leaders
........................................................................................................................................... 23
High resolution maps: The oligopoly competitive landscape will likely continue .............. 24
Actuators ........................................................................................................................... 25
Intelligent electronics system ............................................................................................ 25
The Internet of Vehicles (IoV) ............................................................................................ 26
Potential risks .................................................................................................................. 27
Investment strategy and recommendations ................................................................. 27
Key companies .................................................................................................................. 28
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Figs
Fig. 1: Levels of driving automation according to SAE and NHTSA ................................... 1
Fig. 2: The roadmap for evolution of smart driving ............................................................. 2
Fig. 3: Future competitive landscape of smart driving ........................................................ 3
Fig. 4: More than 80mn vehicles were sold worldwide in 2015 .......................................... 3
Fig. 5: Tech firms are making inroads into smart driving ..................................................... 5
Fig. 6: The self-driving concept car from Mercedes-Benz .................................................. 7
Fig. 7: Driverless cars will hit the road in 2020, according to Nissan’s plan ....................... 7
Fig. 8: Changan Automobile’s driverless cars cruised all the way to Beijing from Chongqing
............................................................................................................................................. 8
Fig. 9: A driverless model from BAIC BJEV ........................................................................ 8
Fig. 10: Key active and passive safety technologies .......................................................... 9
Fig. 11: Key ADAS technologies ....................................................................................... 10
Fig. 12: Major ADAS system integrators and respective market share in 2013................ 12
Fig. 13: Mobileye’s OEM-embedded operations grew quickly .......................................... 13
Fig. 14: Mobileye’s operating revenue and net profit (US$mn) ......................................... 13
Fig. 15: ADAS components ............................................................................................... 15
Fig. 16: Millimeter wave radar ........................................................................................... 16
Fig. 17: Global market size of millimeter wave radar ........................................................ 17
Fig. 18: Global landscape of millimeter wave radar industry in 2015 ............................... 17
Fig. 19: Lidar’s 3D point cloud ........................................................................................... 19
Fig. 20: Rotating lidar vs. fixed lidar .................................................................................. 20
Fig. 21: China’s vehicle camera capacity in 2011-2015 .................................................... 22
Fig. 22: China’s vehicle camera market size (Rmb100mn) .............................................. 22
Fig. 23: Global market share of camera lens in 2014 ....................................................... 23
Fig. 24: Working principle of Infrared Night Vision System ............................................... 24
Fig. 25: Shipment of OEM-embedded navigation systems continued to grow in 2015 .... 25
Fig. 26: OEM-embedded navigation system market share in 2015 .................................. 25
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Tables
Table 1: Former senior auto executives that are now working for tech firms ...................... 5
Table 2: The self-driving agenda of mainstream OEMs ...................................................... 7
Table 3: The self-driving agenda of Chinese local OEMs ................................................... 8
Table 4: ADAS technology is included into auto safety rules .............................................. 9
Table 5: ADAS technologies and major functions ............................................................. 10
Table 6: Total available market (TAM) of ADAS in China by 2020E ................................... 11
Table 7: World leading ADAS system integrators ............................................................. 12
Table 8: ADAS start-ups in China ...................................................................................... 13
Table 9: Equity investment in ADAS by listed companies ................................................. 14
Table 10: The target proportion of domestically-produced key components of vehicles,
according to the Made in China 2025 plan ....................................................................... 15
Table 11: Performance of vehicle sensors ........................................................................ 15
Table 12: Frequencies for millimeter wave radar .............................................................. 17
Table 13: Major domestic providers of millimeter wave radars ......................................... 18
Table 14: Rotating lidar products ....................................................................................... 19
Table 15: Fixed lidar vs. hybrid fixed lidar ......................................................................... 20
Table 16: Estimated lidar market size in 2020E ................................................................ 20
Table 17: Domestic companies related to lidar business .................................................. 20
Table 18: Applications of cameras ..................................................................................... 22
Table 19: Recommended actuator manufacturers ............................................................ 25
Table 20: Recommended vehicle-mounted intelligent electronics system vendors .......... 25
Table 21: Recommended IoV names ................................................................................ 26
Table 22: Earnings forecast ............................................................................................... 27
Table 23: Earnings forecast and valuation ........................................................................ 29
Table 24: Earnings forecast and valuation ........................................................................ 31
Table 25: Earnings forecast and valuation ........................................................................ 33
Table 26: Earnings forecast and valuation ........................................................................ 35
Table 27: Earnings forecast and valuation ........................................................................ 37
Table 28: Earnings forecast and valuation ........................................................................ 39
Auto Industry Thematic Report
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As technology evolves, we will soon head into an era of “Internet of Things”. Smart driving,
which ultimately culminates in pilotless driving, seems the best-fitting theme under the
concept of “Internet of Everything”. Tech companies are accelerating the pace of
technological advances and product iteration related to smart driving, and ADAS
(Advanced Driver Assistant Systems) currently stands as the best point of exposure to the
new theme. In addition, ADAS sensors (such as millimeter-wave radars, lidars, and
cameras) and actuators (mainly brake actuators) also merit attention.
Smart driving: Full speed ahead into a reality
Automotive hardware required for fully automatic driving may come into mass
production in 2020-2025 as “unmanned driving” gears up. We take note of increased
investor attention over smart driving names driven by: 1) Tech companies beyond the
automotive industry, led by Tesla Motors, Apple Inc., and China’s BAT (i.e. Baidu, Alibaba,
Tencent) have accelerated technological advances in the universe of smart driving, and
consumer and investor attention have increased along with these new developments; 2)
Interconnected vehicles on a real-time basis and unmanned driving are made possible
thanks to 5G communication technologies and up-to-date sensor technologies available at
a lower cost; and 3) Conventional auto OEMs are also making efforts toward smart driving
via R&D or M&A to cope with the competition. We estimate that mass production of
automotive hardware necessary for fully automatic smart vehicles may start in 2020-2025,
while smart driving services enabled by mobile internet, big data and cloud computing
technologies will be made available in a decade and incrementally popular thereafter.
Driving automation can be classified into different levels depending on the driver’s
control over the vehicle and the attribution of associated safety liabilities.
Organizations adopt varied criteria in their classification. The Germany Federal Highway
Research Institute (BASt), the US National Highway Traffic Safety Administration (NHTSA)
and SAE International (SAE) follow largely similar criteria, though classifications slightly
differ. SAE scales driving automation technologies into Level 0-5, i.e. driver only (Level 0),
assisted driving, partial automation, conditional automation, high automation, and full
automation (Level 5). NHTSA, however, does not differentiate high automation from full
automation, and tags both as Level 4. Concisely, the human driver monitors the driving
environment in scenarios of Level 0-2, while automated driving system monitors in
scenarios of Level 3 and beyond.
Fig. 1: Levels of driving automation according to SAE and NHTSA
Source: EPoSS, collated by CITICS Research
Starting from Level 1-2 driving automation at present, we expect fully automatic
vehicles to come into mass production in 2020-2025. Vehicles that can achieve Level
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1-2 driving automation are already in mass production. Specifically, vehicles can come with
functions enabling Level-1 warning prompts, including LDW (lane departure warning),
FCW (forward collision warning), BSD (blind spot detection), and TSR (traffic sign
recognition), as well as Level-2 interventional driving assists, including ACC (adaptive
cruise control), LKA (lane keeping assist), AEB (automatic emergency braking), IHC
(intelligent headlight control), and AP (automatic parking). Available technologies are also
sufficient to facilitate Level-3 driving automation, such as Toyota's Automated Highway
Driving Assistant, Tesla Motors’ Autopilot, and General Motors’ Super Cruise. Mass
production can be possible in 2018-2020. Automakers have worked out development
mules to test high automation technologies, and such vehicles could be ready for mass
production in 2020. The ultimate smart vehicle capable of fully automated driving may
come into reality in 2025.
Smart driving will gear up on evolving technologies, clarity on regulation and
production vehicle rollouts. Technological progress and product iteration related to
smart driving will pace up as tech players and conventional auto OEMs jostle to snatch a
slice of the big pie. Tesla Motors added autopilot hardware to its models in mass
production at the end of 2015. China-funded tech firms, including NextEv Limited, Future
Mobility, LeEco’s automotive arm, may launch mass production of their smart vehicles in
2017-2018. Simultaneously, road tests and regulations will come out to catch up with the
progress in smart driving. Fu Yuwu, president of the Society of Automotive Engineers of
China, said in early June that China may publish the country’s first-ever standards for
unmanned driving within two months at the opening ceremony of National Intelligent
Connected Vehicle (Shanghai) Pilot Zone.
Fig. 2: The roadmap for evolution of smart driving
Source: Collated by CITICS Research
Smart driving gives rise to fresh opportunities
The value chain of smart driving may be shaped into a pyramid structure of three
levels: 1) Auto OEMs and tech firms: Traditional OEMs will maintain their core
competitiveness in automotive manufacturing and integrated control while tech players will
grab a share of the market leveraging their strength in artificial intelligence and
human-computer interaction; 2) ADAS suppliers, which will provide ADAS solutions to both
OEMs and tech firms given their strength in recognition algorithm than can enable
perception; and 3) Auto parts suppliers of radars, cameras, chips, and EBS (electronic
Warning Prompts Lane Departure Warning
(LDW) Forward Collision Warning
(FCW) Blind Spot Detection
(BSD)
Full Automation
ADAS + Internet of Vehicles + High Resolution Map
Comprehensive Assists
Automated Highway Driving Assist
(AHDA)
Traffic Jam Assist (TJA)
Interventional Assists Adaptive Cruise Control (ACC)
Lane Keeping Assist (LKA)
Automatic Emergency Braking (AEB) High Automation
Conditional Automation
Partial Automation
Assisted Driving
Level of A
uto
ma
tion
Time
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braking system). Capital/technology barriers come in a descending order from 1) to 3), and
so does the market concentration.
Fig. 3: Future competitive landscape of smart driving
Source: Collated by CITICS Research
Companies with a presence in smart driving will compete for a pie of trillion yuan.
Despite slower growth of auto sales globally, more than 80mn vehicles were sold
worldwide in 2015. In China alone, 24.60mn were sold, representing a value chain worth
Rmb2.5trn. Auto OEMs have acquired sufficient technologies, such as those for engines
and gearboxes, to satisfy most customer needs in terms of vehicle dynamics and control
over the past century. Going forward, services may serve as the main differentiator among
automobile players. Therefore, smart driving and associated human-vehicle interactive
services may reshape the industry.
Fig. 4: More than 80mn vehicles were sold worldwide in 2015
507 576 722 879 938 1,364 1,806 1,851 1,931 2,198 2,349 2,460
5,022 5,187 5,277 5,671 5,378 4,797 5,374 5,662 6,005 6,055 6,185 6,272
-
2,000
4,000
6,000
8,000
10,000
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
万辆
中国销量(万辆) 其他地区销量(万辆)
Source: Marklines, collated by CITICS Research
Dual paths of technology evolution: Tech firms vs. traditional OEMs
We expect tech players to gain a 40% market share by 2025, with traditional OEMs
keeping the remaining 60%, given: 1) Tech firms have gained a head start leveraging
their strength in algorithm, a core competence to enable smart driving; and 2) Traditional
Sales in China (0,000 Units)
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OEMs will continue to outperform across the value chain in terms of product safety and
reliability due to the high barrier to automotive manufacturing. In addition, tech firms are
unlikely to make auto OEMs obsolete as consumers have high recognition of traditional
auto brands given the long replacement cycle of vehicles.
Tech companies grew apace on zero legacy burdens + advantage in data by starting
with the highest level of driving automation. Tech players like Tesla Motors, Google
and Baidu have ventured into unmanned driving, a step ahead of traditional OEMs. We
attribute tech firms’ faster pace in exploring the possibility of driverless cars to the following
factors: 1) As new entrants of the automotive industry, tech players can seek leapfrog
development by starting with the highest level of driving automation as they are not obliged
by burdens of producing existing models; 2) Tech firms excel in technologies for data
integration, high resolution maps and others; and 3) Tech companies have the vision to
turn vehicles into the next access gateway under the driverless scenario.
