Improved Profitability and Multi-Point Layout Boost Winstron Electronics' Value Logic

With the halo of Huawei and the solid quality of its new energy vehicles, the sales of the AITO series exceeded expectations again in August. Meanwhile, BYD continues to dominate the sales charts with its "galloping ahead" performance.

Behind the booming scene, several institutions have expressed optimism about investment opportunities at both ends of the vehicle market. Following the core supply chain companies of automakers such as BYD, I noticed the company Joyson Electronics.

As a Tier 1 global automotive safety and electronics supplier, it has formed a solid cooperative relationship with automakers and successfully entered the supply chain of independent brands and new force brands such as BYD, NIO, Li Auto, XPeng, Changan, Geely, GAC, and SAIC. In recent years, the company has achieved technological leaps through mergers and acquisitions, accelerated the layout of automotive intelligence, and gradually grown into an industry leader.

Not long ago, Joyson Electronics released its mid-term financial report for 2024, which once again accelerated on the basis of past growth trends, showing great business potential. Considering the current stock price, the company's valuation is still low, highlighting the attractiveness of its configuration.

Has the comprehensive profitability improvement led to an underestimation of the automotive Tier 1 leader?

First, let's look at the core financial data of the report:

In the first half of the year, the revenue was 27.1 billion yuan, a year-on-year increase of 0.2%; the gross margin increased to 15.58%; the net profit attributable to the parent company, excluding non-recurring gains and losses, was 639 million yuan, a significant year-on-year increase of 61.20%, indicating a marked improvement in profitability.

Looking at the business segments, the automotive safety business revenue was 18.8 billion yuan, with a gross margin of 13.94%, which has been increasing quarter-over-quarter for several consecutive quarters; the automotive electronics business revenue was 8.3 billion yuan, with a gross margin of 19.37%, maintaining stability.

Currently, the automotive safety business accounts for nearly 70% of the revenue and is the main part of the income. The gradual recovery of its gross margin will undoubtedly lead to a comprehensive improvement in the company's overall profitability.

After completing the merger and integration of the passive safety businesses of KSS in the United States, Takata in Japan, and Quin in Germany, the positive effects have begun to emerge. With the rapid development of the new energy vehicle market, the automotive safety business is no longer a burden on the company but has started to become a cash cow.Objectively speaking, it is time to dispel some doubts and concerns about the automotive safety business of Joyson Electronics.

Looking at the order data, in the first half of the year, the company won new life-cycle orders globally worth about 50.4 billion yuan, of which automotive safety business orders were about 39.8 billion yuan, automotive electronics business orders were about 10.6 billion yuan, and orders related to new energy vehicles accounted for more than 60% of the total. The company has been continuously securing new orders, and the structure of orders has been continuously optimized, providing a guarantee for performance growth.

With good performance and certain growth in the medium term, does the current valuation of Joyson Electronics fully reflect the fundamentals?

Looking at the company's scale, the revenue in 2023 reached 50 billion yuan, corresponding to the current market value of about 20 billion yuan. As a mature industry leader, the market value is far less than the scale of revenue.

Further, several automotive electronics companies were selected as comparable companies. Joyson Electronics' revenue is more than twice that of Desay SV, but the valuation is less than half of Desay SV. It is calculated that as of the close on August 30, 2024, the PE ratios of Desay SV, Songyuan Shares, Huayang Group, and Kobelco were 32.45, 30.07, 25.40, and 29.43, respectively.

The average PE level of comparable companies is 29.34, while Joyson Electronics is 18.38, which is far lower than its peers. From this point of view, Joyson Electronics is obviously undervalued.

Automotive safety is firmly in the leading position, and automotive electronics is ready to take off.

Looking at the development potential from the operational level, driven by the dual wheels of automotive safety and automotive electronics business, in the long term, Joyson Electronics still has a very strong profit growth momentum.

In the field of automotive safety, Joyson Electronics continues to maintain a global leading position. In the first half of the year, the company's global market share in passive safety was second only to Autoliv, ranking second in the world and first in China. The latest research report points out that the market size is growing steadily and the competitive landscape is stable, and Joyson Electronics is expected to fully benefit from the growth of the global automotive safety market.

At present, the company's products have covered the top 10 car companies/brands in China's new energy vehicle sales list. As the company gradually optimizes its global production capacity layout and promotes the speed of domestic expansion, it will further supply customers such as BYD, Zero Run, and Chery, release scale effects, and the revenue and profit of the automotive safety business are expected to continue to grow.At the same time, Joyson Electronics is accelerating the development and implementation of automotive intelligent product research and development and landing, with multi-point layout in intelligent cockpits, intelligent driving, intelligent networking, new energy management and other businesses, forming a comprehensive automotive electronics ecosystem layout. Against the backdrop of the continuous heating up of the "vehicle-road-cloud integration" concept, the company can be said to have fully grasped the trend, facing a blue ocean market of trillion-level scale.

Specifically:

1) Intelligent Cockpit

Joyson Electronics' intelligent cockpit products have the overall software and hardware solution capability from domain controllers to operating systems, with products globally supplied to reach the level of tens of millions of units.

At present, the company is continuously promoting the research and development of intelligent empathetic cockpits with multi-screen linkage, multi-modal interaction, and AI active interaction, while facing the next generation of cockpit driving fusion trend, integrating safety detection for drivers and passengers, driving and parking assistance functions. It is worth noting that in the field of domain controllers, the company's innovative product technologies such as HiCar and Hongmeng cockpit, which have deep cooperation with Huawei, are being continuously introduced to the market.

