New stock interpretation | Driverless vehicles take the lead, Nanfang Black Sesame Group Intelligent (02533) becomes the "first stock of autonomous driving AI chip"

The hype of the runaway radish in Wuhan driving the popularity of driverless cars has not yet subsided, and the driverless car industry in Wuhan has once again received a major news. It is understood that Nanfang Black Sesame Group Smart (02533), headquartered in Wuhan, launched its IPO on July 31, marking the final step towards a listing on the Hong Kong stock market. Nanfang Black Sesame Group Smart is a major player in the domestic autonomous driving AI chip field, with the Huashan series high computing power SoC and the Wudang series cross-domain SoC as its two series of chips. According to Frost & Sullivan, based on the shipment volume of high computing power SoCs for vehicle regulations in 2023, Nanfang Black Sesame Group Smart is the third largest supplier in the world. This means that Nanfang Black Sesame Group Smart has entered the top tier of the global autonomous driving AI chip field. According to the prospectus, the IPO of Nanfang Black Sesame Group Smart will take place from July 31 to August 5, with the company planning to sell 37 million shares, including 1.85 million shares for public offering and 35.15 million shares for international placement. The offering price is between HK$28.00 and HK$30.30 per share, with a lot size of 100 shares. The expected shares will officially begin trading on the Hong Kong Stock Exchange on August 8. At that time, Nanfang Black Sesame Group Smart will become the "first stock of autonomous driving AI chips." In addition, based on the optimism about the future development of Nanfang Black Sesame Group Smart, two cornerstone investors will subscribe to $9.9 million worth of shares in this IPO. Guangzhou Automobile Group (02238)'s indirect wholly-owned subsidiary Qicheng Development will invest $6.9 million, and a wholly-owned subsidiary of Ningbo Joyson Electronic Corp. will invest $3 million. At the median issue price, the two cornerstones can subscribe for 2.6281 million shares (unexercised oversubscription), accounting for 7.1% of the total shares sold. In fact, Nanfang Black Sesame Group Smart, which was successfully listed on the "2023 Hurun Global Unicorn List," was already popular in the primary market, with shareholders including Xiaomi, Tencent, NIO Inc. Sponsored ADR Class A, Geely, SAIC, and other well-known companies, so it is not surprising that heavy cornerstone investors are introduced in this IPO. With the popularity of the runaway radish and Tesla, Inc.'s Robotaxi set to enter China later this year, 2024 is becoming a consensus in the market as the "year of large-scale application of driverless cars," which means that the driverless car industry may experience accelerated growth. In this industry trend, how should the valuation of Nanfang Black Sesame Group Smart, the "first stock of autonomous driving AI chips" that empowers future travel with chips, be seen? This is worth deep consideration by the market. Autonomous driving AI chips are the "golden track," but the localization rate needs to be increased urgently Autonomous driving can be classified into levels L0-L5 based on the degree of human intervention and driving scenarios, with levels L4 and L5, which are highly automated and fully automated, referred to as driverless driving, while levels L1-L3 require driver intervention and are called intelligent assisted driving. It is worth noting that systems that achieve automation levels L1 to L2 (including L2+) are usually referred to as Advanced Driver Assistance Systems (ADAS), while systems that support levels L3 to L5 of autonomous driving are known as Automated Driving Systems (ADS). Currently, autonomous driving technology is moving towards level L2+ functions, where functions such as NOA (automatic driving navigation) can provide a similar experience to level L3 autonomous driving. Although the runaway radish has sparked interest in driverless cars and its operated vehicles have no driver in the driver's seat, it still requires intervention from a backend safety officer. Whether it is advanced driverless driving or intelligent assisted driving, both require AI computing chips to process signals collected from various sensors and send driving signals to corresponding control modules, achieving decision-making functions in the decision-making layer of autonomous driving. MCUs and SoCs are two typical AI computing chips, but as the level of vehicle intelligence continues to increase, traditional MCUs are struggling to cope with electronic and electrical architectures and Beijing Vastdata Technology processing, while SoCs, with advantages such as improved computing power, increased data transmission efficiency, reduced chip usage, and more flexible software upgrades, have become the mainstream trend in automotive chip design and application. It is worth noting that ASIC chips have shown great potential in the era of mining, with advantages such as low cost, high performance, and low power consumption, so SoCs using ASIC architecture are gradually becoming popular. In the long run, as chip solutions develop and demand for processing power increases, SoCs using ASIC architecture are expected to become the mainstream choice for future autonomous driving solutions based on SoCs. Due to rapid technological advancements and cost reductions, by 2023, the penetration rate of passenger cars with autonomous driving functionality had reached 69.8% globally, with China reaching as high as 74.7%, driving rapid development in the autonomous driving