Tech firms made surprisingly speedy progress in smart driving. In 2014, Tesla
Motors began to offer Autopilot on models equipped with a forward-looking camera, a
forward radar and ultrasonic sensors, which can enable self-driving under certain road
conditions and support over-the-air software updates. Google unveiled the prototype of its
first driverless car in 2014, followed by road tests in California in January 2015 and US
authorities granting a driver’s license in February 2016. Mass production is expected in
2020. Baidu announced successful road tests in Beijing for its driverless car, jointly
developed with BMW, in December 2015, creating an unmanned driving division the same
month. Partial commercialization of highly automated driving is expected in 2018, and
mass production will be ready in 2020. LeEco set up its auto division in July 2015 and
announced later in December that it will work with Aston Martin to manufacture the
first-generation LeEco super car LeSEE. It announced the partnership with Faraday Future,
a US electric car manufacturer, in January 2016, and unveiled the super electric concept
car, FFZero1, the same month. The Chinese tech firm held the groundbreaking ceremony
for its US$1bn electric car plant in Las Vegas in April 2016. Future Mobility, established in
June 2015, obtained necessary qualifications of an auto OEM by acquiring Green Field
Motor the same month. It will operate with two brands of “Aidisheng (爱迪生)” and “iCar”,
with mass production expected in 2018. NextEv Limited was incorporated in end-2014
and its TCR team won the first driver ’s title in the Formula E championship in June 2015; it
entered into a strategic cooperation agreement of Rmb10bn with JAC Motors in April 2016.
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Fig. 5: Tech firms are making inroads into smart driving
Tesla Model 3 supports Autopilot Google obtained a driver’s license for its driverless car from US authorities
Baidu completed road tests for its driverless car
LeEco unveiled its autonomous EV concept LeSEE
China Harmony Auto + Foxconn + Tencent = Future Mobility
NextEv sponsored the FIA Formula E Championship
Source: Relevant company websites, collated by CITICS Research
Tech firms hired senior executives of traditional OEMs to compete with the latter.
Parallel to the brisk progress in smart driving, tech firms welcomed a large number of
senior executives from traditional OEMs to steer their automotive ambitions. Statistics
show that LeEco’s auto division, Future Mobility, NextEV gathered a pool of 20-plus former
auto executives. We think the rationale could be: 1) Tech firms put more value on
high-level talents and senior executives have better prospects of making a difference
during the early stage of tech firms’ automotive endeavors; and 2) Tech companies are
well funded and can offer these executives much better compensation than traditional
OEMs. In addition, the large number of auto hires also indicates that tech firms are getting
closer to the stage of mass production, and commercial production could be possible in the
next few years to actually compete with auto OEMs.
Table 1: Former senior auto executives that are now working for tech firms
Tech Firms Senior
Executives Previous Titles Current Positions
LeEco’s auto
division
DING Lei
Vice President, SAIC Motor; General
Manager, former Shanghai General
Motors
Global Vice President & Executive
Director, LeEco’s auto division
ZHANG Hailiang Vice President, SAIC Motor President, LeEco’s auto division
LV Zhengyu General Manager, Infiniti China & Asia
Pacific
Vice President, LeEco’s auto
division
FU Zhenxing Chief Engineer of Electric Car R&D, SAIC
Motor
Vice President, LeEco’s auto
division
GAO Jingshen Vice General Manager, GAC Toyota Vice President, LeEco’s auto
division
Frank Sterzer Manufacturing Director,
FAW-Volkswagen
Senior Director of Manufacturing,
LeEco’s auto division
Future
Mobility
Daniel Kirchert Managing Director, Dongfeng Infiniti COO (Chief Operation Officer),
Future Mobility
Carsten Breitfeld Vice President of BMW, Project Manager
of i8
CEO (Chief Executive Officer),
Future Mobility
Benoit Jacob Vice President of Design, BMW --
Henrik Wenders Vice President of Marketing, BMW --
Dirk Abendroth Vice President of Software &
Connectivity, BMW --
Wolfram Luchner Lead Designer of Alphabet Inc.’s (i.e.
Google’s) self-driving project --
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Tech Firms Senior
Executives Previous Titles Current Positions
Luca Delgrossi
Director of Autonomous Driving,
Mercedes-Benz Research &
Development North America
--
FU Qiang CEO, Volvo China Sales CEO, Zhejiang Aiche Internet
Intelligent Electric Vehicle
NextEv
Martin Leach
CEO, Maserati Global; President, Ford
Europe; Managing Director, Mazda
Global
Co-President, NextEv
QIN Lihong Deputy General Manager of Sales, Chery
Automobile Co-Founder, NextEv
ZHENG Xiancong Chairman & President, Fiat China Co-Founder, NextEv
HUANG
Chendong
Deputy General Manager of New Energy
Vehicle, SAIC Motor Vice President, NextEv
Mark Zhou
Executive Director of Purchasing, Human
Resources & Government Affairs, Qoros
Auto
Vice President of Business
Development, NextEv
Roger Malkusson Executive Director of Vehicle Integration,
Qoros Auto
Vice President of Vehicle
Engineering, NextEv
Source: Auto.163.com, Auto.qq.com, collated by CITICS Research
Traditional OEMs will steer towards driverless solutions in a stepwise approach. We
expect auto OEMs to incrementally aim higher towards ultimate driverless solutions by
starting with Level 1-2 driving automation. Our call is backed by: 1) Traditional OEMs seem
unlikely to seek leapfrog upgrades under pressure from earnings in light of their legacy
burdens to produce a massive number of existing models; 2) Traditional OEMs have
already enabled some of their models with assisted driving functions as they have the
technologies required for semi-autonomous driving; and 3) Regulatory and ethical
considerations will hamper the adoption of driverless solutions by traditional OEMs.
Auto OEMs are targeting Level-4 high automation technologies in the next step
towards smart driving, with mass-production models potentially available for sale in
2020. Traditional automotive manufacturers can currently provide models capable of Level
1-2 driving automation, and have acquired sufficient technologies to facilitate Level-3
driving automation, such as Toyota's Automated Highway Driving Assistant, Tesla Motors’
Autopilot, and General Motors’ Super Cruise. They are now working on the commercial
production of vehicles enabling Level-4 automation. At the 2015 Consumer Electronics
Show, Mercedes-Benz revealed its self-driving concept car, F015 Luxury in Motion, which
came along with connected services, a pedestrian detection system and an automatic
emergency braking system. Japanese carmaker Nissan will have self-driving cars hit the
road in 2020, but will retain the driver ’s control over such models. Mass production of
highly automated models could be possible around 2020.
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Fig. 6: The self-driving concept car from
Mercedes-Benz
Source: Auto.sina.com.cn
Fig. 7: Driverless cars will hit the road in 2020,
according to Nissan’s plan
Source: Auto.qq.com
Table 2: The self-driving agenda of mainstream OEMs
OEMs Date of
Announcement
Commercialization
of Self-Driving
Cars
Details
Toyota Jan. 2015 2020 To have self-driving models ready for sale around 2020
Nissan 2013 2020
To launch multiple models enabled by commercially
viable autonomous driving technologies that are
available in mass production by 2020
Volkswagen Nov. 2015 2020 To release an electric Phaeton with up-to-date driverless
technology
BMW April 2015 2017-20
BMW signed an agreement with Baidu in Sept. 2014 to
collaborate in the research of highly automated driving
technology in China. Both sides have the confidence to
present highly autonomous BMW models able to run on
urban roads in China at the end of the three-year
collaboration.
Mercedes-Benz Jan. 2015 2020
Road tests of self-driving S500 already underway;
Highway Pilot for trucks released. Commercialization
should be expected around 2020.
General Motors Sept. 2013 2020 To unveil its first self-driving model Cadillac SRX before
2020
Hyundai May 2015 2020 Self-driving models will be put into commercial use by
2020.
Kia Motors Jan. 2016 2020
Kia Motors introduced a new “Drive Wise” sub-brand for
assisted driving and semi autonomous driving
technologies. It will focus on ADAS in 2016 for
improvement in safety and convenience, and aims to
achieve partially/highly/fully autonomous driving by
2020/2025/2030.
Volvo Car Nov. 2015 2020 Has released the Intellisafe autopilot project, and aims to
make highly autonomous driving a reality by 2020.
Ford Motor June 2015 2019
Ford Motor said its Mondeo models available for sale in
Europe have been equipped with Pre-Collision Assist
with Pedestrian Detection, and such models will be
released in the U.S. the next year. It also expects to
make multiple self-driving technologies, including
Pre-Collision Assist, available on models on sale
globally by 2019.
Source: DBScar and other websites, collated by CITICS Research
Local brands may outpace JV OEMs in smart driving commercialization by kicking
off mass production of Level-3 automated models in 2017, as: 1) Chinese local OEMs
can be more efficient in the iteration of underlying algorithm, the core competence of smart
driving, as they have more discretionary power over such decisions than JV OEMs; and 2)
Local OEMs are more eager to outbid their foreign peers with quicker progress in smart
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driving amid increasingly fiercer competition. SAIC Motor and Alibaba revealed a
connected smart car at the Beijing Auto Show in April. Changan Automobile displayed its
technology of conditional driving automation (Level-3) after its driverless cars made a
highway journey of more than 1,000 miles from its base in Chongqing to Beijing for the
show. BAIC BJEV also presented a driverless model. We believe local OEMs may bring
Level-3 smart cars into mass production in 2017 at the earliest considering their strength in
relevant technologies.
Fig. 8: Changan Automobile’s driverless cars
cruised all the way to Beijing from Chongqing
Source: Changan Automobile
Fig. 9: A driverless model from BAIC BJEV
Source: www.d1ev.com
Table 3: The self-driving agenda of Chinese local OEMs
OEMs Commercialization of
Self-Driving Cars Details
Changan
Automobile 2018
Has released its connected smart car model SUV CS95 and completed
road tests for 2,000-km self-driving; targets to put self-driving cars into
mass production by 2018.
SAIC
Motor 2020
Has released its connected smart car model SUV RX5 and the MG iGS
intelligent-drive vehicle; plans to launch self-driving cars capable of
cruising on structural roads.
BAIC
Motor 2017
Working on self-driving electric cars, welcoming test rides by the general
public; commercialization expected at the end of the year at the earliest.
Geely 2018 Mass production of self-driving Volvo cars; its Emgrand GT will come with
ADAS modules; self-driving models will be released in the next 2-3 years.
Great Wall
Motor 2020
Has demonstrated its assisted driving technologies, and will launch
high-speed fully self-driving cars by 2020.
FAW
Group 2025
Has demonstrated its autonomous driving technologies, and will enable
highly autonomous driving for 50% of its models by 2025.
Source: DBScar and other websites, collated by CITICS Research
ADAS: The first module to be commercialized
Auto safety regulations help accelerate ADAS growth
China will probably follow the example of the US, Europe and Japan to include
ADAS into its automotive safety regulations. The National Highway Traffic Safety
Administration (NHTSA) included forward collision warning (FCW) into its vehicle safety
rating program in 2011 and stipulated that automatic emergency braking (AEB) must be
made a standard feature on all 5-star rated vehicles starting from 2018. In March 2016, the
top 20 automakers, collectively taking up 99% of the US auto market (including GM, Ford,
Fiat Chrysler, Toyota, Honda, Nissan, Mazda, Mitsubishi, Fuji Heavy Industries, Hyundai,
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Kia Motors, Audi, BMW, Daimler, Volkswagen, Porsche, Volvo, Maserati, Jaguar Land
Rover and Tesla) agreed to make AEB a standard feature on all new passenger vehicles
starting from 2022. Toyota promised to equip all new cars sold in the US with AEB starting
from 2017. The European New Car Assessment Program (NCAP) also included AEB and
adaptive cruise control (ACC) in its safety rating. The Ministry of Land, Infrastructure,
Transport and Tourism of Japan (MLIT) included AEB in its safety-rating program in 2014.
We expect China to follow the example of advanced economies and incorporate ADAS
technology in its safety regulations starting from 2018.
