New Stock Outlook | Revenue Scale Increasing Year by Year vs Accumulated Loss of 570 Million yuan in Three Years, Why is Zejing Automotive Electronics "Difficult to Make a Profit"?

For the ever-increasing intelligence of cockpit visual interaction scenes, HUD, as the first screen of intelligent driving, can be described as achieving multi-dimensional expansion in high-end, mid-range, and low-end markets - that is, the in-car HUD is gradually becoming standard in the high-end automotive market, while also accelerating penetration into the mid-range and low-end automotive markets. Against this background, Zejing Automotive Electronics Co., Ltd., one of the leading companies in the field of in-car HUD solutions in China, officially submitted its application for listing on the main board of the Hong Kong Stock Exchange on May 9, with Haitong International and CITIC SEC as its joint sponsors. The company is a pioneer and leader in innovative intelligent cockpit visual and interactive solutions in China, providing a comprehensive solution primarily based on the company's windshield HUD solution CyberLens (W-HUD) and augmented reality HUD solution CyberVision (AR-HUD), with testing solutions and other innovative visual technology solutions as supplementary. Once successfully listed, Zejing Automotive Electronics is expected to become another intelligent cockpit enterprise in the secondary market focused on high-definition head-up displays after Foryou Corporation. So, what is the investment value of this leading in-car HUD solution provider? Revenue scale has been increasing year by year, with a cumulative net loss of nearly 570 million in three years. With consumers' rapid increase in demand for intelligent car configurations and experience, Zejing Automotive Electronics, as a major player in the field of innovative intelligent cockpit visual and interactive solutions in China, has naturally seen its business scale grow rapidly. According to the prospectus, in recent years, Zejing Automotive Electronics has achieved strong revenue growth, with revenue increasing from 214 million in 2022 to 549 million in 2023, and further to 578 million in 2024, with a compound annual growth rate of 64.3% from 2022 to 2024. As of December 31, 2024, Zejing Automotive Electronics has served over 20 host customers and targeted 90 vehicle models. In terms of invention patents, the number of HUD patents authorized by the company ranks first among domestic suppliers. In terms of sales data, in 2024, Zejing ranked second in the Chinese market for in-car HUD solutions, with a market share of 16.2%; of which W-HUD sales reached 600,000 units, ranking second with a market share of 17.8%; in the AR-HUD field, sales reached 53,700 units, ranking third with a market share of 13.7%. However, despite the increasing revenue and business scale year by year, the company seems to have not yet found a profitable path, with its perennial losses leading to a more serious asset-liability situation. According to the prospectus, from 2022 to 2024, Zejing Automotive Electronics recorded a net loss of 256 million, 175 million, and 138 million respectively, giving a total accumulated loss of 569 million over three years. In addition, the company's adjusted net profit for the period was -79.13 million, 13.31 million, and -7.13 million respectively. With perennial losses, Zejing Automotive Electronics' cash flow is also in a tight state: in 2022 and 2023, the company's net outflow from operating activities was 139.9 million and 124.5 million respectively, while in 2024, it achieved a net inflow of 29 million from operating activities. As of the end of 2024, the company held approximately 230 million in cash and cash equivalents. Meanwhile, the company's high level of liabilities has further raised concerns about Zejing Automotive Electronics. As of the end of 2022, 2023, and 2024, the company's current liabilities were 808 million, 1.201 billion, and 1.642 billion respectively, with net current liabilities of 552 million, 740 million, and 966 million respectively. It can be seen that although Zejing Automotive Electronics is a leading company in China's in-car HUD industry, with outstanding technological strength and market share, its continuing losses have raised concerns about its profitability. Market trends are irresistible, but competition is becoming increasingly fierce. The continuous upgrading of technology and the growing demand from consumers for intelligent travel experiences are driving the rapid popularization of intelligent cars and accelerating the penetration of intelligence in the entire vehicle platform. HUD, as the core component of intelligent cockpit visual and interactive experience, can reduce driver's line of sight deviation, provide key information such as speed, navigation, and ADAS alerts, and effectively meet consumers' demand for more intelligent, safe, and convenient driving experience. With the increasing demand from consumers for immersive and digital interactive driving experiences, HUD is becoming a standard feature for flagship models of mid-to-high-end intelligent driving brands. By sales volume, the market size of the Chinese in-car HUD solution industry has increased from 1.0 million units in 2020 to 3.9 million units in 2024, with a compound annual growth rate of 41.2% during the period. With the overall intelligence of cockpits and the penetration of in-car HUD solutions increasing, it is estimated that by 2029, the market for in-car HUD solutions in China will increase to 12.7 million units, with a compound annual growth rate of 27.9% from 2025 to 2029. The W-HUD solution in this market is expected to gradually penetrate into mid-to-low-end car models and become a standard feature for intelligent cars. The sales volume of W-HUD solutions is expected to increase from 3.2 million units in 2024 to 7.0 million units in 2029, with a compound annual growth rate of 19.0% from 2025 to 2029. At the same time, the AR-HUD solution is expected to lead the industry growth trend, increasing its penetration in new energy vehicles and high-end models. The sales volume of AR-HUD solutions is expected to increase from 0.6 million units in 2024 to 5.7 million units in 2029, with a compound annual growth rate of 45.9% from 2025 to 2029. Market trends are irresistible, but on the other hand, it also means that competition will become more intense. Participants in the Chinese in-car HUD solution market mainly include international companies from Japan and Europe, as well as domestic manufacturers. In recent years, domestic manufacturers have entered the market one after another, intensifying competition.Local manufacturers have gradually replaced traditional international leading manufacturers with their technological innovation breakthroughs, rapid response capabilities, and customized services, significantly strengthening their market dominance. By 2024, the market share of local manufacturers has grown from approximately 16.7% in 2020 to 79.2%, and is expected to further expand by 2029.In this context, although Zejing Automotive Electronics ranks second among car-mounted HUD solution suppliers in the Chinese market (with a market share of about 16.2%), it is difficult to enhance its bargaining power through synergy effects due to its single product line (mainly focused on HUD). The company's profitability still lags far behind another domestic manufacturer - Foryou Corporation, which has diversified risks by establishing a smart cockpit ecosystem (LCD instruments, wireless charging, etc.), achieving revenue of over 10 billion RMB and a net profit of 650 million RMB by 2024. Furthermore, Zejing Electronics has a high customer concentration, which also limits its bargaining power. According to the prospectus, the company's main customers are Chinese automotive OEMs, with the top five customers accounting for 93.0%, 93.8%, and 80.9% of total revenue from 2022 to 2024 respectively. During this period, the revenue share of the largest customer was 47.6%, 26.1%, and 23.2% respectively. This high dependence on a few car manufacturers restricts the stability of its business due to fluctuations in orders. In order to enhance the company's competitive advantage, Zejing Automotive Electronics has maintained a high level of R&D investment in recent years. It is reported that Zejing has made significant investments in cutting-edge technologies such as AR-HUD, with R&D expenses accounting for 39% of revenue in 2022. Although it subsequently dropped to around 10%, cumulative R&D expenditures have exceeded 200 million RMB. However, it is worth noting that although R&D efforts have led to technological leadership (such as the in-house developed DLP solution), it is difficult to dilute costs through mass production in the short term. Overall, the Chinese car-mounted HUD industry is in a period of rapid growth, with technological upgrades and policy support creating opportunities for local companies. Zejing Automotive Electronics, with its technological leadership and customer resources, holds a market advantage but needs to address issues such as high customer concentration and profitability challenges. In the future, whether it can expand its product line, reduce dependence on key customers, and achieve positive profitability will be key factors in enhancing its value.