Zhejiang Shibao (01057) rose nearly 20%: The era of smart connected cars has arrived, will automotive components rise in response?

Recently, the strong rise of smart driving concept stocks has attracted attention. On November 17th, the A-share market's auto parts sector saw a volatile rise. Nearly 10 concept stocks, including Essence Fastening Systems, Zhejiang Yueling, Ningbo Shenglong Automotive Powertrain System, and Zhejiang Shibao, hit their daily limit. The Hong Kong stock market also saw a strong rise, with Zhejiang Shibao H-shares (01057) leading the sector with a 19.81% increase, and concept stocks such as NEXTEER and POWER XINCHEN also rising significantly. Among them, Zhejiang Shibao, as the strongest auto parts concept stock in the Hong Kong market, naturally received a lot of attention. According to Choice statistics, on November 17th, the net selling of large orders in the Shanghai and Shenzhen stock markets totaled 4.407 billion yuan. Among individual stocks, 10 stocks had net inflows of over 200 million yuan. Zhejiang Shibao had a net inflow of 554 million yuan, ranking first in net inflow of funds. It can be observed that the collective rise of auto parts concept stocks this time is mainly due to the positive impact of the notice issued by the Ministry of Industry and Information Technology and three other departments regarding the pilot work on access and on-road testing of intelligent connected vehicles. Specifically, on November 17th, the Ministry of Industry and Information Technology, the Ministry of Public Security, the Ministry of Housing and Urban-Rural Development, and the Ministry of Transport jointly issued a "Notice on Carrying Out Pilot Work on Access and On-road Testing of Intelligent Connected Vehicles". In order to promote the application and improve the performance and safety of intelligent connected vehicles, it was decided to carry out pilot work on access and on-road testing of intelligent connected vehicles. As the saying goes, "A single leaf can reveal the coming of autumn." Let's take Zhejiang Shibao, which has the strongest rise, as an example to explore how much growth power the "warm wind" of intelligent connected vehicles can bring to related concept stocks. Intelligent connected vehicles welcome the "tipping point" From the perspective of trends and opportunities, intelligent connected vehicles, with the support of policies, have become a hot concept in the current market. However, looking back, intelligent connected vehicles have already gained momentum. On July 26th, the Ministry of Industry and Information Technology and the National Standardization Committee jointly issued the "Guidelines for the Construction of the National Automobile Interconnected Network Industry Standard System (Intelligent Connected Vehicles) (2023 edition)". The document pointed out that in the first phase until 2025, a standard system for intelligent connected vehicles that can support combined driving assistance and general automated driving functions will be established. In the second phase until 2030, a comprehensive standard system for intelligent connected vehicles that can support the coordinated development of intelligent single-vehicle systems and network-enabled systems will be formed. Since the beginning of this year, policies related to autonomous driving have continued to be released. On June 21st, 2023, Xin Guobin, Deputy Minister of the Ministry of Industry and Information Technology, stated that the penetration rate of new passenger cars equipped with Level 2 combined driving assistance functions reached 34.5% in 2022. In addition to supporting key technology breakthroughs and further improving network-enabled infrastructure, the ministry will also deepen testing and demonstration applications, initiate pilot projects for the access and on-road testing of intelligent connected vehicles, organize city-level demonstrations of "vehicle-road-cloud integration", and support the commercial application of conditionally autonomous driving, referring to Level 3 and higher levels of autonomous driving functions. Under the intensive blow of policy warmth, the intelligent connected vehicle industry is undoubtedly in an accelerated development phase. On October 31st, Weltmeister announced that its orders exceeded 80,000. On November 1st, it announced that it delivered 12,700 vehicles in October, with the M7 model accounting for 10,547 vehicles, surpassing 10,000 for a single model. According to official data, deliveries in October accelerated significantly. The "Intelligent Driving" version started delivery after the National Day holiday (accounting for 60%-70% of total orders), accelerating the conversion of M7 orders. Weekly deliveries reached 3,500 in the fourth week of October, increasing week by week. The expected monthly deliveries for M7 in November are expected to surpass 20,000, and deliveries will continue to grow in December with the capacity increase of Chongqing Sokon Industry Group and the launch of the third factory. In addition, the official release of Tesla's FSD final version is imminent, and various new energy vehicle brands have also accelerated the coverage progress of their city-level Navigation On Autopilot (NOA) system in the third quarter, entering the era of "city-level NOA". Furthermore, the progress of Level 3 and higher levels of autonomous driving in intelligent connected vehicles will be further promoted. In the accelerating development of the industry, the domestic market for intelligent connected vehicles is also full of imagination. According to data from Smart Research, the Chinese market for intelligent connected vehicles will continue to grow, with an expected scale of 238.1 billion yuan by 2023, and a compound annual growth rate of about 20.62% from 2020 to 2023. At the same time, according to IHS Markit data, the market penetration rate of intelligent connected vehicles in China was about 35.3% in 2019. With the upgrading of autonomous driving and network-enabled technologies, the market penetration rate is expected to reach 75.9% by 2025, making China the largest market for intelligent connected vehicles. This means that nearly half of consumers in China will purchase intelligent connected vehicles when buying new