Table 4: ADAS technology is included into auto safety rules
Region Institution Release date Description
US NHTSA
2011 Adding FCW as a metric in vehicle safety rating
2015 5-star rated vehicles must be equipped with the AEB feature starting from
2018
2016
The top 20 automakers agreed (combined market share >99%) to make
AEB a standard feature on passenger vehicles and light trucks with gross
vehicle weight (GVW) below 3856kg starting from Sep 1, 2022 and on
trucks between 3856kg and 4536kg starting from Sep 1, 2025
Europe NCAP
2013 AEB is a required feature on all large-sized commercial vehicles
2014
To obtain a 5-star rating, passenger vehicles must be equipped with at
least one active safety technology, such as AEB, ACC, LDW (lane
departure warning) and LKA (lane keeping assistant)
Japan MLIT 2014 Adding AEB as a metric in vehicle safety rating
China C-NCAP 2018
(expected)
Adding FCW, AEB, LDW and PDS (pedestrian detection system) into the
safety assessment system
Source: NHTSA, NCAP, MLIT, Collated by CITICS Research
The NHTSA has clearly requested ADAS technology being included in its 5-star
safety rating program. According to the NHTSA, as high as 94% auto accidents are
associated with man-made errors and automakers are strongly recommended to install
in-vehicle ADAS active safety systems including FCW, LDW and RVS (rear view safety)
systems. Other safety systems including pedestrian detection system (PDS), AEB and
blind spot detection (BSD) are also recommended.
Fig. 10: Key active and passive safety technologies
Source: NHTSA
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ADAS will likely be the first to be commercialized
ADAS, as an entry-level product for smart driving, will likely become the first
technology to be widely commercialized. Judging from the technology level and
industrialization progress, we are currently transitioning from the stage of aided driving to
partial automation. Vehicles equipped with ADAS modules will become the first to be
popularized as a transitional product, and major ADAS technologies include ACC, LDW,
LKA, FCW, AEB, BSD and AP (automatic parking).
Fig. 11: Key ADAS technologies
Source: ACTOM
Table 5: ADAS technologies and major functions
ADAS Key features Sensing Actuating
ACC
(Adaptive Cruise
Control)
Controlling distance when there are
vehicles around and otherwise
controlling speed
Distance sensors
(millimeter-wave radars, lidars
and cameras)
Accelerator,
gear, braking
LDW
(Lane Departure
Warning)
Alerting drivers when they are drifting
out of the lane
Lane line sensors (Cameras,
stereo cameras, infrared ray and
lidars)
Display system
(console,
navigation
display, HUDs)
LKA
(Lane Keeping
Assistant)
Steering the driver back into lane
when the vehicle begins to leave the
detected lane
Lane line sensors (Cameras,
stereo cameras, infrared ray and
lidars)
Steering
FCW (Forward
Collision Warning)
Alerting drivers of an impending
collision when the distance from
another car is too small
Distance sensors
(millimeter-wave radar, lidars
and Cameras)
Display system
(console,
navigation
display, HUDs)
AEB
(Automatic
Emergency Braking)
Preventing an impending crash
through emergency braking
Distance sensors
(millimeter-wave radar, lidars
and Cameras)
Braking
TSR
(Traffic Sign
Recognition)
Identifying traffic signs and giving
drivers corresponding alerts Cameras
Display system
(console,
navigation
display, HUDs)
IHC (Intelligent
Headlight Control)
Automatically switching between high
and low beam based on the road and
lighting conditions
Cameras Headlight
AP (Automatic
Parking)
Automatically detecting surroundings
and parking the car in the designated
space
Range sensors (ultrasonic radar,
millimeter-wave radar, lidars and
Cameras)
Accelerator,
braking,
steering
PDS (Pedestrian
Detection System)
Detecting pedestrians in front of the
vehicle, giving alerts or automatically
braking when necessary
Cameras
Braking, display
system
(console,
navigation
display, HUDs)
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ADAS Key features Sensing Actuating
BSD
(Blind Spot Detection)
Monitoring drivers’ blind spots and
giving corresponding alerts
Range sensors (ultrasonic radar,
millimeter-wave radar, lidars and
Cameras)
Display system
(console,
navigation
display, HUDs)
NVS
(Night Visions
System)
Using active or passive infrared ray to
help drivers gain a clearer vision in
dim light
Infrared sensors
Display system
(console,
navigation
display, HUDs)
DSM
(Driver State
Monitoring)
Assessing drivers’ behavior and
facial/eye movements to judge
whether the drivers are in a fatigue
state and giving alerts when
necessary
Infrared sensors and Cameras
Display system
(console,
navigation
display, HUDs)
SVC (Surround View
Cameras)
Using multiple cameras to help
drivers park the car Cameras
Display system
(console,
navigation
display, HUDs)
Source: Collated by CITICS Research
With rising penetration, the ADAS technology will likely create a market of
Rmb200bn by 2020E. The penetration ratio of ADAS modules in the OEM-embedded
market could reach 30% while aftermarket penetration ratio could be lifted to 5% on
multiple catalysts including: 1) rules and regulations are now encouraging traditional
OEMs to install safety systems before vehicles are shipped out of factory; 2) the slowdown
in global volume growth requires parts suppliers to improve their product competitiveness;
3) new internet-backed entrants force existing OEMs to upgrade their offerings; and 4)
consumers are requiring upgraded interactive experience.
Table 6: Total available market (TAM) of ADAS in China by 2020E
ADAS modules Unit price
(Rmb)
2015
penetration
2020E
penetration
2015 market
size
(Rmb100mn)
2020E
market size
(Rmb100mn)
Pedestrian Detection
System (PDS) 1,500 3% 30% 10 135
Blind Spot Monitoring
(BSM) 1,500 4% 30% 14 135
Lane Departure
Warning (LDW) 1,500 2% 30% 6 135
Adaptive Cruise Control
(ACC) 2,000 1% 30% 7 180
Forward Collision
Warning (FCW) 1,000 1% 30% 3 90
Night Visions System
(NVS) 2,500 1% 5% 6 38
Automatic Emergency
Braking (AEB) 1,200 5% 50% 15 180
Traffic Sign Recognition
(TSR) 1,200 1% 15% 3 54
Automatic Parking (AP) 1,200 3% 30% 8 108
Surround View
Cameras (SVC) 4,000 1% 30% 10 360
Adaptive Forward
Lighting (AFL) 1,000 1% 30% 3 90
Driver Monitoring
System (DMS) 1,200 0% 10% 0 36
Aftermarket ADAS
systems 2,500 0% 5.0% 10 375
Total 94 1916
Source: CITICS Research estimates
First-movers are likely to be the ultimate winners
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Traditional tier-1 suppliers continue to dominate in the ADAS segment. In 2013 the
top five suppliers – Continental Corporation, Delphi, Denso, Autoliv and Bosch took
market share of 17.5%, 13.5%, 12.9%, 11.3% and 10.1% respectively, or more than 65%
collectively, in the ADAS market for passenger vehicles. The rest of the market was shared
among Valeo, TRW Automotive, Magna and Hella.
Fig. 12: Major ADAS system integrators and respective market share in 2013
Source: auto.qq.com, CITICS Research
Table 7: World leading ADAS system integrators
Company Country Industry position Key offerings Key customers
Bosch Germany
One of Germany’s largest
industrial companies and
world’s largest auto supplier
FCW, LDW, LKA, AEB, ACC, TSR,
IHC, PDS, BSD, AP, BMS
Benz, BMW, Audi, Volvo, Citroen, BAIC
Motor, JAC Motors, Geely
Continental Germany
A Germany-based transport
sector manufacturer and one of
the world’s top 5 auto suppliers
LDW, ACC, BSD, AEB, IHC, TSR Benz, BMW, GM, Toyota, Honda,
Renault, Porsche, SAIC Motor
Delphi US A world leading auto electronics
technology supplier
LDW, FCW, LKA, AEB, ACC, AP,
SVC
BMW, Audi, Volvo, Ford, FAW Group,
SAIC Motor
Denso Japan A top-tier auto parts and
systems provider
LDW, FCW, LKA, AEB, ACC, DSM,
PDS Toyota
Autoliv Sweden Global leading auto electronics
safety system supplier
LDW, FCW, BSD, LKA, AEB, ACC,
PDS, NVS
GM, Ford, Nissan, Hyundai,
Volkswagen, Benz, BMW, Honda
Source: Collated by CITICS Research
Start-ups with core technologies could embrace exponential growth. We suggest
investors keep close tabs on tech start-ups with a strong technology pipeline. Reasons
include: 1) The ADAS technology and the industry are still premature, with traditional
OEMs, tech companies and parts manufacturers all on the same starting line. The gap
between different companies is smaller compared with traditional segments; 2) The core
competitiveness in ADAS depends on iterative algorithm and massive tests on vehicle
models. Enterprises with proven technologies enjoy an unmatched competitive edge. Take
Mobileye for example. The company was established in 1999 but signed its first production
agreement with GM only in 2007. There was an 8-year gap and it made no profit in
between. After more than one decade’s of research and development, Mobileye gained an
unrivaled position in the single-camera ADAS segment around the world. As of Jan 2016,
its products were widely applied on 237 vehicle models of 20 automakers including GM,
BMW, Volvo and Tesla. The company’s operating revenue has been growing rapidly ever
since.
Continental
Denso Autoliv Bosch Others Delphi
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Fig. 13: Mobileye’s OEM-embedded
operations grew quickly
Source: Company annual reports, Collated by CITICS
Research
Fig. 14: Mobileye’s operating revenue and net
profit (US$mn)
Source: Company annual reports, Collated by CITICS
Research
Innovators and imitators are both on the stage, but only those fully committed to
innovations will become the ultimate winner. Many start-ups in China have mastered
the core identification algorithms and are moving into the ADAS integration segment.
Some are improving their product performance and user experience through technological
innovations and localizations based on independent R&D. Others simply imitate foreign
companies in order to gain a head start and take advantage of higher selling prices. We
believe the concentration ratio of the smarting driving segment will rise rapidly going
forward and only those companies which focus on building their local competitiveness
stand a chance to be the ultimate winner.
Table 8: ADAS start-ups in China
Company Business description Customers Realization approach
INVO
Automotive
Electronics
Driver assistance systems (LDW/FCW/BSD/PDS/NVS/TSR)
/3D parking systems
GAC Group, BAIC Motor,
Changan Automobile, Geely,
SAIC Motor, Yutong Bus and
King Long
Cameras
Forward
Innovation
ADAS systems (Cameras +core chips +ADAS algorithms
LDW/FCW/DSM/PDS/TSR/NVS/SVC) Aftermarket Cameras
Shenzhen
Vastfly Tech ADAS systems (FCW/LDW/PDS/BSD/SVC) OEM-embedded/Aftermarket Cameras
Zongmu Tech Surround review ADAS (LDW/BSD/SVC) Aftermarket Cameras
SmarterEye ADAS systems (FCW/LDW) Aftermarket Binocular cameras
AIDRIVING Collision warning /Night Visions System/AIDriving App Aftermarket Cameras/ laser sensors
/millimeter-wave radars
MaxiEye ADAS systems (ACC/FCW/AEB/IHC/LKA/PSD/TSR) OEM-embedded/Aftermarket Cameras
Minieye ADAS systems (FCW/LDW/BSD/PDS) Aftermarket Cameras
Mplanet Intelligent driving video recorder (IoV) Aftermarket Cameras
Hangzhou
Nicigo Nicigo (ADAS: FCW, LDW+UBI)
Aftermarket + insurance
companies Cameras
CarPro Carpro HUD (driving video recorder/Gesture sensing
/navigation/on-board diagnostic (OBD)) Aftermarket
Tsingtech
Microvision
Driver fatigue monitoring/ remote monitoring/ integrated fleet
monitoring Aftermarket Cameras
Carstar IoV / remote monitoring (anti-theft) Aftermarket
Hirain
Technologies
Forward Active Safety Cameras/ surround view parking
(based on Mobileye EyeQ3 chips) Aftermarket Cameras
Whetron
Electronics
LDW, Smart Keyless System, Around View Monitoring
System Aftermarket Cameras
Henan Escort
Industrial
Emergency braking system and collision avoidance warning
system OEM-embedded Radars
Tencent DVR ADAS / driving video recorder Aftermarket Cameras
DeepGlint Behavior analysis / vehicle identification (traffic safety and Aftermarket Cameras
No. of chips/ in 10k sets
No. of vehicle models
Revenue growth
Net profit
Operating revenue
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Company Business description Customers Realization approach
logistics monitoring)
Jimu
Technology ADAS OEM-embedded Cameras
Roadefend
Vision
Technology
ADAS Aftermarket Mobile phone cameras
Source: Collated by CITICS Research
Listed companies are making equity investments along the ADAS industry chain.