SoC market. According to Frost & Sullivan data, from 2019 to 2023, the market size of autonomous driving SoCs for ADAS applications in China increased from 2.4 billion RMB to 14.1 billion RMB, with a compound annual growth rate of 55.5%, 17 percentage points higher than the global market growth rate of 38.6%. Frost & Sullivan states that thanks to policy support, continuous cost reductions, and market demand, the optimal development and application of autonomous driving SoCs have also become a market trend in China.With the continuous improvement in the acceptance of autonomous driving, the market for ADAS application automatic driving SoCs will continue to grow rapidly. From 2023 to 2028, the market size in China will increase from 14.1 billion to 49.6 billion, with a year-on-year compound growth rate of 28.6%, slightly higher than the global growth rate of 27.5% during the same period. By 2028, the global market size will approach nearly 100 billion RMB.Sesame Group The more advanced ADS application in cars than ADAS is currently still in the testing phase and gradually being piloted around the world. Therefore, whether domestic or foreign, ADS is currently in the early stages. Because the SoC used in ADS applications is usually more valuable than the SoC used in ADAS applications, the ADS SoC market will be more explosive. Frost Sullivan predicts that by 2026, the global ADS SoC market will reach 8.1 billion RMB and by 2030 will reach 45.4 billion RMB, with China expected to become the largest market. The scale in the same period will increase from 3.9 billion to 25.7 billion, with a high compound annual growth rate of 60%. Undoubtedly, autonomous driving AI chips are a broad and rapidly developing "golden track", but China's autonomous driving AI chip industry is heavily dependent on overseas suppliers. According to Frost Sullivan data, in 2023, the top three suppliers in China's autonomous driving AI chip and solution revenue rankings were Intel Corporation's subsidiary Mobileye, NVIDIA Corporation, and Tesla, Inc., with market shares of 27.5%, 23.7%, and 4.8% respectively, totaling over 56%. Whether for supply chain security or for the high-quality development of China's unmanned driving industry, there is a need for autonomous driving AI chip companies to take up the banner of localization. Nanfang Black Sesame Group Intelligent is at the forefront in this regard, with a mission to empower future travel with core technology and lead global intelligent travel. High-computing power chip shipments in the industry are leading, with revenues continuously doubling. Founded in 2016, Nanfang Black Sesame Group Intelligent has been deeply involved in the field of autonomous driving AI chips, aligning its development with the automotive industry, starting from the development of L2 to L3 products. In 2020, Nanfang Black Sesame Group Intelligent launched the Huashan series chips, including the A1000 and A1000L, and began mass production in 2022. Among them, the A1000 can provide 58 TOPS of computing power at INT8 precision, making it the first high-computing power autonomous driving SoC with proprietary IP cores in China. It is also the first L2+ and L3 SoC in China to obtain ASIL-B and AEC-Q100 2 level certification, making Nanfang Black Sesame Group Intelligent the first enterprise to start mass production of high-computing power autonomous driving SoC. As of April 2021, Nanfang Black Sesame Group Intelligent has launched the A1000 Pro in the Huashan series, which is used for L3 autonomous driving and provides over 106 TOPS of computing power at INT8 precision. This is the first autonomous driving SoC in China to exceed 100 TOPS of computing power, and in INT8 precision, the computing power provided by this chip is the highest among its peers in China. Nanfang Black Sesame Group Intelligent has also become the first domestic enterprise to launch a 100+ TOPs autonomous driving SoC, showcasing its strong research and development capabilities. Furthermore, Nanfang Black Sesame Group Intelligent continues to enrich its product line. Currently, the automotive electronic electrical architecture is evolving from a distributed architecture to a domain-centralized architecture supported by SoC, with automotive functions being divided into 5 specific domains: autonomous driving domain, cabin domain, powertrain domain, chassis domain, and body domain. The autonomous driving SoC and cabin SoC are in a rapid development stage, while other domains are still in the early stages of large-scale deployment. To seize this development opportunity and open up company growth space, Nanfang Black Sesame Group Intelligent is expanding into cross-domain SoC based on autonomous driving SoC. In April 2023, Nanfang Black Sesame Group Intelligent launched the Wudang series chip C1200, which is a cross-domain SoC integrating autonomous driving, intelligent cabin, vehicle control, and other computing functions. It provides innovative and cost-effective computing solutions for smart cars, making it the first product in the industry to integrate multiple domains. As of now, Nanfang Black Sesame Group Intelligent has a total of 4 chips in the Huashan and Wudang series. Additionally, Nanfang Black Sesame Group Intelligent attaches importance to building a software ecosystem. To better adapt to customer ecosystems, Nanfang Black Sesame Group Intelligent provides customers with automatic driving support software, Hanhai-ADSP software middleware, perception algorithms, etc., to support customers in customizing application deployment and enhancing the market competitiveness of the company's chip products. In