2022-11-24 18:10:07 和讯  中信证券YIN Xinchi/LI
  Core views:
  Seres has been deeply engaged in the internal combustion engine (ICE) vehicle market for many years. Since 2018, it has turned to high-end new energy vehicles (NEVs) and the monthly sales of the AITO brand in collaboration with Huawei quickly exceeded 10,000 after debut, making it the biggest dark horse in 2022 among electric vehicle (EV) startups. Under the Huawei Smart Selection mode, Huawei can deeply empower Seres in technology, product definition, marketing and channels. We believe that Seres and Huawei have complementary advantages in vehicle manufacturing and intelligentization in the partnership. We assign Seres 1.4x 2023E PS to derive a target price of Rmb62 and initiate coverage with an "OVERWEIGHT" rating.
  Company overview: The biggest dark horse in 2022 among EV startups.
  Seres, formerly known as Sokon, started from motorcycle and microcar parts, and developed traditional automobile business with Dongfeng Motor in 2003. With many years of cultivation, it has the capacity of vehicle production and manufacturing, powertrain R&D and production, as well as the production qualification of NEVs. Since 2019, the Company has joined hands with Huawei to make efforts in the field of new energy passenger cars. In 2021, they launched Huawei Smart Selection brand AITO. In 2022, three models of the AITO brand have started to deliver successively. The first model, AITO M5 extended-range electric vehicles (EREV), was delivered in Mar, setting the fastest record in cumulative delivery of 10,000 units (within 87 days), and the delivery volume climbed to 7,000 in Jul. Delivery of the M7 EREV began in Aug, with deliveries approaching 5,000 units in Sep. The M5 EV delivered from the end of Oct. The total sales of all three models from Aug to Oct has reached 10,045/10,142/12,018 units, respectively, making the Company rank among the first-tier startup carmakers. And its flagship SUV AITO M9 is planned to deliver in 2023.
  Products: Harmony IVI topping the industry.
  The M5/M7 is equipped with Harmony OS, which is superior to its peers in UI design, smoothness of operation and semantic recognition, which is known as the "ceiling of the in-vehicle infotainment (IVI)". Relying on Harmony OS full scenarios and distributed characteristics, Harmony OS car system can realize multi-terminal interconnection with mobile phones and other internet of things (IoT) devices. Huawei will release Harmony OS 3.0 version to all models in 1Q23. The new version will have many improvements in the number of devices, smart link convenience, fluency, privacy and security, and barrier-free information browsing. In addition, the innovation of the M7 zero-gravity seat and its leading noise, vibration, and harshness (NVH) performance reflect Huawei's understanding of the needs of the intelligent cockpit. Behind this is Huawei's insight for demand and selling point mining ability accumulated over many years in the field of consumer electronics.
  Marketing and channels: AITO models debuted at Huawei quarterly new product release conference and distributed rapidly relying on Huawei stores.
  1) Marketing: All three AITO models on sale debuted at Huawei's quarterly new product release conference as the grand finale, and YU Chengdong (Richard Yu), Huawei's CEO of the Intelligent Automotive Solution BU, is in charge of product sales, making the three models attract more attention. 2) Channels: In the current cooperative car products of Huawei, AITO is the only brand that is widely spread in Huawei experience store, which enjoys more channel resource and flow than Arcfox and AVATR. By Sep 2022, there were 866 experience centers providing test driving and car purchase services. 166 user centers have been established to provide sales, delivery, after-sales and other comprehensive services, with a total of 1,032 stores, surpassing the number of Tesla and NIO, XPeng and Li Auto (of around 300~600 stores). By the end of 2022, Seres plans to build 1,000 experience centers and 300 user centers for AITO brand.
  Outlook: Cooperation efficiency beat market expectations.
  As an aircraft-carrier-class enterprise in China's technology industry, Huawei has regarded the intelligent automobile industry as one of the important development cores in the future. Among the automobile enterprises cooperated with Huawei, Seres has first-mover advantage and higher-than-expected cooperation efficiency. The first-round model cycle consisting of M5, M7 and M9 (to be launched in 2023 as planned) has high visibility, which has formed the brand building among the consumers. We believe that in the next two to three years, both sides will rely on their own advantages to build a learning curve of the NEV industry. In addition, Seres has increased production capacity construction and R&D investment of Rmb7bn from private placement and arranged six NEV models, which confirms the deepening cooperation between the two parties and enhancing the complementary advantages in vehicle manufacturing and intelligent enabling.
  Risk factors: Delayed delivery of new models; less-than-expected sales of new models; affected vehicle supplies due to chip shortage; the outbreak of a price war in the end-consumer market.
  Investment strategy: As Seres is currently in the transition period, the revenue from the AITO brand in the new energy passenger vehicle segment will likely increase rapidly in the next two to three years, while the proportion of the legacy conventional vehicle business revenue will gradually decrease. We forecast the 2022E/23E/24E revenue to be Rmb39.2bn/82.1bn/125.2bn and attributable net profit (ANP) to be Rmb-3.4bn/-2.5bn/900mn for the Company. Since it is not yet profitable, we adopt the PS valuation method, which is commonly used for the startup carmakers. Among the rising first-tier carmakers, Li Auto (Li.O/02015.HK) and NIO (NIO.N/09866.HK) are close to Seres in terms of revenue per unit and product positioning. At present, Li Auto is trading at 1.0x 2023E PS for both ADRs and H-shares while NIO at 1.1x 2023E PS for both ADS and H-shares, with the historical average at 1.1x/1.1x, respectively. Considering the long-standing A/H premium in the auto sector (the H-share market values of BYD, Great Wall Motors and GAC Group are 66%/30%/41% of the A-share market value), we grant a 20% premium to assign 1.4x 2023E PS for Seres. Considering AITO brand belongs to its car-making subsidiary (formerly known as Jinkang Seres), and the Company's current shareholding ratio in the subsidiary is 81%, the reasonable market value of the Company in 2023 will be Rmb93.1bn (Rmb82.1bn * 1.4x * 81%), corresponding to the target price of Rmb62 (the current price is Rmb50). We initiate coverage with an "OVERWEIGHT" rating.
(责任编辑:王丹 )


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