Vie Science & Technology (002590) has built a presence in the internet of vehicles (IoV)
segment by acquiring Soda Mobility and FutureMove, established a joint venture with the
Sweden-based Haldex to venture into the intelligent electronic braking system, and
acquired a stake in Evatran to tap into inductive charging for electric vehicles. Asia-Pacific
Mechanical& Electronic (002284), as an industry leader in braking systems, invested in
Forward Innovation, Tima Networks, Intibeam, and Suzhou Anzhi Auto Parts to build a
presence along the smart driving and IoV industry chain. It also bought a stake in Elaphe
(an in-wheel electric motor manufacturer) to tap into the new energy vehicle segment.
Zhejiang Jingu (002488) built a presence in the IoV and ADAS segments via equity
investments in Mirrtalk Automotive and INVO Automotive Electronics. ZYNP Corporation
(002448) made an equity investment in Shenzhen Vastfly Tech to access the driving
assistant system market. Taiwan-based TungThih Electronic, the largest backup sensor
manufacturer, possesses 50% market share in mainland China as well as multiple ADAS
technologies, including automatic parking (AP), surround view cameras (SVC), bind spot
detection (BSD) and lane departure warning (LDW). Meanwhile, the company is also in the
process of developing other applications including automatic emergency braking (AEB),
traffic sign recognition (TSR) and pedestrian detection system (PDS).
Table 9: Equity investment in ADAS by listed companies
Company Date Target Investment Approach Key products of the
target company
Vie Science
& Technology
(002590)
Jun 2015 Evatran
Group US$1.60mn Acquired a 7.3% stake
Wireless charging
system
Oct 2015 Soda Mobility Rmb5.128mn Acquired a 22% stake IoV
Nov 2015 FutureMove Rmb45mn Acquired a 22% stake IoV
May 2016
Established a JV named
Haldex VIE with Haldex
Auto electro-mechanical
brake (EMB) system
Asia-Pacific
Mechanical&
Electronic
(002284)
Jun 2015 Forward
Innovation Rmb29mn Acquired a 20% stake ADAS
Jun 2015 Tima
Networks Rmb82mn Acquired an 11.9% stake IoV
Dec 2015 Intibeam Rmb7mn Acquired a 10% stake Millimeter-wave collision
avoidance radar system
Dec 2015 Elaphe Eur10mn
Acquired a 20% stake and
established a JV in China
with a 51%+ stake
In-wheel electric motors
Jan 2016 Suzhou
Anzhi Rmb5mn Acquired a 10% stake ACC, AEB etc.
Zhejiang
Jingu
(002488)
Nov 2014 Mirrtalk
Automotive Rmb25mn
Acquired a 12.5% through
capital injection
Free voice-based IoV
hardware and services
May 2015
INVO
Automotive
Electronics
Rmb40mn Acquired a 20% stake ADAS
ZYNP
Corporation
(002448)
Nov 2015 Shenzhen
Vastfly Tech Rmb38.34mn Acquired a 15.34% stake
3-dimensional driving
assistant system
Source: Collated by CITICS Research
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Components: Domestic companies will likely be
able to produce sensor/map modules in the future
Among smart-driving components, domestic companies will likely be able to
produce sensor and map modules in the future. In contrast, due to its higher
technological barrier, auto OEMs and global leading component producers will continue to
be the sole manufacturers of decision-making modules.
Fig. 15: ADAS components
Source: Compiled by CITICS Research
According to the Made in China 2025 plan, the proportion of domestically-produced
sensors (mostly cameras and radars) and high-resolution map systems should rise rapidly
in the next five years.
Table 10: The target proportion of domestically-produced key components of vehicles, according to
the Made in China 2025 plan
Component Target
Optical system Above 80% by 2020
Radar system Above 40% by 2025
High-resolution
positioning system Above 60% by 2025
Integrated control
system Core controller: 50%; key chips for controllers: 30% by 2025
Source: Made in China 2025, compiled by CITICS Research
Sensor modules: integration of multiple sensors
Mainstream vehicle sensors include ultrasonic radars, lidar (light detection and ranging),
millimeter-wave radars, cameras, and infrared detectors. Considering measurement
capability and adaptability, we expect radars and cameras to be the most popular sensors
in the future, with integration of multiple sensors.
Table 11: Performance of vehicle sensors
Ultrasonic
radar lidar
Millimeter
wave radar Camera
Infrared
detector
Long distance measurement × √ √ √ o
Resolution × o √ √ ×
False alarm rate × o √ o ×
Temperature tolerance × √ √ √ o
Darkness tolerance √ √ √ × √
Sensor Internet of Vehicles
3D high-resolution map
Road Traffic sign Pedestrian
Acceleration Turning Brake
Central control system Navigation HMI HUD
Acceleration Turning Brake
Ultrasonic radar Millimeter-wave radar Laser radar
Single camera Dual-camera Panoramic camera
Infrared detector
Sensors on vehicle Recognition Decision-making
Actuator
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Ultrasonic
radar lidar
Millimeter
wave radar Camera
Infrared
detector
Weather adaptability × × √ × ×
Dust/humidity tolerance o × √ × ×
Low-cost hardware √ o √ × √
Low-cost signal processing √ √ √ × √
Source: IEEE, compiled by CITICS Research √: Excellent; o: Good ×: Fair
Sensor modules: Millimeter wave radar
Millimeter wave radar emits millimeter length electromagnetic waves and determines
distance of obstacles by calculating the arrival time of reflected waves. Moreover,
millimeter wave radar can also determine relative speed of obstacles by calculating
changes in the frequency of the reflected waves. Compared with infrared detector, lidar,
and cameras, millimeter wave radar can work well in nearly all weather and environmental
conditions (foggy, smoky, and dusty environments, but not under heavy rain). However,
millimeter wave radar cannot recognize colors, and is not sensitive to reflected waves of
pedestrians. In addition, due to relatively narrow angle of view, millimeter wave radar has
to be used in a group. Millimeter wave radar is widely used to measure distance between
vehicles (autonomous cruise control, collision alarm, and blind zone detection).
Fig. 16: Millimeter wave radar
Source: Compiled by CITICS Research
Among the applicable frequencies (24GHz, 60GHz, 77GHz, and 79GHz), the
mainstream frequencies for millimeter wave radar are 24GHz and 77GHz, which are
used to measure medium/short and long/medium distance, respectively. The higher
the frequency, the higher the precision of distance and speed detection is. As a result,
77GHz is becoming increasingly popular. 1) EU: In 1997, European Telecommunications
Standards Institute (ETSI) assigned 76-77GHz to be the special frequency for collision
avoidance radars. 2) US: 24GHz and 77GHz. 3) Japan: on the transition from 60GHz to
77GHz. 4) On World Radiocommunication Conference (WRC) 2015 held in Geneva, the
frequency range of 77.5-78.0GHz was assigned to radio positioning business, in a bid to
facilitate development of short-distance high-resolution vehicle radars. 5) In 2005, the
Ministry of Information Industry (now a part of the Ministry of Industry and Information
Technology) assigned 77GHz to distance measurement radars for vehicles. In 2012, the
Ministry of Industry and Information Technology assigned 24GHz to short-distance vehicle
radars.
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Table 12: Frequencies for millimeter wave radar
Frequency Scope of distance measu
rement Applications
24GHz Medium/short distance: 5-7
0 meter BSD,LDW,LKA,LCA,PA
77GHz Long/medium distance: 100
-250 meter ACC,FCW,AEB
Source: Compiled by CITICS Research
Shipment of millimeter wave radar chips will rise rapidly as ADAS develops. The
global shipment of millimeter wave radar chips will likely reach 72mn by 2020E. Assuming
a 30% penetration rate of ADAS in China, and each ADAS requires four short-distance
millimeter wave radars and one long-distance millimeter wave radar, the shipment will
likely reach 45mn in China, with a market size of over Rmb20bn.
Fig. 17: Global market size of millimeter wave radar
Source: Plunkett Research
Major suppliers of millimeter wave radars are leading traditional car electronics
producers, such as Bosch and Continental. As of 2015, Bosch and Continental had
combined global market share of 22%, followed by Hella, Fujitsu Ten, Denso, TRW
Automotive, Delphi Automotive, Autoliv, and Valeo.
Fig. 18: Global landscape of millimeter wave radar industry in 2015
Source: Okokok.com.cn, compiled by CITICS Research
Going forward, millimeter wave radars will be produced domestically, as some
domestic companies have already achieved major technological breakthroughs. However,
currently, the only mature products are 24GHz medium/short-distance radars
manufactured by Nano Radar and IM Semi, while the production of 77GHz radars is only
at the beginning stage. We recommend Zhejiang Asia-Pacific Mechanical& Electronic
(002284), Anhui Sun-Create Electronics (600990) and Glarun Technology (600562).
Global shipment (10,000)
YoY
Bosch Continental
Fujitsu Ten Denso Delphi Valeo Others Hella TRW Autoliv
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Table 13: Major domestic providers of millimeter wave radars
Company Frequency Extent of commercialization
Huayu
Automotive 24GHz 24GHz radars are about to be put on the market
Nano Radar 24GHz 24GHz medium/short-distance radars are on the market
IM Semi 24GHz/77GHz 24GHz radars are on the market; 77GHz radars are expected to
be put on the market in 2016
IntiBeam
Technology 24GHz/77GHz Prototypes for 24GHz radars; 77GHz radars in laboratory
Sensortech 24GHz/77GHz Low-volume production of 24GHz radars; Prototypes for 77GHz
radars
ATS Electronics
Tech 77GHz
77GHz RCC radars exhibited on China International Automotive
Aftermarket Industry and Tuning Trade Fair
Shenyang
Cheng-Tech 77GHz
77GHz radar has experienced indoor testing, and outdoor testing
is scheduled for September
Nanjing E Hawk
Eye 77GHz Prototypes for 77GHz radars to be released in 2H16E
Beijing Autoroad
Tech 77GHz 77GHz radars exhibited on Beijing Auto Show
Source: Compiled by CITICS Research
Zhejiang Asia-Pacific Mechanical& Electronic (002284) acquired a 10% stake of
IntiBeam Technology with a consideration of Rmb7mn, in a bid to gain a presence in the
millimeter wave radar business. Anhui Sun-Create Electronics (600990) controlled by
East China Research Institute of Electronic Engineering, produces millimeter wave radars
for anti-aircraft warfare and weather monitoring. With high-quality assets from the 14th
research institute of China Electronics Technology Group Corporation, Glarun
Technology (600562) produces military airborne radar and weather radar. Located in
Taiwan, Wistron NeWeb Corporation provides 24GHz and 77GHz devices for ADAS
applications.
Sensor modules: lidar (light detection and ranging)
Lidar emits laser beam to detect location and speed of objects. With multiple laser emitters
and receivers, vehicle lidar can generate wide-scope high-precision three-dimensional
cloud points. However, lidar has poor performance in rainy, snowy, and foggy
environments. In addition, it is very costly, and generates overly large data.
Currently, lidars are used in testing self-driving cars: 1) Velodyne 64-line lidars are
used in Google and Baidu’s testing self-driving cars; 2) Velodyne 32-line lidars are used in
Ford Mondeo Hybrid, while the third-generation self-driving car Fusion Hybrid is equipped
with two Velodyne Solid-State Hybrid Ultra PUCK Auto lidars; 3) Nissan LEAF is equipped
with six lbeo 4-line lidars; 4) Audi A7 Piloted Driving is equipped with Scala Solid-State
Hybrid lidars; 5) Delphi’s self-driving car is equipped with four Quanergy solid-state lidars.
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Fig. 19: Lidar’s 3D point cloud
Source: Niuche.com
Lidar (with rotating parts) is a mature technology. Velodyne and Ibeo are
mainstream overseas manufacturers. Velodyne produces 16/32/64-line lidars with
rotating laser emitters and receivers. Ibeo produces 4/8-line lidars with a fixed laser emitter.
Beijing OuBaiTuo Information Technology is Ibeo’s agent in China.
