news

author: eastland

if in november 2023, huawei andchangan automobilethe signing of the memorandum is equivalent to "engagement"; huawei registered shenzhen yinwang in january 2024, which is regarded as purchasing a "wedding house"; on august 20, 2024, the signing of the "share transfer agreement" is "getting the certificate."

on august 23, 2024, the board of directors of seres (sh: 601127) approved the proposal to purchase 10% of yinwang’s equity from huawei for rmb 11.5 billion. on the same day, seres auto (a wholly-owned subsidiary of the listed company) signed the equity transfer agreement with huawei and yinwang.

although it was only three days later than changan automobile, it could only rank second, which made seres unhappy.

taste the sweetness

june 15, 2016well-offthe shares (code sh: 601127) are listed for trading.

in the first year of its launch, sales were about 380,000 units, and exceeded 400,000 units the following year. then it began a long decline, with sales reaching 252,000 units in 2023, down 37.6% from 2017, with an average annual decline of 7.55%.

although sales continued to decline, the product structure has undergone tremendous changes:

in 2019, sales of new energy vehicles were approximately 9,000 units, accounting for 2.8% of total sales;

in 2022, sales of new energy vehicles soared to 135,000 units, accounting for 50.5% of total sales;

in 2023, the sales volume of new energy vehicles reached 151,000 units, accounting for 60.2% of the total sales volume; only half of the annual sales target of 300,000 units was achieved.

among all the car companies that have produced fuel vehicles, the proportion of new energy vehicles in sales isbydfirst (100%), followed closely by seres.

2) the total number of delivered vehicles of the seres brand reached 450,000

the rise of xiaokang's new energy vehicles is entirely dependent on the seres brand. on august 2, 2022, the listed company simply changed its name to seres.

in 2021, the sales volume of new energy vehicles was 41,000 units, of which 11,000 were from seres (2,200 in the first half of the year and 8,800 in the second half), accounting for 26.6%;

in 2022, the sales volume of new energy vehicles soared to 135,000 units. among them, 80,000 units were sold by seres (22,000 units in the first half of the year and 58,000 units in the second half of the year), accounting for 59.3%;

in the first three quarters of 2023, seres' sales were tepid, with monthly deliveries hovering below 5,000 vehicles;ask the worldthe new m7 was a great success, with seres sales reaching 66,000 units in q4 2023.

seres continued to sell well in q1 and q2 of 2024; 98,500 vehicles were delivered in the second quarter, accounting for 92.9% of the total sales of new energy vehicles;

in july 2024, the sales volume of the seres brand exceeded 40,000 units, accounting for 95.5% of the total sales volume of new energy vehicles.

as of the end of july 2024, the byd brand has delivered more than 450,000 vehicles in total.

double dividends: scale + high-end

with wenjie positioned in the mid-to-high-end market, and impressive sales and high gross profit margin, seres has reaped the double benefits of scale and high-end orientation.

1) bicycle price

• new energy vehicles increase in both quantity and price

• fuel vehicles are shrinking rapidly

in 2021, the sales volume of fuel vehicles was 225,000 units, with an average factory price of 45,000 yuan;

in 2022, the sales volume of fuel vehicles dropped to 132,000, with an average factory price of 48,000 yuan;

in 2023, the sales volume of fuel vehicles will reach 101,000 units, with an average factory price of 45,000 yuan;

2) gross profit margin exceeds byd

in 2016, the gross profit of the automobile business was 2.76 billion yuan, with a gross profit margin of 18.4%; the gross profit of a single vehicle was close to 7,300 yuan;

in 2017, the gross profit of the automobile business was 4.2 billion, with a gross profit margin of 21.7%; the gross profit of each vehicle was 10,400 yuan;

in 2018, the gross profit of the automobile business was 3.98 billion, with a gross profit margin of 22.5%; the gross profit of a single vehicle exceeded 10,000 yuan;

in 2019, the gross profit margin of the automotive business fell back to 15.6%;

in 2020, the gross profit of the automobile business was only 270 million yuan, the gross profit margin was less than 2.2%, and the gross profit per vehicle fell below 1,000 yuan!