cars, exceeding the global average. If electrification marks the beginning of the automotive industry revolution, then innovative technologies such as artificial intelligence, autonomous driving, and vehicle-to-infrastructure cooperation are further reshaping the industry. From a technological perspective, in terms of intelligence, auto companies are accelerating the development of smart cockpits, advanced driver assistance systems, and other technologies. They are also accelerating the production and scaling of high-performance automotive chips and lidar, promoting the technological paradigm shift in the automotive industry. In addition, 5G networks significantly improve the collection and analysis speed of external data for intelligent vehicles, ensuring real-time updates of onboard navigation information. Blockchain technology, with its decentralized and tamper-proof characteristics, is applied to the entire process of processing vehicle big data in the era of intelligent driving, greatly enhancing the overall network security of intelligent connected vehicles and improving the trust and security levels required for future travel. Based on the above, it can be seen that as the automobile industry enters a new stage of intelligence, the tipping point for intelligent driving is closely following thereafter.Among them, independent brands with a fast pace of intelligent electrification transformation, as well as incremental components related to the intelligent connected vehicle industry chain, will also usher in more development opportunities.Get involved in the electrification and intelligence trend? It is understood that Zhejiang Shibao is one of the first domestic enterprises to independently develop automotive hydraulic power steering systems and automotive electric power steering systems, dedicated to providing automotive steering systems for leading global automotive groups. In terms of business, the company is mainly engaged in the research and development, manufacturing, and sales of automotive steering wheels and other steering system key components. The main products include electric circulating ball-type steering, steering column, DP-EPS, R-EPS, intelligent steering systems, and wire-controlled steering systems. In terms of application scope, Zhejiang Shibao's steering products have been successfully applied in passenger cars, light commercial vehicles, and medium-heavy commercial vehicles. Meanwhile, their research and development of intelligent steering technology for smart cars and autonomous vehicles is currently in the stage of promotion and application. It can be seen that with the arrival of the "tipping point" for intelligent connected vehicles, Zhejiang Shibao, positioned in the incremental components segment of the intelligent connected vehicle industry chain, will naturally gain certain development dividends. Interestingly, it seems that the development dividends of intelligent connected vehicles are also reflected in Zhejiang Shibao's latest financial report. On October 26, Zhejiang Shibao disclosed its third-quarter report, achieving a revenue of 1.177 billion yuan in the first three quarters, a year-on-year growth of 26.95%; achieving a net profit attributable to the parent company of 40.7265 million yuan, a year-on-year increase of 546.38%; for Q3 alone, the company achieved an operating income of 449 million yuan, a year-on-year increase of 20.36%; and achieved a net profit attributable to the parent company of 20.8893 million yuan, a year-on-year increase of 283.63%; the net cash flow generated from the company's operating activities was 41.2976 million yuan, a year-on-year increase of 65.75%. Regarding the reasons for the performance growth, Zhejiang Shibao stated that the increase in sales of their hydraulic circulating ball steering wheels and electric power steering systems had a significant impact on the performance growth. At the same time, the newly developed intelligent electric circulating ball steering wheels, intelligent electro-hydraulic circulating ball steering wheels, steering columns, and intermediate shafts have begun mass production, bringing new sources of revenue to the company. It should be noted that the significant increase in net profit of Zhejiang Shibao in the first three quarters may be related to the lower base of net profit in the same period of the previous year. Financial data showed that in the first three quarters of the previous year, Zhejiang Shibao's net profit was only 6.3007 million yuan, and its non-recurring net profit was even a loss of 14.4626 million yuan. However, there is another point worth noting. Prior to this, Zhejiang Shibao's fundamentals have been relatively volatile, which may discount investor interest. Taking the specific performance of 2022 into account, the company achieved a revenue of 1.386 billion yuan, a year-on-year increase of 17.7%; a net profit of 15.8236 million yuan, a year-on-year decrease of 53.67%; a non-recurring net profit of -9.6579 million yuan, a year-on-year decrease of 700.16%. Among them, the increase in revenue was mainly due to a significant increase in sales of passenger vehicle electric power steering systems. However, the sales of the company's commercial vehicle steering products decreased due to a significant year-on-year decline in commercial vehicle production and sales. The decrease in net profit was due to a decrease in gross margin, an increase in research and development expenses, a decrease in investment income, and a decrease in fair value changes. Looking at a longer timeline, from 2018 to 2022, the company's year-on-year revenue growth rates were -1.83%, -13.30%, 12.19%, 6.88%, and 17.70% respectively, while the year-on-year growth rates of net profit attributable to the parent company were -77.71%, -2527.90%, 126.86%, -12.18%, and -27.62%, showing significant volatility in core financial data. Based on the above, it is undeniable that the positive impact of the intelligent connected vehicle wave has attracted active market attention to related stocks in the automotive industry chain. However, considering the performance in recent years, there is still a high degree of uncertainty regarding to what extent Zhejiang Shibao can achieve growth expectations in the future.