Table 14: Rotating lidar products
Manufacturer Product Price (USD) Number of lines Dimension Frequency of
rotation Range of measurement Resolution Precision
Ibeo
Lux 4 2.5D 12.5/25/50Hz
Horizontal: 85°
Vertical: 3.2°
Range:200 meter
Horizontal:
0.125°
Vertical: 0.8°
10cm
Lux 8L 8 2.5D 6.25/12.5/25Hz
Horizontal: 110°
Vertical: 6.4°
Range:200 meter
Horizontal:
0.125°
Vertical: 0.8°
4cm
Velodyne
VLP-16 7,999 16 3D 5-20Hz
Horizontal: 360°
Vertical: 30°
Range:100 meter
Horizontal:
0.1-0.4°
Vertical: 2°
3cm
HDL-32E 20,000 32 3D 5-20Hz
Horizontal: 360°
Vertical: 40°
Range:100 meter
Horizontal:
0.1-0.4°
Vertical: 1.33°
2cm
HDL-64E 70,000 64 3D 5-20Hz
Horizontal: 360°
Vertical: 26.8°
Range:120 meter
Horizontal: 0.08°
Vertical: 0.4° <2cm
Source: OuBaiTuo’s official website, Velodyne’s official website, compiled by CITICS Research
With small size and low cost, fixed lidar is the future. Without rotating parts, fixed lidar
is smaller, and thus can be embedded in vehicles, leading to higher reliability and much
lower cost. Quanergy, a start-up, has developed a fixed lidar in cooperation with Delphi,
and plans to launch mass production by the end of 2017E. With phased array technology,
the fixed lidar does not have any rotating parts. Velodyne and Ibeo also introduced hybrid
fixed lidars, which have rotating parts inside, rather than outside.
Auto Industry Thematic Report
Please read the disclaimer at the end of the report 20
Fig. 20: Rotating lidar vs. fixed lidar
Source: Autohome, compiled by CITICS Research
In 2015, Scala Solid-State Hybrid lidars (developed by Ibeo and Valeo) were equipped on
Audi A7 Piloted Driving. Scala is also equipped on a Volkswagen semi self-driving car.
Embedded in bumper bars, Scala replaces millimeter wave radar as distance
measurement modules. Two fixed/hybrid fixed lidars were exhibited on CES2016: 1)
Quanergy’s business-card-box-sized fixed lidar S3, with preliminary price of US$250,
which can be reduced to US$100 after mass production; 2) Hybrid fixed lidar Ultra Puck
Auto, introduced by Velodyne and Ford, whose price may reach US$500 after mass
production by 2020E and lower than US$200 by 2025E.
Table 15: Fixed lidar vs. hybrid fixed lidar
Company Partner Product Price Line
Quanergy Delphi Solid S3 US$250; US$100 for mass production 8
Ibeo Valeo Hybrid solid Scala
4
Velodyne Ford Hybrid solid Ultra Puck Auto US$500 for mass production, US200 by 2025E 32
Source: Autohome, Cheyun.com, compiled by CITICS Research
We expect lidar market size at more than Rmb10bn by 2020E. Driven by technological
improvement and capacity growth, we estimate the lidar cost at c.Rmb400 by 2020E,
implying a cost of Rmb800-1,600 for each vehicle (assuming 2-4 lidars to be installed on a
vehicle). Assuming 25% vehicles are equipped with lidars before being sold and 5% after
sold, China’s Lidar market size will likely reach Rmb20bn in 2020E.
Table 16: Estimated lidar market size in 2020E
Price (Rmb)
Number p
er vehicle
Penetratio
n rate
Number of vehicles (1
00mn)
Market size (Rmb100
mn)
Before sale 400 4 25% 0.3 120
After-sale 400 1 5.0% 3 60
Total
180
Source: CITICS Research estimates
Several domestic companies are involved in development and production of lidars used in
air pollution detection, 3D measurement, and vehicles. We recommend Hangzhou Great
Star Industrial (002444).
Table 17: Domestic companies related to lidar business
Company Founded in
Products Usage
Wuxi CAS
Photoelectric 2011
Founded by Focused Photonics
(300203), Institute of Optics and
Precision Mechanics of CAS, and
CAS IOT
Lidar, and sonic
radar
Monitoring of
combined air
pollution (dust,
haze)
Tec Dawn 2009
Integration of lidar Surveying and
Auto Industry Thematic Report
Please read the disclaimer at the end of the report 21
Company Founded in
Products Usage
system mapping by
vehicles or drones
Escort
Industrial 2014
Lidar system for
vehicles Vehicle
LeiShen
Intelligent
System
2015
Four single-line 2D lidar products
have been released and a 16-line 3D
lidar will likely be introduced by the
end of 2016E
Lidar system for
vehicles Vehicle
Shanghai
Slamtec 2013
Self positioning and navigational
algorithms for robots, laser sensor
and robot system, with two
generations of 2D lidar products
Lidar system for
vehicles Vehicle
Stonex 2011
A 51% stake held by Beijing
UnistrongScience & Technology
(002383)
Lidar 3D surveying and
mapping
Geo Vision 1989 Affiliated to Chinese Academy of
Surveying & Mapping
Lidar and remote
sensing systems
3D and road
surveying and
mapping
Green Valley 2012 A round financing in 2015
Lidar, aerial
imaging platforms
for drones
Surveying and
mapping by drones
Beike
Technology 2005
Lidar and laser
scanner
Surveying and
mapping by drones
Huada Kejie
Opto-Electro
Instrument
1992 A 65% stake held by Hangzhou
Great Star Industrial (002444)
Laser measuring
devices and laser
projector
Engineering
Source: Compiled by CITICS Research
In 2015, Hangzhou Great Star Industrial acquired a 65% stake of Huada Kejie
Opto-Electro Instrumen, which is focusing on improvement of laser application
technologies (such as service robots and mobile smart equipment, including self-driving
cars, AGV forklift, and inspection robot). In March 2016, Hangzhou Great Star founded a
subsidiary to develop lidar and smart equipment.
Sensor modules: camera
How vehicle camera works: 1) Converting images into 2D data; 2) Recognizing vehicles,
pedestrians, lane markings and traffic signs by matching images; 3) Estimating relative
distance and speed between objects and the vehicle. Compared with other sensors,
cameras work in a way most similar to how human eye acquire information. Cameras
boast the following advantages: 1) Mature technology with low costs; 2) Acquiring most
complete information by processing a relatively small amount of data. However, cameras
also have drawbacks: 1) Subject to light and weather conditions; 2) Requiring a large
training sample and a long training process to recognize objects, and having trouble in
recognizing non-standard objects; 3) Low precision in distance measurement, due to
marginal distortion of wide angle lens.
Applications: 1) Single camera: usually installed on front windshield to detect the
environment in front of the vehicle by recognizing road, vehicles, and pedestrians, widely
used in adaptive cruise control (ACC), lane departure warning (LDW), forward collision
warning (FCW), and pedestrian monitoring; 2) Rear-view camera: usually installed on the
rear to detect the environment in back of the vehicle, used in rearview systems; 3)
Dual-camera, with higher resolution and longer detection range; 4) Surround view
cameras: usually consist of four cameras, installed in the front, rear, left side, and right side
of the vehicle, used in automatic parking (AP) and surround view parking assistance.
Auto Industry Thematic Report
Please read the disclaimer at the end of the report 22
Table 18: Applications of cameras
Applications Difficulty
Single camera
ACC,LDW,LKA (lane-keeping assist),FCW,AEB
(automatic emergency braking),TSR (traffic safety
rejection),AP,PDS (precision drive system),DMS
(driver monitoring system)
Machine learning, model
recognition
Rear-view camera AP Poor performance under bad
environment
Dual-camera ACC, LDW, LKA, FCW, AEB, TSR, AP, PDS, DMS Dual-camera positioning
Surround view
camera AP, SVC Marginal distortion
Source: Compiled by CITICS Research
As the penetration rate of ADAS rises, the camera market will likely grow rapidly.
According to IHS Automotive, the annual global shipment of vehicle camera system will
likely reach 74mn units in 2021E (vs. c.15mn units in 2014). China’s camera lens
producers are leading in the global market. According to Zhiyan.org, China’s vehicle
camera industry logged output of c.8.62mn, 60% of which are exported. Under a
conservative scenario, assuming an ADAS system uses four cameras (actually 1-10
cameras can be used in an ADAS system), China’s annual shipment of vehicle camera will
likely reach 100mn units by 2020E, implying a market size of over Rmb12bn and CAGR of
over 70%.
Fig. 21: China’s vehicle camera capacity in
2011-2015
400 575
860
1,200
1,880
0
500
1000
1500
2000
2011年 2012年 2013年 2014年 2015年
产能(万个)
Source: Zhiyan.org, compiled by CITICS Research
Fig. 22: China’s vehicle camera market size
(Rmb100mn)
3
122
0
20
40
60
80
100
120
140
2015年E 2020年E
市场规模(亿元)
Source: CITICS Research forecasts
Camera module: China’s camera lens producers are leading in the global market.
Optical lens are widely used in cell phone, vehicle cameras, and cameras. As the growth
of cell phone and other digital products decelerates, camera lens producers are
increasingly focusing on vehicle cameras. China’s camera lens producers are leading in
the global market. For example, Sunny Optical Technology boasts the largest global
shipment of vehicle rear-view cameras, with a market share of c. 30% and in cooperation
with major auto manufacturers such as BMW, Benz, and Audi. In our view, the vehicle
camera business will likely boost earnings of leading domestic camera lens producers. We
recommend Shenzhen O-Film Tech (002456), Sunny Optical (2382.HK) and Kingpak
Technology.
Market size (Rmb100mn) Capacity (10,000)
2011 2012 2013 2014 2015 2015 2020
Auto Industry Thematic Report
Please read the disclaimer at the end of the report 23
Fig. 23: Global market share of camera lens in 2014
31%
12%
7%6%5%
5%
5%3%
27%
大立光电 玉晶 SekonIx Kantatsu 舜宇光学 Kolen DIOSTECH SEMCO 其他
Source: Techno Systems Research, compiled by CITICS Research
Shenzhen O-Film Tech is a traditional leading producer of camera modules, with a
presence in the supply chain of intelligent vehicles. O-Film Tech not only has the highest
shipment of camera modules, but also has a presence in dual-camera modules ahead of
its competitors. 1) In June 2015, O-Film Tech established a wholly-owned subsidiary to tap
into intelligent drive, intelligent control, “Internet+” hardware, and car electronics
businesses; 2) As a tier-one supplier of intelligent control components of BAIC BJEV,
O-Film Tech exhibited jointly-developed ADAS vehicles on the CES, and plans to expand
its presence along the new energy vehicle supply chain by acquiring shares of BAIC BJEV
with a consideration of Rmb200mn; 3) O-Film Tech plans to raise Rmb1.5bn via a private
placement for its intelligent vehicle electronics project. Sunny Optical has the largest
global shipment in the vehicle camera lens market, with a market share of c.30%. In the
market of front cameras for ADAS, which have a higher requirement for safety, Sunny
Optical has a market share of over 50%.
Sensor modules - infrared night vision: Huge growth potential; focus on domestic leaders
Infrared night vision system has huge growth potential amid growing awareness of
auto safety. According to data provided by the USNHTS, although driving at night only
accounts for one-fourth of total road traffic, the number of night driving accidents accounts
for 50%. Among others, 70% of the accidents were caused by poor view at night. With
rising auto safety awareness and growing attention to ADAS, we expect the infrared night
vision system to be popularized quickly. In 2015 the penetration ratio of night vision system
was only around 1%. Assuming a 5% penetration ratio in the OEM-embedded market by
2020E and selling at a unit price of Rmb2500, we estimate the size of the OEM-embedded
market at Rmb3.8bn. We recommend Jiangsu Protruly Vision Technology (600074).
Largan Precision
GSEO Sunny Others Sekonlx Kantatsu Kolen DIOSTECH SEMCO
Auto Industry Thematic Report
Please read the disclaimer at the end of the report 24
Fig. 24: Working principle of Infrared Night Vision System
Source: Jiangsu Protruly Vision Technology
As a leading night vision system provider, Jiangsu Protruly Vision Technology has been
proactive in building its presence in the active safety segment. In September 2015, the
company released a private placement proposal to raise up to Rmb1.99bn, of which
Rmb840mn will be used to develop smart hardware and active safety systems. Additionally,
the company also planned to build an active safety system testing center to cement its
technological know-how and market position in the smart driving segment.