Thanks to the leading level of intelligence, the new models under Huawei Hongmeng Zhixing are frequently popular, with the sales volume of products represented by the Wenjie series continuously setting new highs. Based on the long-term and stable cooperation relationship between the company and Huawei, and the high brand stickiness of the cockpit domain controller, as more new models are mass-produced and landed, Joyson Electronics will continue to contribute to performance growth.

This year, Joyson Electronics' subsidiary Joyson Lianlian Zhixing and Huawei renewed the comprehensive cooperation agreement, deepening the HUAWEI HiCar one-stop service, providing global software development and technical support. The company's global professional team resources and rich project experience have been widely recognized for providing overseas services to car companies.

2) Intelligent Driving

Joyson Electronics has launched three core product lines in the intelligent driving business, with product performance and technical parameters leading the industry. The company has in-depth cooperation with BYD in the fields of automotive electronic control and intelligent driving systems, providing intelligent solutions for its new energy vehicles.

The company has cooperated with different chip platforms such as Qualcomm, Horizon, and Black Sesame, launching intelligent driving domain controllers and central computing unit products, and has released intelligent driving domain controller products nDrive H series based on Qualcomm chips, nDrive M series based on Horizon chips, and other products. Based on the different characteristics of domestic and foreign markets, the company has laid out SmartCamera (front integrated machine) business based on domestic and foreign chip platforms. Joyson Electronics has the ability to layout multiple chip platforms, thereby meeting diversified needs.According to data from the Gaogong Industry Research Institute, in 2023, Horizon Robotics ranked second in both the low-end and high-end intelligent driving chip markets in China, with market shares of 21.3% and 35.5%, respectively. The company's cooperation progress with Horizon Robotics and others is leading, and as the intelligent driving chip market continues to grow, Joyson Electronics will also accelerate the expansion of its market share.

3) Intelligent Connectivity

As one of the earliest manufacturers globally to achieve mass production of vehicle-road collaborative products, Joyson Electronics mainly provides 5G-V2X vehicle-road collaborative solutions and integrated digital intelligent antenna solutions for 5G-V2X. The intelligent connectivity system has evolved to its fourth generation, becoming a core supplier for some French, German, and Chinese new force automakers. The company recently won a new order worth 1.8 billion yuan, with a total order amount of nearly 10 billion yuan in the past two years.

The company also has cutting-edge technologies or actual projects in intelligent cockpits and vehicle-road-cloud collaboration. For example, relying on the global first mass production advantage of 5G+C-V2X technology, it actively participates in building an intelligent transportation ecosystem, successfully obtained the Ningbo High-tech Zone vehicle-road-cloud integration project, and provided strong technical support for the construction of smart cities.

The Forward-looking Industry Research Institute report predicts that by 2030, the market size of China's intelligent connected vehicles is expected to exceed 50 trillion yuan, and the market size related to "vehicle-road-cloud integration" will exceed 14 trillion yuan. The market size of intelligent connected vehicles will enter a stage of rapid growth.

The industry chain of intelligent connected vehicles is an upgrade and extension of the traditional automotive industry chain, and the core value has also shifted towards both ends, with core hardware and software suppliers gaining more say. Reflected in the gross margin level, the gross margin level of upstream core components such as laser systems, high-precision positioning, and chips is as high as more than 45%. Therefore, Joyson Electronics is facing a growth space with both quantity and price increases.

4) New Energy Management

Joyson Electronics has a deep accumulation in the BMS field and has the advantage of R&D and manufacturing for full-voltage platforms, which currently cover multiple voltage platforms such as 12V, 48V, 400V, and 800V. Based on its first-mover advantage and rich mass production experience in the 800V high-voltage fast-charging field, the company recently won a huge order worth 13 billion yuan, and the full life cycle order has exceeded 22 billion yuan, which will gradually contribute to performance growth.

In recent years, the sales volume and number of 800V high-voltage models have been increasing year by year, and the market penetration rate has been steadily rising. With the continuous improvement of technology, the 800V high-voltage system is expected to become the mainstream trend in the electric vehicle industry. Joyson Electronics has become the preferred partner of global mainstream automakers. It previously provided a high-voltage boosting module for the Taycan, which indirectly verified the company's technical advantages and will attract automotive customers to continue to win orders.

Therefore, in the field of automotive safety, Joyson Electronics is a well-deserved leader. In the field of automotive electronics, in the short to medium term, the company has a sufficient number of orders in hand, bringing sufficient certainty and growth to subsequent performance growth. In the long term, with the increase in the penetration rate of the 800V high-voltage platform, the mass production of intelligent cockpit domain controllers, and the increase in the proportion of high-gross-margin intelligent connected business, Joyson Electronics' gross margin is expected to steadily increase. With the increase in cooperative customers and projects, it will increase profit elasticity.Summary:

According to statistics, recently, 10 securities firms including Kaiyuan Securities, Southwest Securities, and Caixin Securities have maintained a "Buy" or "Accumulate" rating for Joly Electronics, expressing optimism about its development prospects.

Considering the company's current low valuation, coupled with the certainty of performance growth and growth potential, its investment value becomes increasingly prominent. With the promotion of positive external factors and the gradual dissipation of internal valuation suppression factors, its potential will be released accordingly. It can be anticipated that in the subsequent financial reporting cycles, performance can be observed and more comprehensive data support and verification can be obtained. Joly Electronics is worth more anticipation.