in 2021, the gross profit of the automobile business increased significantly to 3.86 billion, but the gross profit margin remained at 2.2%; among them, the gross profit margin of new energy vehicles was 1.9%, and the gross profit margin of other models was 2.2% (disclosed separately for the first time).

in 2022, the gross profit margin of the automotive business rebounded to 11.2%. among them, the gross profit margin of new energy vehicles was 13.1%, and the gross profit per vehicle was 24,000 yuan;

in 2023, the gross profit margin of the automobile business will be 9.5%. the gross profit margin of new energy vehicles will be 9.9%, and the gross profit per vehicle will be 19,000 yuan.

in the first half of 2024, car sales soared 156%, and gross profit margin increased significantly to 25% (only 6.3% in the first half of 2023).1 percentage point higher than byd!

in 2017, seres’ sales volume and gross profit margin exceeded 400,000 units and 20% respectively, followed by six consecutive years of losses (non-gaap).

the non-gaap net profits in q1 and q2 of 2024 were rmb 110 million and rmb 1.32 billion respectively.

in 2024, seres’ sales volume is likely to exceed 500,000 vehicles, and its non-gaap net profit is expected to reach a record high of 5 billion yuan.

the valuation is reasonable but not reasonable

huawei's intelligent automotive solutions bu (hereinafter referred to as the car bu) was established in may 2019. it is positioned as a supplier of incremental components for intelligent connected vehicles, providing oems with product solutions such as intelligent driving and hongmeng cockpit, and aims to be the "bosch of the smart electric vehicle era."

on january 16, 2024, huawei established shenzhen yinwang intelligent technology co., ltd. (yinwang for short) and obtained a business license. yinwang has a registered capital of rmb 1 billion, and huawei holds 100% of the shares.

after securing strategic investors, huawei plans to inject five major businesses, including smart driving, smart cockpit, smart vehicle control, smart car cloud and smart car light, into yinwang. it is expected that the "loading" of related businesses will be completed within 2024.

"the valuation of huawei's automotive bu is only 100 billion? so low!" it's right to think so.

compared to wework, invest is ridiculously undervalued.however, changan automobile and seres are a-share listed companies, not masayoshi son, and there is a great risk in investing in them at a valuation of hundreds of billions.

the basis for yinwang’s valuation is simulated financial statements (treating huawei bu-related businesses as independent entities).

in 2022, yinwang's revenue will be 2.1 billion, of which hardware will account for 1.44 billion, accounting for 68.9%; software/services will account for 650 million, accounting for 31.1%;

in 2023, yinwang's revenue will be 4.7 billion, of which hardware will account for 2.6 billion, accounting for 55.2%; software/services will account for 2.1 billion, accounting for 44.8%;

in the first half of 2024, yinwang's revenue is 10.4 billion, of which hardware is 6.1 billion, accounting for 58.4%; software/services is 4.34 billion, accounting for 41.6%;

from 2022 to h1 2024, the gross profit margins of the two types of businesses are expected to increase exponentially, which is impressive:

in 2022, the gross profit margins of hardware and software will be 14% and 25% respectively; in 2023, they will increase to 16% and 25% respectively; in the first half of 2024, they will increase to 33% and 86% respectively;

the combined gross profit margin of the two businesses increased from 18% in 2022 to 55% in the first half of 2024.

2) highly dependent on seres

yinwang's revenue concentration is extremely high. in 2023, the top five customers contributed 89.5% of the revenue; in the first half of 2024, the contribution rate of the top five customers increased to 90.6%.

among the top five customers, the "customer a" with the highest proportion is none other than seres. in the first half of 2024, it contributed 6.6 billion in revenue, accounting for 63.4% of yinwang's revenue (this proportion was 51% in 2023).

taking the 2024 sales volume of seres brand (183,000 vehicles) as the denominator, it can be calculated that each vehicle sold will contribute 36,200 yuan in revenue to yinwang (22,500 yuan in 2023).