High resolution maps: The oligopoly competitive landscape will likely continue
Maps are an important part of driverless cars, and industry leaders possess unique
competitive advantages. One of the fundamental features of driverless cars is navigation.
High resolution maps are a required feature to provide the precise location and driving
routes. Compared with conventional vehicles, driverless cars have a higher requirement
on maps. GPS should achieve centimeter-level precision (currently beyond 1 meter), and
more accurate three-dimensional data are required to deal with complicated driving
conditions. Auto suppliers like Mobileye have started to offer tailor-made maps.
Conventional OEMs such as Toyota are also launching brand new mapping technology. In
our view, leading domestic map data providers will enjoy their monopoly position for a long
time to come. Reasons include: 1) surveying and mapping require long-term investment
that looks too costly for new entrants; and 2) qualification application is required for
companies engaged in the mapping segment. We expect existing industry leaders to
maintain their dominant position and embrace fast growth ahead. Our top pick is Navinfo
(002405).
Working principle of active safety systems
Visual range between 150m
and 400m
Range of image sensors
Night vision 400m
Range of lane departure sensor
Projected area of infrared ray
Range of pedestrian detector
High beam 60-80mn
Low beam 30-50m
Range of luminance sensor
Night vision 300m
Night vision 200m
Night vision 150m
Auto Industry Thematic Report
Please read the disclaimer at the end of the report 25
Fig. 25: Shipment of OEM-embedded navigation
systems continued to grow in 2015
Source: Analysys International, Collated by CITICS
Research
Fig. 26: OEM-embedded navigation system
market share in 2015
Source: Analysys International, Collated by CITICS
Research
Navinfo possesses a leading market share in the OEM-embedded navigation market. The
company acquired map data providers Mapbar, SmartAuto and AutoChips in succession
and owns a full array of technology ranging from maps to chips, operating system, voice
recognition and on-board diagnostics (OBD).
Actuators
We suggest investors watch companies engaged in actuators including the electronic
brake systems (EBS) and in-wheel electric motors. We recommend Vie Science &
Technology (002590), Asia-Pacific Mechanical& Electronic (002284) and Ningbo
Tuopu Group (601689).
Table 19: Recommended actuator manufacturers
Company Initiatives Products
Vie Science
&
Technology
(002590)
Established a joint venture with the Sweden-based Haldex AB Electro-mechanical brake
(EMB) systems
Asia-Pacific
Mechanical
& Electronic
(002284)
Acquired a 20% stake in Elaphe and established a China-based
joint venture with the company In-wheel electric motors
Ningbo
Tuopu
Group
(601689)
Proposed to raise Rmb2.8bn through a private placement to fund
its Intelligent brake systems (IBS) and electric vacuum pump
projects
Intelligent brake systems (IBS)
Source: Collated by CITICS Research
Intelligent electronics system
Watch vehicle-mounted intelligent electronics components such as smart automotive
lighting, human-machine interaction (HMI) and head-up displays (HUDs). We recommend
Xingyu Automotive Lighting Systems (601799), Dongfeng Electronic Technology
(600081), Joyson Electronic (600699) and Crystal-Optech (002273).
Table 20: Recommended vehicle-mounted intelligent electronics system vendors
Company Initiatives Products
Xingyu Automotive
Lighting Systems
(601799)
Acquired a 70% stake in neueI&T for Eur4.60mn; and
invested Rmb150mn to establish a smart auto electronics
subsidiary
Intelligent lighting
Dongfeng Electronic
Technology (600081)
Took a 40% controlling stake in Visteon Shanghai and an
indirect controlling stake in Johnson Controls HUDs
Shipment (in 10k units)
QoQ growth (%) Navinfo AutoNavi eMapgo Others
Auto Industry Thematic Report
Please read the disclaimer at the end of the report 26
Company Initiatives Products
Joyson Electronic
(600699)
Acquired the German-based Quinta, Vcyber.com, KSS and
TechniSat
HMI and active safety
systems
Crystal-Optech
(002273) Established a subsidiary specialized in HUDs HUDs
Source: Collated by CITICS Research
The Internet of Vehicles (IoV)
As an indispensable link to achieve fully automated driving, the IoV involves
vehicle-to-vehicle (V2V) communication, vehicle-to-roadside (V2R) communication and
vehicle-to-infrastructure (V2I) communication. We suggest investors keep tabs on
first-movers like Vie Science & Technology (002590), Asia-Pacific Mechanical&
Electronic (002284), Shuanglin Auto Parts (300100), Joyson Electronic (600699),
United Electronics (002642), Xingmin Wheel (002355), VITI Electronics (603023) and
Shenglu Telecommunication (002446) on the A-share market, as well as Taiwan-listed
companies like Wistron NeWeb Corporation (6285), Alpha Networks Inc. (3380) and
Sercomm (5388).
Table 21: Recommended IoV names
Company Initiatives Products
Vie Science & Technology
(002590) Acquired Soda Mobility Technologies and FutureMove IoV
Asia-Pacific Mechanical&
Electronic (002284) Acquired Tima Networks IoV
Shuanglin Auto Parts
(300100)
Established a network technology joint venture with TYD Electr
onic Technology IoV
Joyson Electronic (600699) Acquired vcyber, an HMI (human-machine interaction) solutio
ns provider IoV
United Electronics (002642) Rmb1bn private placement, of which Rmb440mn was invested
in the IoV IoV
Xingmin Wheel (002355) Acquired inTEST, a provider of temperature management prod
ucts IoV
VITI Electronics (603023)
The company aims to develop an IoV e-bus system and will li
kely finish product development and testing by the end of the
year
IoV
Shenglu Telecommunication
(002446) Acquired two IoV players IoV
Source: Collated by CITICS Research
After reviewing the status quo and market landscape of two product categories (the
ADAS system integration and core components), we think:
1) As an elementary product for smart driving, ADAS will be the first to be commercialized.
Tech start-ups could be the ultimate winner given their heavy investment in innovations.
Listed companies are entering the ADAS industry chain by investing in or acquiring ADAS
start-ups;
2) The “Made in China 2025” initiatives could drive the localization of perception
recognition (mainly cameras and radars) and high-definition maps. Among others, the
millimeter-wave radars are now being commercialized in China. Lidars, which are
becoming smaller, cheaper and more solid, will likely become the mainstay products. In
terms of cameras, domestic leaders enjoy solid market leadership and may deliver
significant growth. We think infrared night vision could have huge growth potential and
suggest investors keep close tabs on leading names. Companies with an edge in
high-definition maps will continue to enjoy their monopoly position given the high entry
barrier and qualification threshold.
Auto Industry Thematic Report
Please read the disclaimer at the end of the report 27
Potential risks
1) Most listed companies entered the smart driving segment via either equity investment
or M&A activities. They need time to prove their operational capabilities and potential
to consolidate/integrate the newly-acquired business;
2) Profit contribution from smart driving could be restricted given the limited number of
new product offerings in the coming 1-2 years;
3) The high valuation levels of some target companies provide minimal safety margins;
and
4) Potential sell-downs by the senior executives of listed companies.
Investment strategy and recommendations
In our view, unmanned driving represents the ultimate direction of the auto industry, but
may only deliver a small profit over the next 1-2 years due to the lack of new product
offerings in the near term. We think the smart driving segment will likely maintain high
valuation levels driven by thematic opportunities. Therefore, the market position of the
target company will become an important valuation benchmark in a potential acquisition
deal. We reiterate our OUTPERFORM call on the sector, and advise investors to watch the
following names: Zhejiang Vie Science & Technology (002590), Tuopu Group (601689),
Asia-Pacific Mechanical & Electronic (002284), Xingyu Automotive Lighting Systems
(601799), Joyson Electronic (600699) and Shuanglin Auto Parts (300100).
Table 22: Earnings forecast
Company
Share
price
(Rmb)
EPS (Rmb) PE (x) PB
(x) Rating
15 16E 17E 18E 15 16E 17E 18E
Vie Science & Technology (002590) 28.94 0.19 0.24 0.31 0.37 152 121 93 78 8.5 O/W
Ningbo Tuopu Group (601689) 26.54 0.63 0.76 0.88 1.04 42 35 30 26 5.3 O/W
Asia-Pacific Mechanical& Electronic (002284) 18.18 0.19 0.25 0.29 0.34 94 73 63 53 5.3 O/W
Xingyu Automotive Lighting Systems (601799) 45.59 1.22 1.46 1.69 1.95 90 46 27 23 6.6 O/W
Joyson Electronic (600699) 36.73 0.41 0.79 1.34 1.60 70 48 39 33 7.8 O/W
Shuanglin Auto Parts (300100) 42.57 0.61 0.84 1.00 1.18 70 51 43 36 7.8 O/W
Source: Wind, CITICS Research forecast Note: Closing price as of 14 Jun 2016
Auto Industry Thematic Report
Please read the disclaimer at the end of the report 28
Key companies
Vie Science & Technology (002590): Growing presence in smart driving
A leading automotive brake system supplier in China. The Company’s major products
include air/hydraulic brake systems, suspensions and clutch operating systems. Among
others, the air brake systems contributed operating revenue and profit of 33.6% and 52.3%,
respectively. The Company mainly serves downstream commercial vehicle (CV) and
passenger vehicle (PV) manufacturers including FAW Group, Guangzhou Automobile
Group, Beiqi Foton Motor, Shaanxi Heavy Duty Truck, Great Wall Motor, Jianghuai
Automobile, BYD, Chery Automobile and Geely Auto. It reported operating revenue of
Rmb1,700mn (+28.9% YoY) and net profit of Rmb92.86mn (+24.1% YoY) for 2015.
Teaming up with Haldex provides the access to active safety solutions. The
Sweden-based Haldex AB is a world-leading supplier of brake systems for commercial
vehicles. Its key products include brake adjusters, disc brakes and anti-lock braking
systems/electronic braking systems (ABS/EBS). The Company has established a joint
venture with Haldex AB to engage in the R&D and production of electro-mechanical
braking (EMB) systems. Compared with traditional air brake or hydraulic brake systems,
the EMB system is more superior in terms of response time, stopping distance and comfort
level. Considering the brake system is an important part of smart driving, we believe the
EMB systems could become a key actuator of active safety technologies, including the
electronic stability control (ESC) and adaptive cruise control (ACC). As a potential
early-mover, the Company will likely benefit from the fast growth of the driverless
technology.
Increased presence in electrification and smart driving underpins sustainable
growth. The Company has ventured into the new energy vehicles and smart driving
segments through a series of equity investments, including US$3.2mn for an 11.72% stake
in Evatran, a US-based wireless charging solutions provider, Rmb20mn for a 22% stake in
FutureMove, an OEM-embedded telematics supplier, and Rmb16.92mn for a 22% stake in
Soda Mobility Technologies. Additionally, it plans to raise Rmb850mn at Rmb12.6 per
share in a private placement to replenish working capital and fund its EBS project, a
modular chassis production base, and a R&D center for the internet of vehicles (IoV),
wireless charging and ADAS solutions. After reaching their designed capacity, the EBS
and chassis projects will add incremental output of 200k units of ABS, 50k units of EBS
and 500k units of PV chassis modules and contribute additional operating revenue of
Rmb1.2bn and net profit of Rmb100mn. This will significantly boost the Company’s
earnings.
EBS and chassis operations to create new earnings drivers. The Company has
achieved mass production for its proprietary ABS products. Other value-added offerings
including EBS, ESC and electric park brakes (EPB) will also be launched in succession.
Given the gradual mass production of new offerings and China’s tougher commercial
vehicle safety regulations, (light trucks must be equipped with ABS starting from July 1 this
year), we expect the Company’s traditional brake system to maintain 25% growth over the
next three years. Additionally, as automakers are increasingly outsourcing their chassis
production, the Company’s chassis segment maintained fast growth in the past few years
(2015 top-line growth at 143% YoY) and will likely continue to grow at 30% over the next
three years.
Auto Industry Thematic Report
Please read the disclaimer at the end of the report 29
Potential risks: 1) Disappointing new product promotion; 2) Slower-than-expected
progress with new projects funded by the private placement; and 3) Inorganic growth
missing expectations.
