New Stock Analysis | "First Stock of Autonomous Driving AI Chip" IPO in progress, unveiling the value of Nanfang Black Sesame Group's intelligence (02533) at the right time.

On August 1st, the news of legislation in support of self-driving taxis and buses in Guangzhou added fuel to the already high interest in autonomous driving, accelerating the exploration of stocks related to autonomous driving concepts. Nanfang Black Sesame Group Intelligent (02533), known as the "first stock of self-driving AI chips", and currently in the process of IPO, became the focus of the market. On August 2nd, Nanfang Black Sesame Group Intelligent entered the third day of its IPO and will end the IPO on August 5th. In this global offering, Nanfang Black Sesame Group Intelligent will issue 37 million shares, including 1.85 million shares for public offering and 35.15 million shares for international placement. The offering price is HK$28.00-30.30 per share, with a minimum unit of 100 shares. The shares are expected to officially begin trading on the Stock Exchange of Hong Kong on August 8th. According to the prospectus, based on the shipment volume of high computational power (50+ TOPS) SoC for automotive grade in 2023, Nanfang Black Sesame Group Intelligent is the third largest global supplier and the second largest domestic supplier in China, placing it in the forefront of the global autonomous driving AI chip field. The question arises, what is the true value of Nanfang Black Sesame Group Intelligent, which is a leading player in the industry, with well-known shareholders including Xiaomi, Tencent, NIO, Geely, SAIC, as well as heavyweight cornerstone investors Guangzhou Automobile Group (02238) and Ningbo Joyson Electronic Corp. (600699.SH)? By conducting a detailed analysis of the IPO prospectus of Nanfang Black Sesame Group Intelligent in a focused manner, a deeper understanding of its value can be gained. Two key changes in the autonomous driving industry The first half of the electric vehicle industry was about electrification, and the second half is about intelligence, which has become a market consensus and has been validated at the industrial level by data. Due to technological advancements and rapid cost reductions, autonomous driving passenger cars (including levels L1-L5) with excellent driving experience are popular worldwide, reaching a penetration rate of 69.8% globally and 74.7% in China by 2023. However, it is worth noting that before 2024, the technology level of autonomous driving passenger cars will mainly be at levels L1 and L2. According to Frost Sullivan data, the penetration rates of L1, L2, and L3 to L5 level vehicles in 2023 were 38.8%, 31.0%, and 0.01% respectively globally, and 32.6%, 42.1%, and 0.01% respectively in China. This means that L3-L5 level vehicles are still in the early stages globally. But 2024 will be an important turning point, for two main reasons. Firstly, in terms of passenger cars, functions like NOA (autonomous driving navigation) can now provide an experience similar to L3 level autonomous driving, and by 2024, this function will be available in models priced below 200,000 RMB, indicating an accelerated penetration of L3+ in the market. This has the potential to make 2024 the year for the commercialization of L3+ intelligent driving, as Zhongtai suggests that the birth of NOA is akin to the "iPhone 4 moment" in the mobile industry, and 2024 could be the year for the widespread adoption of L3+ intelligent driving. Secondly, the popularity of robo-taxis and Tesla's Robotaxi entering China within the year have ignited the entire autonomous driving industry. Although robo-taxis use a route with multiple sensor fusion and high-precision mapping technology, and Robotaxi uses a pure visual technology route, both are at the L4 level of autonomous driving technology. After the pilot promotion in the taxi industry, they are expected to accelerate penetration into industries such as freight, public transportation, and sanitation, leading many to believe that 2024 will be the year for the large-scale application of autonomous driving. Therefore, 2024 marks a new starting point for the accelerated deployment of L3-L4 level autonomous driving technology, a historic turning point for the global travel industry with new industrial opportunities. The realization of autonomous driving technology (including levels L1-L5) depends on computational chips, which process signals collected by various sensors and send driving signals to respective control modules. The higher the level of autonomous driving technology, the greater the computational power required. Industry experts believe that the computational power needed for L3-L5 level autonomous driving technology is 30 TOPS and above, 200 TOPS and above, and 2000 TOPS and above respectively. Therefore, the accelerated deployment of L3 and L4 level autonomous driving technology in 2024 is advantageous for high computational power chip companies. MCU and SoC are two typical AI computing chips, but as the level of automobile intelligence continues to rise, traditional MCUs are becoming less effective in dealing with electronic-electrical architecture and Beijing Vastdata Technology processing, while SoC, with advantages such as improved computational capabilities, increased data transfer efficiency, reduced chip usage, and more flexible software upgrades, has become the mainstream trend in automotive chip design and application. Frost Sullivan predicts that due to technological advancements and good commercialization