On February 24, Wang Menghui, minister of housing and urban-rural development, said at a press conference of the State Council New Office that it will vigorously promote the "new city construction" based on digitalization, networking and intelligence, coordinate the development of smart cities and intelligent networked vehicles, and plan to build a number of demonstration bases to accelerate the landing of new urban construction projects.
Coincidentally, on the same day of Minister Wang's speech, the Chengdu Municipal Public Security Traffic Management Bureau officially issued the driving number plates of the first batch of intelligent and connected vehicle road test vehicles in Chengdu, and 12 test vehicles will be tested for automatic driving on designated public roads.
Intelligent connected vehicle refers to the combination of the Internet of Vehicles and intelligent vehicles
Intelligent connected cars are a new type of automotive technology system, the ultimate goal of which is driverless cars that can be safely driven on the road.
One and three roads go hand in hand to seize the beach intelligent network connection
In 2021, the sales volume of intelligent and connected vehicles in the mainland reached 2.718 million units, accounting for 12.74% of all passenger car sales, especially in December, the sales volume of intelligent connected vehicles reached 18.68%, showing an accelerated development trend. The wave of automotive intelligence and networking is surging and the demand for various automotive electronic devices is naturally rising. According to McKinsey's forecast, the automotive electronics and software market related to autonomous driving will grow to $469 billion by 2030, with an annualized compound growth rate of about 7% in the decade 2020-2030, which will be an industry dividend period with long slopes and thick snow in Buffett's words.
At the beginning of last month, the domestic automotive electronics leader Desay SV (002920) came up with a fairly good performance forecast.
Excerpt from "Desay SV 2021 Results Preview"
The controlling shareholder of Desay SV is Huizhou State-owned Assets, and the company's main products are interior automotive electronics, that is, central control, air conditioning, instrumentation, display screen, etc., which are more technical and in line with policy orientation. Such enterprises are the hearts and minds of local governments and often receive high financial subsidies. However, the amount of desai's net profit (deducting non-recurring profit and loss) and net profit are basically equal, which somewhat surprises Brother Orange. Flipping through the mid-year report, in the first half of the year, Desai's revenue was 4.1 billion, net profit was 370 million, and government subsidies were less than 7.7 million, indicating that Desai's performance was indeed relatively high.
Desay has been deeply involved in automotive electronics for more than 30 years, and from 2021 onwards, all the original interior automotive electronics will be classified into the "smart cockpit", and two new product lines of intelligent driving and networking services have been opened. There are many products that have been successfully commercialized in the new product line, and the customers are mainly national brands.
Excerpt from "Desay SV Mid-Year Report 2021"
"Fixed-point" refers to a batch supplier designated by an automobile manufacturer as a part. After confirming the fixed point, according to the time node confirmed by both parties to complete the determined goals and then enter the mass production and supply, different car manufacturers and different supply projects, from the fixed point to the official batch time is not the same. Once this process is completed and the supplier list is entered, the "front-loading mass production order" of the depot will be obtained, that is, various hardware and software products installed on the car before leaving the factory. The corresponding to the front is the rear installation, which refers to the accessories that the car is installed on the car after leaving the factory, such as the wiper that needs to be replaced, go to a treasure to buy one.
As of the first half of this year, the revenue contributed by Desai's new product line is still very limited, but the growth momentum is very strong.
Automakers will not easily change suppliers, so it is impossible to obtain living space without the new products of the national automobile brand Desai, which shows how important a complete industrial chain is for a country.
Second, the profit is small, hoping for in-vehicle software
At present, electronic equipment has become the most important component of the vehicle control system, and some luxury model electronic products have accounted for more than 50% of the vehicle cost. In-vehicle information systems and driver assistance systems (ADAS) are the most growing categories. It is also the focus of competition for global automotive electronics suppliers.
The on-board information system is the traditional product of Desai, which is now the "intelligent cockpit", and ADAS is the main focus of Desai's new product line. In order to seize the opportunity in the competition and support the rapid growth of new product lines, 626 million of the four expenses of Desai in the first three quarters of last year were outstanding.
Excerpt from "Desay SV Third Quarterly Report 2021"
High R&D expenditures allowed Desai's products to quickly join the list of TIER 1 suppliers (simply understood as direct suppliers, not through traders) of various automakers, but also further diluted Desay's already thin profit margins. Desai's 6.303 billion yuan revenue in the first three quarters of last year only achieved a net profit of 491 million, and the net profit growth rate did not outperform the revenue, indicating that the company's ability to transfer cost pressure is not strong. Of course, last year, the automakers also worked harder, such as the Great Wall Motor (601633) was forced to stop production of Euler Black Cat and Euler White Cat due to cost pressure, and Desai's space as a supplier is certainly not much bigger.
In fact, in the case of substantial revenue growth, Desai's receivables only increased from 2.754 billion at the end of 2020 to 2.843 billion at the end of the third quarter of 2021, and the amount remained basically stable. This shows that the company's payment collection situation has actually improved significantly, reflecting that Desay, as a domestic automotive electronics leader, has a relatively solid position in the entire industrial chain. Moreover, according to the semi-annual report, the age of Desay's accounts receivable is basically within 1 year, and the provision for bad debts for accounts receivable of more than 1 year is very large. It can be considered that the risk that customers will not be able to pay back money in the future has been fully "demined" in this report.
The reason why operating cash flow did not keep up with the increase in net profit was mainly because Desay's inventory soared from 1.1 billion at the end of 2020 to 1.839 billion in the third quarter of 2021. The replenishment force far exceeds the speed of sales scale expansion, indicating that the management is very optimistic about the future market. In addition, as of the third quarter of last year, Desai did not have any long-term interest-bearing liabilities, short-term borrowings were only 200 million, and the financial pressure was very small.
At present, Desay has obtained the Singapore M1 autonomous driving license, passed the INTERNATIONAL CERTIFICATION OF ASPICE CL2 (Software Process Improvement and Capability Assessment Model level II in the automotive industry), and the software development capabilities in the automotive field have reached the international advanced level. The profit margin of the software business is much higher than that of the manufacturing industry, which can greatly improve the company's profit margin.
III. Conclusion
As a domestic automotive electronics leader, Desay SV has a solid position in the domestic automotive industry chain and has certain competitiveness in the world, and will benefit from the dual wave of localization and intelligence. However, due to the low overall price of domestic cars, the company's profits have been meager. Desai admitted during the survey of the reception agency that the chip shortage problem is still the biggest uncertainty facing the company.
Therefore, when the R&D expenditure that consumes a lot of money can be translated into results, whether Desai can follow the footsteps of the entire Chinese automotive industry and overtake the world-class industry leaders such as Continental, Bosch, Aptiv, and Visteon in the new energy era, must have to go through many bumps.
Note: This article does not constitute any investment advice. The stock market is risky, and you need to be cautious when entering the market. There is no harm in buying and selling.