Earnings forecast and investment recommendation: OVERWEIGHT reiterated. We
maintain our 2016/17/18E EPS estimates at Rmb0.24/0.31/0.37 (vs. Rmb0.19 in 2015),
implying three-year PEs of 121x/93x/78x based on its current share price of Rmb28.94.
We are upbeat about the Company’s long-term growth prospects considering its solid
traditional operations, impressive performance of the EBS and chassis segments,
aggressive expansion into electrification and smart driving, and potential accretive M&A
deals.
Table 23: Earnings forecast and valuation
Item/year 2014 2015 2016E 2017E 2018E
Turnover (Rmb mn) 1,322 1,690 2,127 2,508 2,964
Growth YoY % 3.05 27.84 25.84 17.91 18.17
Net profit (Rmb mn) 74 92 116 148 177
Growth YoY % 112.28 23.24 26.23 27.71 19.79
Gross margin % 25.32 22.58 22.56 22.63 22.59
EPS (Rmb) 0.16 0.19 0.24 0.31 0.37
BVPS (Rmb) 1.5 1.7 1.9 2.1 2.3
PE (x) 181 152 121 93 78
PB (x) 19.3 17.0 15.2 13.8 12.6
Source: CITIC Quantitative Investment Analysis System Note: Closing price as of June 14, 2016.
Auto Industry Thematic Report
Please read the disclaimer at the end of the report 30
Ningbo Tuopu Group (601689): Focusing on actuators for driverless cars
A leading NVH (noise, vibration and harness) solutions provider. The Company is
mainly engaged in the production of rubber shock absorbers and insulation products in the
NVH segment. By sales volume, its rubber shock absorbers are a national best-seller
while insulation products are ranked No. 6 in China. Domestic customers include SAIC
General Motors, SGMW, Geely Auto and Changan Ford. Overseas customers include
Chrysler, GM, Audi and BMW. The Company reported revenue of Rmb3.01bn (+9.9% YoY)
and net profit of Rmb410mn (+2.4% YoY) for 2015. Among others, shock absorbers
contributed 53% of total revenue and 64% gross profit, whilst interior accessories
contributed 38% and 27% respectively. Additionally, the Company plans to raise up to
Rmb2.8bn to invest in its intelligent brake system (IBS) and electric vacuum pump project.
New businesses including lightweight suspensions and IBS fared well amid solid
performance of main operations. The Company has outstanding synchronous R&D and
system integration capabilities. Currently its synchronous R&D orders account for c.80% of
total orders. The Company signed an Rmb1bn 8-year NVH hydraulic shock absorber
supply contract with GM, indicating its strong technological capabilities. Additionally, it is
extending into new operations along the industry chain, including auto lightweighting
solutions and auto electronics. In 2015, its lightweight suspensions and electric vacuum
pumps delivered revenue growth of 33% and 77%, respectively. Given the global trend of
energy-saving and smart driving, we expect the Company to maintain fast growth for its
new businesses.
The smart driving initiatives funded by the Rmb2.8bn private placement should
drive a valuation re-rating. The Company plans to raise up to Rmb2.8bn at no less than
Rmb21.47 per share through a private placement to support its initiatives in the smart
driving segment. Specifically: 1) Rmb2.2bn will be used to fund the IBS project with annual
designed capacity of 1.50mn units. IBS is a key actuator for active safety technologies like
automatic emergency braking (AEB) systems, electronic stability control (ESC) systems
and adaptive cruise control (ACC) systems. An international comparable product is
Bosch's iBooster launched in 2013. The Company followed the international giant closely
and gained first-mover advantage in this segment. 2) Rmb600mn will be invested into the
electric vacuum pump project with designed annual capacity of 2.6mn units. Electric
vacuum pumps are mainly used onto turbochargers and medium to high-end vehicle
models. The product is also a standard component for new energy vehicles (NEVs) and
has been used by local and JV car brands including Geely, Zotye, SAIC and GM. The
project will take two years to complete and contribute net profit of Rmb770mn once
reaching its designed capacity. This will significantly boost the Company’s earnings.
The Company has established an investment unit to strengthen its presence along
the industry chain. The Company is well-capitalized, with liability-to-asset ratio only at
21%. Cash and cash equivalents amount to Rmb580mn. In 2015 the Company
established an investment company to engage in industrial and equity investment. This
will likely help it to expand market share and extend presence along the industry chain.
Considering the development path of comparable companies like Zhongding Sealing Parts
(000887) and Zhuzhou Times New Material Technology (600458), we expect the
Company to deliver extraordinary growth through inorganic expansion.
Potential risks: 1) Disappointing new product promotion; 2) Slower-than-expected
progress with new projects funded by the private placement; and 3) Inorganic growth
missing expectations.
Auto Industry Thematic Report
Please read the disclaimer at the end of the report 31
Earnings forecast, valuation and rating: We estimate the Company’s 2016/17/18E EPS
at Rmb0.76/0.88/1.04 (vs. Rmb0.63 in 2015). Its current share price of Rmb26.54 implies
three-year PEs of 35x/30x/26x. We are upbeat on the Company’s long-term growth
prospects and believe a 40x 2016E PE is fair for the Company based on the average
valuation level of the industry. We initiate our coverage of the Company with an
OVERWEIGHT rating and a target price of Rmb31.
Table 24: Earnings forecast and valuation
Item/year 2014 2015 2016E 2017E 2018E
Turnover (Rmb mn) 2,737 3,007 3,472 4,023 4,723
Growth YoY % 18.54 9.88 15.45 15.86 17.41
Net profit (Rmb mn) 399 409 491 572 675
Growth YoY % 17.53 2.39 20.07 16.68 17.93
Gross margin % 29.51 28.81 29.83 29.91 30.13
EPS (Rmb) 0.61 0.63 0.76 0.88 1.04
BVPS (Rmb) 2.3 4.9 5.4 6.0 6.7
PE (x) 44 42 35 30 26
PB (x) 11.7 5.5 4.9 4.4 3.9
Source: Company announcements, CITICS Research estimates. Note: Closing price as of June 14, 2016.
Auto Industry Thematic Report
Please read the disclaimer at the end of the report 32
Asia-Pacific Mechanical & Electronic (002284): Market leadership cemented
by a full presence along the driverless industry chain
A full presence along the driverless industry chain following a series of equity
investments. Target companies include Forward Innovation, Tima Networks and Intibeam
Technology. Forward Innovation provides a complete set of in-vehicle ADAS products and
a full package of safety solutions. As its aftermarket products are doing well, the target
company is now steadily pushing ahead with its OEM-embedded ADAS solutions. Tima
Networks positions itself as a vehicle-mounted mobile internet carrier capable of offering
the Internet of Vehicles (IoV) solutions and operation outsourcing services by leveraging
advanced big data cloud-computing platforms and multiple smart terminal products.
Intibeam Technology is mainly engaged in the production of millimeter-wave collision
avoidance radar systems. Through these equity investments, the Company has cemented
its technological foothold in terms of environmental perception, active safety control and
interconnection for driverless cars. Such a strong pipeline of technology should create
enormous growth potential for the Company in the future. Meanwhile, the Company’s
existing operations, including anti-lock brake systems (ABS) and electronic stability control
(ESC), both of which serve as the ultimate actuators of driverless cars, could form a
complete closed-loop ecosystem with its acquired businesses, i.e. the sensor systems (of
Forward Innovation and Intibeam Technology) and the IoV solutions (Tima Networks).
A 20% stake in Elaphe adds to the Company’s driverless strength. The Company
plans to acquire a 20% stake in Elaphe (In-wheel electric motor) for Eur10mn via capital
injection. Elaphe is a world leading researcher and developer specializing in electric
motors for electric and other types of vehicles. We believe the latest investment, plus
earlier equity investment initiatives, could help solidify the Company’s strengths in the
driverless segment.
Domestic market expansion through JVs. As a core component to new energy vehicles,
in-wheel electric motors could consolidate the power units, transmission gears and brake
systems all into the wheel, rather than leaving transmission parts like the clutches,
gearboxes, transmission shafts, differential gears and transfer cases scattered. Apart from
a streamlined structure, vehicles fitted with in-wheel electric motors present better space
utilization and transmission efficiency. The Company also plans to establish a joint venture
with Elaphe in China to localize production of in-wheel electric motors and expand the
domestic market. The JV will be created with funds from the Company and core
technological expertise from Elaphe. We expect the Company to have more than 51%
stake of the JV.
Auto electronics products to become the new growth drivers. The Company has
acquired the necessary qualification to provide electric park brakes (EPB) to major
automakers including Jiangling Motors (000550), Faw Car (000800) and SAIC Motor
Commercial Vehicle, and supply electronic stability control (ESC) systems to Dongfeng
Automobile’s M19 project. Its EPB and EABS products were put into production in 2015.
Production of ESC systems will commence in 2016 and will likely contribute to stable
earnings growth.
Potential risks: 1) New business (e.g. driverless cars) expansion missing expectations; 2)
Macroeconomic slowdown resulting in weak downstream demand; and 3) Lower market
share of major downstream customers leading to lower demand.
Auto Industry Thematic Report
Please read the disclaimer at the end of the report 33
Earnings forecast and investment recommendation: We maintain our 2016/17/18E
EPS estimates at Rmb0.25/0.29/0.34. The Company’s current share price of Rmb18.18
implies three-year PEs of 73x/63x/53x. As a leading brake system provider in China, the
Company is overtaking its foreign peers gradually and maintains solid growth for its main
operations. Its auto electronics operations are becoming new growth drivers. We see
enormous growth potential for the Company as it deepens its presence along the smart
driving industry chain. OVERWEIGHT reiterated.
Table 25: Earnings forecast and valuation
Item/year 2014 2015 2016E 2017E 2018E
Turnover (Rmb mn) 3,279 3,059 4,700 5,500 6,383
Growth YoY % 20.61 -6.69 53.62 17.02 16.05
Net profit (Rmb mn) 176 142 184 214 251
Growth YoY % 28.11 -19.17 29.94 16.00 17.24
Gross margin % 16.70 16.61 16.89 16.94 16.98
EPS (Rmb) 0.24 0.19 0.25 0.29 0.34
BVPS (Rmb) 3.36 3.50 3.55 3.61 3.68
PE (x) 76 94 73 63 53
PB (x) 5.4 5.2 5.1 5.0 4.9
Source: CITIC Quantitative Investment Analysis System Note: Closing price as of June 14, 2016.
Auto Industry Thematic Report
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Xingyu Automotive Lighting Systems (601799): Private placement secures
safety margin
New AFS (adaptive front-lighting system) and ADB (adaptive driving beam)
offerings will be launched soon. As driverless technology advances, intelligent lighting
systems including the AFS, ADB, RGB (red, green, blue) lights and bus-based rear light
control systems will become an important part of smart driving. The Company launched an
AFS product at the end of last year and achieved mass production for GAC Group’s
high-end sport utility vehicle (SUV) model – the Trumpchi GS4. In addition, the Company
will likely launch a prototype of an ADB product around the middle of the year, reflecting its
strong technological capability in the intelligent lighting segment. We believe the Company
will arise as a scarce name among peers as it expands.
Transitioning from a specialized automotive lighting supplier towards an integrated
lighting solutions provider. The Company plans to raise up to Rmb1.5bn via a private
placement at no less than Rmb22.84 per share. Among others, Rmb700mn will be used to
fund its “auto electronics and lighting R&D center” project. The R&D center will focus on
automotive lighting and electronics products, smart driving, vehicle-mounted wireless
chargers, head-up displays (HUDs), sensor technology and intelligent production lines. In
our view, the establishment of the R&D center indicates the Company’s resolution in
transforming towards an integrated intelligent lighting solutions provider to capture the
smart driving trend.
Consistent product mix upgrades ensures long-term business growth. The Company
has a high-profile customer base and is offering products to major JV automakers of
Volkswagen, GM, Nissan, Toyota, Ford and Honda. In 2016, the Company will likely break
the blockade of international lighting giants like Hella Technology and Valeo and enter into
the supply chain for large family vehicles. This will further boost the Company’s customer
base and improve its product mix. Currently the Company is supplying LED automotive
lighting (a high value-added product) to a number of vehicle models including the
Volkswagen Golf A7, the VW Sagitar and the Dongfeng Nissan Venucia, with a revenue
contribution of 15% (up 2-3ppts) in 2015. With the additional LED capacity of 500k units
per annum, we expect the LED revenue contribution to approximate 20% and become a
solid growth driver.
