Date of Report: September 17, 2024
Broker Name: UOB Kay Hian
Overview of ECARX Holdings
ECARX Holdings (Bloomberg ticker: ECX US) is a leading automobile intelligent solutions provider, primarily engaged in the research and development of software and hardware solutions for smart vehicles. The company offers products such as intelligent cockpit computing platforms, advanced driver assistance systems (ADAS), and central computing platforms. ECARX has strong partnerships with key players in the automotive industry and is positioning itself to benefit from the growing demand for smart electric vehicles (EVs).
Key Financial Data
- Share Price: USD 1.75
- Target Price: USD 3.40
- Upside Potential: 94.3%
- Market Cap:
- RMB 4.3 billion
- USD 590 million
- 52-week High/Low: USD 4.68 / USD 0.96
Strategic Position in the Growing EV Market
The global smart electric vehicle market is expected to grow at a compound annual growth rate (CAGR) of 41% from USD 1.3 billion in 2023 to USD 14.5 billion in 2030. ECARX is well-positioned to benefit from this trend due to its full range of intelligent automotive solutions, robust R&D capabilities, and strong collaborations with both upstream and downstream partners. The company has already entered the supply chains of major auto brands like Geely, Zeekr, Lynk & Co, Volvo, Lotus, and Polestar.
Revenue and Customer Base Growth
- Revenue Growth: ECARX’s revenue is projected to grow at a three-year CAGR of 27% from RMB 4.7 billion in 2023 to RMB 9.5 billion in 2026. The growth will be driven by the launch of new projects, including sales for models like Lynk & Co, Volvo EX30, and Smart, as well as the company’s expansion into non-Geely brands.
- Customer Base Expansion: ECARX is expanding its customer base beyond Geely brands. By 2025-26, the company expects revenue contributions from non-Geely customers to increase from 10% in 2023 to 30%. ECARX aims to increase direct overseas sales from 0% in 2023 to 30% by 2025-26.
Partnerships with Industry Leaders
ECARX has close collaborations with major industry players and is the first Chinese company to produce Google Automotive Service-certified intelligent cockpits for Volvo globally. The company’s strong partnership with Geely, its largest shareholder, has also enabled it to enter the supply chains of Geely’s associated brands, further enhancing its market presence.
Financial Performance and Projections
- 2023-2026 Financial Projections:
- 2023 Revenue: RMB 4.7 billion
- 2024 Revenue: RMB 5.7 billion
- 2025 Revenue: RMB 7.5 billion
- 2026 Revenue: RMB 9.5 billion
- EBITDA and Profit Projections:
- ECARX is expected to turn around its financials by 2026, with net profit projected at RMB 212 million in 2026 after consecutive losses in 2023-2025.
- EBITDA is forecasted to improve from a loss of RMB 829 million in 2023 to positive RMB 367 million in 2026.
Key Financials
- 2023-2026 EBITDA:
- 2023: RMB (829) million
- 2024: RMB (537) million
- 2025: RMB (259) million
- 2026: RMB 367 million
- 2023-2026 Net Profit:
- 2023: RMB (940) million
- 2024: RMB (681) million
- 2025: RMB (414) million
- 2026: RMB 212 million
Debt and Cash Flow
As of June 30, 2024, ECARX had RMB 1.6 billion in debt and RMB 926 million in cash. The company expects to reduce its net losses progressively from 2023 to 2025, with cash flow turning positive in 2026. Free cash flow is projected to improve from negative RMB 1.3 billion in 2023 to positive RMB 364 million in 2026.
Valuation and Recommendation
- Valuation: UOB Kay Hian has assigned a target price of USD 3.40 to ECARX, based on a 10-year discounted cash flow (DCF) model with a weighted average cost of capital (WACC) of 14% and a terminal growth rate of 4%. This target price implies a 39x price-to-earnings (PE) ratio for 2026 and a price-to-earnings-growth (PEG) ratio of 1.0x.
- Recommendation: The broker has initiated coverage with a BUY rating, citing the company’s robust market potential and revenue growth prospects.
Risks
- Downside Risks:
- Slower-than-expected adoption of intelligent vehicle technology
- Potential competition from established global players
- Regulatory changes that could affect the automotive sector.
