W-IBEDA HIGH TECH.GROUP(688071)：RISING PENETRATION OF ELECTRIC INTELLIGENT VEHICLES CREATING NEW GROWTH POTENTIAL

Investment positives
We initiate coverage of Shanghai W-Ibeda High Tech Group Co Ltd (W-Ibeda) with an OUTPERFORM rating and a target price of Rmb65.50, implying 50x 2022e and 35x 2023e P/E.
Why an OUTPERFORM rating?
W-Ibeda focuses on intelligent testing of powertrains. The firm’s engine cold-test equipment is replacing imported products, and it has sold its testing equipment overseas. Since its inception, W-Ibeda has focused on intelligent testing of powertrains. It has built five testing-equipment systems, and offers powertrain testing services targeting new-energy vehicles (NEVs). It services automakers and auto parts suppliers such as SAIC Motor, NIO, BorgWarner, and ZF Friedrichshafen. The company leverages its advantages in product quality, prices and localized services to secure market share in China. In addition, W-Ibeda places a strong emphasis on overseas business, and is starting to sell products overseas.
W-Ibeda expanding into powertrain testing services by leveraging its expertise in testing equipment; taking advantage of booming NEV market in China. The firm’s revenue from testing services started to grow rapidly thanks to rising demand from automakers for testing of NEV-based powertrains. Meanwhile, its shipment of NEV-based testing equipment has increased. As such, the firm’s revenue from NEV-related businesses expanded from Rmb31mn in 2018 to Rmb129mn in 2020. These businesses contributed 43% and 42% of the firm’s revenue and gross profit in 2020 compared to 15% and 20% in 2018. We think W-Ibeda has first-mover advantage in powertrain testing and may experience a new round of growth by becoming suppliers to top-tier automakers such as Great Wall Motor and NIO.
W-Ibeda is developing inertial measurement units (IMU), a core component in autonomous driving. We expect sales of intelligent hardware for advanced driving assistance system (ADAS) to increase rapidly. IMU contributes to safety redundancy of intelligent-driving positioning systems, and we think IMU’s penetration of Level 3 autonomous vehicles will increase rapidly. W-Ibeda has developed control algorithms for pure electric vehicle-based IMUs based on its algorithm and data technologies in the intelligent testing area. The company provides SAIC Motor with positioning solutions for Level 3 intelligent driving or higher. We think IMUs will become the firm’s new growth driver as its projects now under R&D hit the market.
How do we differ from the market? W-Ibeda supplies engine and gearbox testing equipment to producers of fossil-fuel vehicles. The market does not think that this business is sustainable. We believe, however, that this business has high growth visibility as the firm’s engine cold-test equipment is replacing imported products and the company has become fixed suppliers to hybrid-vehicle manufacturers and foreign firms.
Potential catalysts: W-Ibeda cooperates with SAIC Motor to develop IMUs. We expect its IMU shipment to increase rapidly amid accelerating applications of higher-level intelligent driving vehicles.
Valuation and recommendation
We expect W-Ibeda’s 2021-2023 EPS to be Rmb0.82, Rmb1.30 and Rmb1.86, respectively, implying a 51% CAGR. The stock is trading at 36.1x 2022e and 25.3x 2023e P/E. Initiate with an OUTPERFORM rating. We employ the sum-of-the-parts (SOTP) approach to value W-Ibeda, given strong demand for powertrain testing services and the firm’s smooth progress in IMU R&D. We derive a target price of Rmb65.5, offering 39.3% upside and implying 50x 2022e and 35x 2023e P/E after separately estimating the value of three businesses, i.e. testing equipment, testing services and IMU.
Risks
Industry business climate worsens; competition intensifies; technological innovation risk.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。