Long-term incentive mechanism in place to boost morale. The Company has
implemented a three-phased employee stock ownership plan (ESOP) from 2015 to 2017.
Ms. ZHOU Xiaoping, the controlling shareholder of the Company, will voluntarily vest up to
3.60mn shares to the ESOP scheme in three phases. The remainder part of the scheme
will be purchased through secondary market trading. Currently, phase 1 and 2 vestings
have been implemented with subscription prices at Rmb26.39 and Rmb27.19 respectively.
We think the ESOP scheme shows the Company’s strong conviction in its growth
prospects. Such a long-term incentive mechanism should be able to boost morale and
facilitate the long-term development of the Company.
Potential risks: 1) Growth in demand from downstream automakers misses expectations;
2) The market position of major customers is undermined; 3) Disappointing LED expansion;
and 4) Slower-than-expected inorganic growth.
Earnings forecast, valuation and investment rating: We maintain our 2016/17/18E
EPS estimates at Rmb1.46/1.69/1.95. The Company’s current share price of Rmb45.59
implies three-year PEs of 31x/27x/23x. On the one hand, its traditional automotive lighting
Auto Industry Thematic Report
Please read the disclaimer at the end of the report 35
business is growing steadily and high value-added products are being launched
continuously. On the other hand, its presence in the intelligent lighting segment makes the
Company well-positioned to benefit from the industrial upgrading of the smart driving
sector. As such, we reiterate our OVERWEIGHTING rating on the Company.
Table 26: Earnings forecast and valuation
Item/year 2014 2015 2016E 2017E 2018E
Turnover (Rmb mn) 2,016 2,468 2,926 3,371 3,881
Growth YoY % 23.51 22.40 18.60 15.20 15.12
Net profit (Rmb mn) 273 293 350 405 467
Growth YoY % 25.20 7.62 19.26 15.63 15.31
Gross margin % 24.05 23.46 24.10 24.24 24.37
EPS (Rmb) 1.14 1.22 1.46 1.69 1.95
BVPS (Rmb) 8.29 8.74 9.33 10.00 10.78
PE (x) 40 37 31 27 23
PB (x) 5.5 5.2 4.9 4.6 4.2
Source: CITIC Quantitative Investment Analysis System Note: Closing price as of June 14, 2016.
Auto Industry Thematic Report
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Joyson Electronic (600699): M&A strategy to continue
The acquisition of Evana proves a good fit with the Company’s existing industrial
robots business. Major customers of the US-based Evana Automation include leading
multinationals across the automotive, industrial, medical and health segments, such as
TRW Automotive, Magna, Alere and ALCON. Evana reported total revenue of
US$23.43mn and EBITDA of US$2.80mn for 2015. Joyson Electronic’s major industrial
robotics operations include Preh, IMA Automation (acquired in 2014) and Preh IMA
Automation (a China-based subsidiary). Upon the completion of the acquisition, the
Company’s geographical footprint in the industrial robotics segment will be extended from
Europe and Asia to the North America. Its strength in the medical and health segments will
also be further enhanced. As one of the Company’s three pillar products, industrial robots
should be a segment to watch in terms of both organic and inorganic growth.
Equity investment in Car Joy cements the Company’s presence in the automotive
service segment. Car Joy owns China’s first specialized aftermarket ecommerce platform
for 4S store networks – the “lechebang”. Currently it has connected to the online platforms
of the BAT (Baidu, Alibaba and Tencent), JD, Dianping, AutoNavi and China’s top 5
state-owned banks and serves as the exclusive 4S store maintenance service provider
designated by Baidu Map, Baidu Nuomi and QQAuto. Key investors include Sequoia
Capital and Baidu. The Company’s latest equity investment in Car Joy echoes its earlier
investment in vcyber.com and Anhui Auto Service, and is aimed at expanding its presence
in auto services/aftermarket services. We expect the Company to leverage its software
and hardware strength and build an IoV ecosystem that covers every aspect in end-users’
day-to-day use of cars.
A scarce top-performing smart driving name backed by the trends of intelligent cars
and intelligent road transportation. The Company proposed to acquire KSS, the world’s
fourth largest safety system supplier, for US$920mn to deepen its presence along the
smart car industry chain. Recently, KSS said that it had taken a controlling stake in Image
Next, Korea’s leading visual system developer. We believe this will further strengthen the
Company’s active safety technology. Additionally, the Company proposed to acquire the
auto information unit of the German-based auto supplier TechniSat Digital for Eur180mn in
a bid to venture into the intelligent road transportation segment. The Company is now the
best smart driving player in the A-share market and will likely enjoy a long-term valuation
premium as an industry leader.
Well-positioned to benefit from the industry upgrading in the longer run. According to
the Company, the two proposed acquisition deals (KSS and the auto information unit of
TechniSat) will be funded by a private placement priced at no less than Rmb29.85 per
share. Looking ahead, we expect the Company to build a competitive product matrix
covering driving control, auto safety, the internet of vehicles (IoV), new energy and
industrial robots, paving the way for its transformation from an auto electronics specialist
to a tech-driven innovative service provider. We think the Company is well-positioned to
benefit from the trend of smart driving, electrification and industry automation in the auto
industry.
Potential risks: 1) Margin erosion as a result of foreign exchange rate and overseas
market fluctuations; 2) Disappointing progress in acquiring new customers; and 3) New
business integration missing expectations.
Earnings forecast, valuation and investment rating: We maintain our 2016/17/18E
EPS estimates at Rmb0.79/1.34/1.60. Its current share price of Rmb36.73 implies
Auto Industry Thematic Report
Please read the disclaimer at the end of the report 37
three-year PEs of 46x/27x/23x. The Company is transforming from an auto electronics
specialist into a tech-driven innovative platform service provider. Given the historical
valuation levels of the industry and the Company, we think a 30-32x 2017E PE is fair. We
like the Company’s long-term growth prospects and reiterate our OVERWEIGHT rating on
the Company with a target price of Rmb42.
Table 27: Earnings forecast and valuation
Item/year 2014 2015 2016E 2017E 2018E
Turnover (Rmb mn) 7,077 8,083 16,960 27,476 32,647
Growth YoY % 15.95 14.21 109.84 62.00 18.82
Net profit (Rmb mn) 347 400 776 1,306 1,566
Growth YoY % 20.03 15.27 94.16 68.18 19.96
Gross margin % 19.57 21.65 21.60 21.60 21.60
EPS (Rmb) 0.35 0.41 0.79 1.34 1.60
BVPS (Rmb) 2.5 3.9 4.4 5.4 6.5
PE (x) 105 90 46 27 23
PB (x) 14.7 9.4 8.3 6.8 5.7
Source: CITIC Quantitative Investment Analysis System Note: Closing price as of June 14, 2016.
Auto Industry Thematic Report
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Shuanglin Auto Parts (300100): Smart driving projects to support growth
Execution of smart driving projects should generate some excitement. After
establishing a network technology joint venture with TYD Electronic Technology early last
year, the Company is now planning to extend its presence to the automated driving
segment. It proposed to invest a total of Rmb100mn cash on hand into a smart driving
technology project. Rmb60mn will be invested in the first phase. According to a recent
announcement, the Company’s parent company, Shuanglin Group, proposed to sell down
no more than 16mn shares in the Company. The proceeds from the sell-down will be used
to fund the group’s investment in innovative projects including shared-lease of electric
vehicle and the internet of vehicles (IoV). In our view, once these projects turn profitable,
the group company may inject them into the listco. Considering the group’s experience in
exploring new businesses/models and integrating industry resources, we think the
execution of these projects could bring some excitement.
Potential DSI injection (a 90% stake) should be earnings accretive. Currently
Shuanglin Group owns a 61% stake in the Australia’s DSI Holdings. Given the prevailing
exit mechanism of venture capital investors, we reckon that the 29% stake owned by GSR
Ventures (a partner of the group company) could also be transferred to the listco along
with the 61% owned by the Group. DSI’s products are widely applied to the GEELY GC9, a
popular sedan launched in April 2015 with monthly sales volume now standing at 6,000
units, and will also be fitted to the soon-to-market Geely NL3, an SUV priced at
Rmb98.8k-157.8k but actually sold at only Rmb94.8k-151.8k (with purchase tax subsidy
by the automaker). The SUV will be equipped with ADAS products including the 3D
panorama image, ACC and EPB. The high performance vs. the low price could help boost
sales of the new SUV model. Apart from Geely’s vehicle models, we expect the DSI
products to cover more customers, including Lifan Group and BAIC Motor. Based on our
estimates, the sales volumes of DSI’s automatic gearboxes could reach 150k and 250k
sets in 2016 and 2017, respectively, with profit per set at more than Rmb1,000. The asset
injection, once realized, could boost the Company’s earnings by a big margin.
Presence in core electric vehicle parts advances the cooperation with automakers.
Currently the Company has a 5% stake in the Geely-Xindayang JV, which is focused on
the production of new energy vehicles (NEVs). By acquiring a 51% interest in Deyang
Electronics Technology (an electric motor supplier of Xindayang’s best-selling vehicle
model–the Zhidou series), the Company has ventured into the NEV core
parts/components supply chain. The target company is capable of producing 300k sets of
electric motors and 300k sets of controlling units per annum and committed net profit
contribution of Rmb80mn/Rmb120mn for 2016E/17E. The acquisition could generate
synergies with the Company’s earlier moves along the NEV industry chain and will likely
strengthen its partnership with Xindayang and Geely by supplying core parts for Geely’s
electric vehicles.
Commissioning of the Hangzhou Bay project brings incremental profits. The
Company’s HQ saw a revenue decline of nearly 30% in 2015, dragged by the downbeat
business climate and the postponement of the car seats project, but will likely resume
growth this year. The Hangzhou Bay Project, which commenced production in mid-2015
and mainly focuses on the production of seats and interior/exterior accessories for Geely,
Changan Ford and Zotye, may start to deliver net profit this year. In 2015, the Company’s
wholly-owned subsidiary Hubei New Torch Science and Technology (a high-tech company
focusing on the production of wheels and bearings) contributed net profit of Rmb160mn,
far above the committed amount of Rmb110mn. We expect the subsidiary to maintain
Auto Industry Thematic Report
Please read the disclaimer at the end of the report 39
more than 20% growth in the future with the growing share of the third generation of
bearings and wider application on more vehicles models.
Potential risks: 1) Disappointing M&A and integration progress; 2) Acquisition of new
customers and new product promotions missing expectations; and 3)
Slower-than-expected progress in expanding new businesses.
Earnings forecast and investment recommendation: We maintain our 2016/17/18E
EPS estimates at Rmb0.84/1.00/1.18. Its current share price of Rmb42.57 implies
three-year PEs of 51x/43x/36x. Pro forma for an 8x 2016E PE of DSI in a potential asset
injection deal at Rmb36 per share (assuming 25% of the consideration is funded through
fundraising), we estimate its 2016/17E pro forma EPS at Rmb1.08/1.44, implying 37x/28x
PE. We are positive about the Company’s long-term growth prospects given its proactive
initiatives in the smart driving and NEV segments as well as the consequent earnings
accretion following the potential injection of DSI. OVERWEIGHT reiterated.
Table 28: Earnings forecast and valuation
Item/year 2014 2015 2016E 2017E 2018E
Turnover (Rmb mn) 1,497 2,472 3,514 4,186 4,976
Growth YoY % 24.18 65.12 42.15 19.12 18.86
Net profit (Rmb mn) 133 243 333 395 468
Growth YoY % 29.54 83.03 36.72 18.82 18.51
Gross margin % 26.99 26.88 27.55 27.16 27.22
EPS (Rmb) 0.34 0.61 0.84 1.00 1.18
BVPS (Rmb) 4.8 5.3 5.9 6.6 7.5
PE (x) 125 70 51 43 36
PB (x) 8.9 8.0 7.2 6.5 5.7
Source: CITIC Quantitative Investment Analysis System Note: Closing price as of June 14, 2016.
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