- The consolidated statements with AutoChips contribute to great growth in result

- The Company keeps increasing investment in R&D and optimizes its operating efficiency

- The Company starts to lead the automatic driving industry -- a key to the Internet of Vehicle

Investment Thesis

NavInfo is a leading supplier providing navigation maps and dynamic traffic information services in China. We expected that with the continued efforts to expand its car electronic map, car networking and compilation service business, the company's profit rose again. We expect that the 2017/2018 EPS of the Company will be RMB0.20 and RMB0.35, respectively. Based on the prediction, the target price will be RMB29, and the Company is given Accumulate rating. (Closing price as at 25 Oct 2017)

Great Result Growth of 55% in H1

Navlnfo recorded a revenue of RMB834 million in 2017H1, up by 16.8% yoy; the net profit attributable to the parent company of RMB121 million, up by 55% yoy; the net profit attributable to the parent company after deduction of non-recurring profit or loss of RMB114 million, up by 61.6% yoy; a basic EPS of RMB0.105, up by 39.1%; diluted EPS of RMB0.104, up by 39.1% yoy. According to the result report recently published, it earn 37 million net profit in the third quarter of 2017, up 66% yoy.

The consolidated statements with AutoChips contribute to growth in result

In the consolidation of the existing electronic map business, the Company makes vertical integration to the Internet of Vehicle, automatic driving and other future fields in recent years, exploring innovation in business model and new profit growth points actively based on its own technologies and resource advantages. The business income of the Company rises steadily and its product mix is optimizing constantly. AutoChips, an auto chip manufacturer which used to belong to MediaTek. Inc., fully purchased by the Company with RMB3.9 billion, started to consolidate its statements since March 2017, and has contributed revenue from chip products of RMB161 million and a net profit of RMB49.25 million, accounting for 19.3% and 43% of the Company, respectively. AutoChips reported a high net profit of 30% in H1, largely raising the overall profitability of the Company.

The revenues from the Company's major original types of business slightly went down by 5.8%, wherein the revenue from navigation was RMB394 million, down by 3.1% yoy; the revenue from the Internet of Vehicle was RMB210 million, down by 5.1% yoy; the revenue from advanced driver assistance and automatic driving was RMB10.23 million, up by 18.2% yoy; and the revenue from enterprise service and industry application was RMB56.4 million, down by 26.1% yoy.

The Company keeps increasing investment in R&D and optimizes its operating efficiency

In the fiercely competitive science and technology industry, the Company keeps enhancing industrial distribution and investment in scientific researches. It invested RMB383 million in R&D in H1, up by 7.6% yoy. On the other hand, the overall operating efficiency of the Company has further improved, with an overall gross margin of 76.24%, up by 0.54 ppts yoy; a ratio of sales expenses of 6.29%, down by 0.22 ppts yoy; a ratio of administration expenses of 62.94%, down by 3.56 ppts yoy.

The Company starts to lead the automatic driving industry -- a key to the Internet of Vehicle

After years of efforts, Navlnfo has finished its business strategy layout of "chip + algorithm + software + map" and formed the most integrated whole industry chain layout of Internet of Vehicle nationwide by integrating auto chip resources with AutoChips, including data cloud, content service, in-car voice service, mobile web, navigation software and map data. The industry chain of the Company extends to the key part of auto chip, which will help it master high-precision map, artificial intelligence and chip, and become the only listed company of "high-precision map + vehicle intelligent chip" with scarcity in China. AutoChips promises to report a net profit of RMB300 million in 2018 and the rapid growth in revenue can be guaranteed In conclusion, we believe the Company deserves a valuation premium.

Financials

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