3) abandoning the income approach

zhongjing minxin used the asset-based approach and the market approach to evaluate 100% equity of shenzhen yinwang.

the result of the asset-based method is: as of january 31, 2024, the net asset value of shenzhen yinwang is 19.85 billion (including fixed assets and intangible assets).

the market valuation result is: as of january 31, 2024, shenzhen yinwang is worth 115.25 billion.

among the six listed companies selected, three have been profitable (excluding non-recurring items) for 10 years, two for 7 years, and the shortest for 4 years (8 years on average). shenzhen yinwang will lose 7.6 billion and 5.6 billion in 2022 and 2023 respectively, and have a net profit of 2.23 billion in the first half of 2024. #a novice driver who has only had a driver's license for half a year vs an experienced driver who has been driving safely for 8 years#

finally, zhongjing minxin selected the market method evaluation results as the evaluation conclusion (jingxin evaluation report no. 508, 2024).

the valuation method based on the expected future income of assets (income method) is more scientific, rigorous and has a wider range of applications. the most prominent advantage of the market method is its simplicity!

zhongjing minxin’s explanation for abandoning the income method is:

shenzhen yinwang's revenue structure has a high proportion of sailiqi; the next step of cross-border integration and collaborative innovation is highly uncertain; shenzhen yinwang's partners, customer structure, personnel composition, business model, and equity structure may change significantly in the future. therefore, it is impossible to make a reliable and reasonable forecast. #income method is good, but it cannot be used#

one more thing:

huawei promises that within eight years it will not develop, produce or sell products, system solutions or services that are identical or substantially similar to huawei's business; will not engage in competing business in disguised form through oem, odm or other models or by providing technical services or consulting services; and will not engage in competing business by supporting third parties.

if the non-compete agreement is lifted, yinwang's valuation will be greatly impacted. therefore, the valuation using the income method can only estimate the earnings for the next eight years, and the condition that "huawei will not reduce its holdings to less than 5%" must be added.

targets with too many variables that cannot be valued using the income method are authentic venture investments and are very much to masayoshi son's taste.

4) sustainability is a concern

in the past two and a half years, shenzhen yinwang’s key data such as revenue, gross profit, and gross profit margin have grown by leaps and bounds, but the sustainability of its monetization capabilities remains to be verified by time.

shenzhen yinwang is like a video website.

"youku, iqiyi and tencent video" spend a huge amount of money to purchase/produce content, forming a huge copyright reserve to attract paying members. yinwang spends a huge amount of money on research and development to form a huge intangible asset. seres customers are equivalent to "members".

r&d expenses will be 766,000 in 2022, 718,000 in 2023, and 342,000 in the first half of 2024, totaling 18.3 billion in two and a half years. during the same period, byd's r&d expenses were 77.8 billion, 4.25 times that of yinwang.in the first half of 2024, byd's r&d expenditure was 19.6 billion, 5.75 times that of expectations.

although the automotive bu was officially established in 2019, huawei's research and development should be pushed forward at least five years. in addition, the automotive bu is an organic part of huawei, and it can "borrow light" and "borrow strength" in terms of talents, technology, facilities and other aspects.

after shenzhen yinwang was "uprooted", it had to be responsible for its own profits and losses and raise its own r&d expenses. it would be difficult for it to invest 10 billion yuan in r&d in 2024.

if one of youku, iqiyi and tencent video only invests 10 billion yuan in content each year while the other companies invest 40 billion yuan, even if their "artistic cells" are strong, they will eventually fall behind.

seres strives to become the "big wife"

1) yinwang shares are not hot

first, the business scope of the new company includes: intelligent driving solutions, intelligent cockpit, intelligent car digital platform, intelligent cloud, ar-hud and intelligent headlights, etc. (all of the above are automotive bu businesses, the specific scope is subject to the final transaction documents).

second, huawei will inject the relevant technologies, assets, and personnel within the above business scope into the new company (the number of r&d personnel in the automotive bu alone reaches 7,000).

third, huawei promised “not to engage in business that competes with the target company’s business scope.”

fourth, changan automobile plans to invest in the new company's equity, with the proportion not exceeding 40%.

on may 7, 2024, changan automobile issued an announcement stating:

in view of the significance and complexity of the project and the need for internal procedures of the transaction parties to prevent over-aggression, the project progress is somewhat delayed compared with the estimate in the memorandum. according to the latest project progress, the company expects to sign the final transaction documents no later than august 31, 2024.

august 20, 2024avitatechnology (changan automobile holds approximately 39% of the shares) signed a "share transfer agreement" with huawei, agreeing to purchase 10% of yinwang's equity from huawei for a transaction amount of 11.5 billion.