progress, the global SoC market for ADS used in L3-L5 autonomous driving systems will reach 8.1 billion RMB by 2026 and 45.4 billion by 2030, with China expected to be the largest market, growing from 3.9 billion to 25.7 billion RMB, achieving a high compound annual growth rate of 60%. While the explosion of ADS supporting L3-L5 is set to happen in 2024, the growth of ADAS supporting L1-L2 continues to accelerate. Frost Sullivan states that thanks to policy support, continuous cost reductions, and market recognition of autonomous driving...With the continuous improvement of technology, the domestic automatic driving SoC market for ADAS applications will increase from 141 billion in 2023 to 496 billion, with a compound annual 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 one trillion Chinese yuan.However, it is worth noting that domestic automotive chips are heavily reliant on overseas manufacturers. Analysts of automotive-grade chips state that, currently in the domestic automotive chip industry, the domestication rate of SoC (system-level chips) is only between 5-8%, the MCU (microcontroller unit) domestication rate is close to 10%, the IGBT/silicon carbide power device domestication rate is about 35%, and the MOSFET domestication rate is about 15%. Obviously, the domestication rate of SoC is the lowest, and specifically looking at the shipments of high-power autonomous driving SoCs (in units), in 2023 only NVIDIA holds a market share of 72.5%. Given the current international situation, such a low domestication rate of automotive-grade SoCs could pose potential supply chain risks and be detrimental to the long-term healthy development of the automotive industry in our country. From the analysis above, two key changes in the current autonomous driving AI chip industry can be summarized. The first is that the explosion of L3 and L4 level autonomous driving technology in 2024 will drive a significant increase in demand for high-power chips; the second is that the urgency of increasing localization rates will provide greater growth opportunities for domestic companies. Based on these two key changes, the most beneficial companies are those within the industry that have achieved large-scale production of high-power chips. Due to the high barriers formed by the high research and development costs and high investments associated with automotive-grade high-power chips, companies that have already achieved large-scale production can quickly expand their market share using their first-mover advantage. The industry landscape will accelerate towards concentration among leading companies, and Nanfang Black Sesame Group, which is already the second-largest domestic shipments of automotive-grade high-power SoCs, will benefit from this trend. By examining Nanfang Black Sesame Group's "golden content" from three dimensions: To assess the true strength of a chip manufacturer, an analysis can be done from three dimensions: mass production experience, ecosystem cooperation system, and software capabilities. Mass production experience reflects the result of a company's research and development strength, testing the company's R&D capability. The ecosystem cooperation system is a crucial means to achieve rapid delivery of products and services because different vehicle models require adaptation and customization, involving a significant amount of integration, testing, and delivery that require participation from partners to accelerate overall progress. Software capabilities are crucial to determining if a product is user-friendly, as chip functionality significantly depends on software support. Using the above three dimensions to evaluate Nanfang Black Sesame Group, it can be verified that the company is indeed the "number one stock of autonomous driving AI chips." In terms of mass production experience, Nanfang Black Sesame Group has already mass-produced three chips: the Huashan series A1000 and A1000L, which were mass-produced in 2022, and the A1000 Pro, expected to start production in 2024. Among them, the A1000 provides 58 TOPS of computational power at INT8 precision, making it the first high-power autonomous driving SoC in China with proprietary IP cores and the first in China to obtain ASIL-B and AEC-Q100 Level 2 certification for L2+ and L3 SoCs. This chip has made Nanfang Black Sesame Group one of the first companies to initiate large-scale production of high-power autonomous driving SoCs. As the first company in China to develop and release a high-power autonomous driving SoC chip with over 100 TOPS computational power at INT8 precision, Nanfang Black Sesame Group has proven its strong research and development capabilities to the market. As of March 31, 2024, Nanfang Black Sesame Group's research and development team consists of 908 members, 63.7% of whom hold a master's degree or higher, accounting for 86.3% of the total employees. It is worth noting that in order to seize the industry opportunity of the transformation of automotive electronic and electrical architecture from distributed architecture to domain-centric architecture supported by SoCs, Nanfang Black Sesame Group introduced the Wudang series chip C1200 in April 2023. This is the industry's first product integrating multiple domains, combining autonomous driving, intelligent cockpit, vehicle control, and other computing functions into a cross-domain SoC. This chip has already generated revenue. Furthermore, Nanfang Black Sesame Group is expected to release the higher-power Huashan series A2000 later this