addition to continuous R&D and enriching the product line, Nanfang Black Sesame Group Intelligent is actively promoting commercialization and monetization. As early as 2018, Nanfang Black Sesame Group Intelligent leveraged its accumulated intelligent imaging technology capabilities in autonomous driving to provide quality intelligent imaging solutions for high-end consumer electronics manufacturers and smart electronics manufacturers. With the launch of the Huashan series chips, Nanfang Black Sesame Group Intelligent began providing autonomous driving solutions, including closed-loop autonomous driving solution packages, commercial vehicle active safety systems, V2X edge computing solutions, etc., which has achieved initial success in commercialization and actively seeks more business cooperation opportunities.Sesame Group has become one of the earliest companies in China to generate substantial revenue through sales of autonomous driving solutions.Image: Time for revenue generation of Nanfang Black Sesame Group's intelligent solutions With high computing power performance of chips, software ecosystem and rich solutions, the commercialization of Nanfang Black Sesame Group's intelligence has been rapidly promoted and is embodied in the following three aspects: The first is the rapid increase in the number of company customers. By 2023, the number of Nanfang Black Sesame Group's intelligent customers will reach 85, close to double the 45 in 2022. As of June 4th, Nanfang Black Sesame Group's intelligent has obtained intention orders for 23 models from 16 automobile OEMs and first-tier suppliers, and has cooperated with more than 49 automobile OEMs and first-tier suppliers, including well-known enterprises such as FAW Group, DongFeng Group, JAC Group, HeChuang, ECARX Holdings, Inc., Baidu Inc Sponsored ADR Class A, Bosch, ZF, and Marily. The second is industry-leading shipment volume. As of December 31, 2023, the total shipment volume of Nanfang Black Sesame Group's intelligent flagship A1000 series SoC has exceeded 152,000 pieces. According to data from Frost Sullivan, in terms of the shipment volume of high computing power (50+ TOPs) autonomous driving SoCs, Nanfang Black Sesame Group's intelligent ranks third in China with a market share of 7.2%. If only domestic companies are considered, excluding the first-ranked NVIDIA Corporation, Nanfang Black Sesame Group's intelligent is the second largest supplier in China. The third is the continuous rapid growth of revenue. As we all know, due to the interruption of the automotive industry supply chain caused by the epidemic from 2020 to 2022, the normal operation of the industry has been impacted by external environments, and the performance of market players during this period has been generally affected. However, Nanfang Black Sesame Group's intelligence has been very strong since 2021. Thanks to the rapid expansion of autonomous driving products and solutions, Nanfang Black Sesame Group's revenue has increased significantly from 60.54 million yuan in 2021 to 312 million yuan in 2023, with a compound annual growth rate of 127%. The proportion of revenue from autonomous driving products and solutions has also increased rapidly from 56.6% in 2021 to 88.5% in 2023. Future revenue growth has strong certainty Facing the rapid growth of the autonomous driving AI chip market, in order to further seize industrial opportunities and strengthen itself, Nanfang Black Sesame Group's intelligence has detailed its future development in the prospectus. The company will adhere to the mission of empowering travel with chips, continue to focus on the high computing power chip market, and continue to develop new products and iterative solutions to accelerate the company's commercialization speed. The cross-domain competitive Wudang C1200 is expected to generate revenue in 2025 and is expected to be mass-produced in 2026. The A2000 will be launched in 2024 and will generate revenue next year. In addition, the next-generation V2X edge computing solution and the next-generation commercial vehicle active safety system will begin mass production in the third quarter of this year, which is expected to explore the needs of various customers in different application scenarios and further expand the customer base. In addition, by providing a variety of hardware and software products, the business scope has been expanded beyond autonomous driving to meet the needs of intelligent cars and other different market demands such as Siasun Robot & Automation. It is foreseeable that with the batch production of Wudang C1200 and the update of autonomous driving solutions, the commercialization of Nanfang Black Sesame Group's intelligent will further accelerate, and its performance in 2024 and 2025 is expected to continue to maintain high growth, which has strong certainty. Overall, Nanfang Black Sesame Group's intelligence has formed technical advantages, customer advantages, and commercial advantages in the high-growth "golden track" of autonomous driving AI chips, which have been reflected in revenue. It is already a leading enterprise in the industry, shouldering the heavy responsibility of domesticating high-computing power chips for autonomous driving, and is expected to enjoy a high valuation premium. Moreover, the recent enthusiasm for autonomous driving in the capital markets has remained high, with many "monster stocks" in the A-share market doubling in price in the short term. In such a market environment, Nanfang Black Sesame Group's intelligence, as the first stock of pure autonomous driving AI chips, is likely to see a rush of funds in its IPO.