（note: avita is a company in which changan automobile holds a stake. its predecessor was changan automobile co., ltd., which was established in july 2018.nio” (each party holds 50% of the shares); in 2020, li bin resigned as chairman; in november 2020, changan automobile announced that it would jointly build a high-end brand with huawei and catl; in may 2021, it was renamed avita technology）

according to the 2023 memorandum, changan automobile can acquire a maximum of 40% of shenzhen yinwang’s equity. however, in august 2024, changan automobile only subscribed to 10% of shenzhen yinwang’s equity through its joint venture avita (changan automobile indirectly holds 4%).

if the investment returns are considered considerable, the company should directly hold shares and strive to acquire as much equity as possible. changan automobile's actual actions are to "downgrade" from directly acquiring 40% to indirectly holding 4%.

2) seres is proactive in every aspect

seres purchased yinwang’s equity through its wholly-owned subsidiary, and changan automobile acquired yinwang through its 40%-owned joint venture

in addition, there are many details that illustrate seres' enthusiasm:

• valuation

changan automobile only disclosed that the consideration for purchasing 10% of yinwang’s equity was 11.5 billion (the corresponding valuation was 115 billion). the pricing was based on the “asset appraisal report” (zhongqihuazi 2024 no. 6499) issued by “beijing zhongqihua asset appraisal company”, but no details were disclosed.

seres disclosed the full text of the "asset appraisal report" issued by "zhongjing minxin (beijing) asset valuation company" (jingxin appraisal report no. 2024 no. 508), and the appraisal result was 115.25 billion.

two independent institutions evaluating a 100 billion yuan (12-digit) target is like zhang san and li si counting the hairs of the same cow. it would be a miracle if the results were highly consistent.

the more likely scenario is that the parties, through negotiation, decide to use one of the assessment reports as the basis and simply not disclose the other.to avoid causing controversy。

• payment

both changan automobile and seres will make payments in three installments and set payment prerequisites respectively.

seres' prerequisite is procedural, so there will be no problem as long as huawei is willing:

after signing the contract and huawei's approval, a payment is made;

once the loading is basically completed (no less than 5,500 patents, no less than 1,000 trademarks, and no less than 4,675 employees), another payment will be made;

the business cooperation agreement is signed and becomes effective; relevant change registration is completed and the balance is paid.

• no performance compensation

the "purchase report - major risk warning" published by seres states:the transaction parties did not set performance compensation based on market-based commercial negotiations.

it’s not that seres doesn’t understand performance compensation. when it acquired 86.37% of the equity of luzhou rongda for 640 million yuan in 2018, the seller promised that the net profit in 2018, 2019 and 2020 would be no less than 200 billion yuan, 90 million yuan and 150 million yuan respectively. if the total net profit in three years is less than 260 million yuan, the difference will be compensated.

there is no such risk warning in changan automobile's announcement, and it is not ruled out that the payment prerequisite is related to the expected performance. for example, the revenue of xxx billion and the net profit of xx billion in 202x...

• board of directors

changan automobile said that yinwang's board of directors consists of 7 people, 6 of whom are nominated by huawei and 1 by changan automobile.

seres said that yinwang's board of directors consists of 7 people. seres has the right to nominate 1 director; yinwang's audit committee (without a supervisory board) consists of 5 people, one of whom is from seres automotive.

the cooperation between seres and huawei is even closer; the equity and board seats are the same as those of changan automobile; if the 11.5 billion is fully in place first, it should be upgraded to the "first wife".