year, with industry predictions suggesting that this chip may be used for L4 level autonomous driving technology. In terms of the ecosystem cooperation system, leveraging their leading position in technology and first-mover advantage, Nanfang Black Sesame Group has established a growing ecosystem with over 80 partners, including first-tier suppliers, automotive OEMs, sensor manufacturers, chip developers, and software companies. Through collaboration within the ecosystem, Nanfang Black Sesame Group has actively engaged with major automotive OEMs such as FAW, SAIC, Dongfeng, JAC, and leading first-tier suppliers such as Bosch, Yikatong, and Weiwei Hengrun. As of now, Nanfang Black Sesame Group has secured intention orders from 16 automotive OEMs and first-tier suppliers, including the already mass-produced Geely Lynk 08, Joint Creation v09, and Dongfeng e007 and e008. Regarding software capabilities, in order to better adapt to customer needs, Nanfang Black Sesame Group provides customers with a suite of autonomous driving software, including operating system support, Hanhai-ADSP software middleware, perception algorithms, etc., to support customization when deploying applications and enhance the market competitiveness of the company's chip products. Furthermore, starting in 2020, Nanfang Black Sesame Group began providing autonomous driving solutions.This includes a closed-loop autonomous driving solution portfolio, commercial vehicle active safety systems, V2X edge computing solutions, etc., which enabled Nanfang Black Sesame Group to become one of the earliest domestic enterprises to generate substantial revenue through the sale of autonomous driving solutions. This also indirectly proves the software capabilities of Nanfang Black Sesame Group's intelligence.It can be seen that Nanfang Black Sesame Group Intelligence does not have any shortcomings in mass production experience, ecological system, and software capabilities, achieving a simultaneous and coordinated development in the three dimensions of capabilities, and presenting concrete results in business operation data. For example, in terms of customer expansion, by 2023, the number of customers of Nanfang Black Sesame Group Intelligence had reached 85, nearly doubling from 45 in 2022. In terms of shipment volume, the total shipment volume of the flagship A1000 series SoC in March 2024 had exceeded 156,000 units. In terms of commercialization, the revenue of Nanfang Black Sesame Group Intelligence had significantly increased from 60.54 million yuan in 2021 to 3.12 billion yuan in 2023, with a compound annual growth rate as high as 127%. The revenue share of autonomous driving products and solutions also increased rapidly from 56.6% in 2021 to 88.5% in 2023. Nanfang Black Sesame Group Intelligence stated that the Wudang C1200 and Huashan A2000 are expected to achieve mass production in 2025 and 2026, respectively. With the strong R&D capabilities demonstrated by the company's powerful R&D team, the possibility of these two chips achieving mass production as expected is relatively high, with the possibility of exceeding expectations. The next-generation V2X edge computing solutions and the next-generation commercial vehicle active safety system will begin mass production in the third quarter of this year, which is expected to tap into the needs of various customers in different application scenarios, thereby further expanding the customer base. In the current situation where the acceleration of L3 and L4 is booming and the localization rate is becoming more urgent, the successive mass production of new chip products from Nanfang Black Sesame Group Intelligence and the upgrade iteration of solutions will enable it to better seize the new opportunities in the industry and achieve high growth. As a high computational power product from R&D to mass production typically takes at least 2-3 years, not only consuming time but also huge capital, it is difficult for other new players with significant competitiveness to emerge in this field. This means that as the second largest high-computational-power SoC manufacturer in the country, Nanfang Black Sesame Group Intelligence can continuously expand its market share based on its first-mover advantage. Looking at a longer time horizon, it may better reflect the value of Nanfang Black Sesame Group Intelligence. By 2026, the market size of automatic driving SoCs based on ADAS applications in China will reach 39 billion yuan, and the market size of automatic driving SoCs based on ADS applications will reach 39 billion yuan, totaling approximately 430 billion yuan. Nanfang Black Sesame Group Intelligence's estimated 5% market share based on its technological and first-mover advantages is relatively conservative, allowing its revenue to surpass 2 billion yuan by then, nearly 7 times the 2023 revenue. For Nanfang Black Sesame Group Intelligence, the acceleration of L3 and L4 has opened up a new era of automatic driving, which also marks a new beginning for Nanfang Black Sesame Group Intelligence. As a pure automatic driving AI chip target, it is expected to become one of the biggest beneficiaries as automatic driving enters a new era, and its value will be reflected in its stock price as the industry develops. Given the high-quality fundamentals of Nanfang Black Sesame Group Intelligence and the current market's strong enthusiasm for autonomous driving, there is a high possibility that Nanfang Black Sesame Group Intelligence will be hotly traded after its listing, let us wait and see.