Intron Provides High Leverage to Growth in Chinese EVs, Automated Driving

Intron Technology’s 01760 2022 result was driven by strong growth in revenue from electric vehicles and automated vehicles, with consolidated revenue up 52% and net profit up 107%. Together, these two categories made up 52% of Intron’s revenue in the second half and we see a long growth runway for them. We expect unit growth of new energy vehicles in China of 30%-35% in 2023 and high teens growth until 2025, and Intron would grow faster through taking market share. Intron continued to invest in research and development in 2022, with R&D expenses up 61%, accounting for 6.9% of total revenue, up from 6.5% in 2021. Being the largest distributor of Infineon chips in China has helped Intron gain customer market share in times of chip shortages, as we have seen over the past 18 months, particularly with original equipment manufacturers. We increase our fair value estimate to HKD 8.20 per share from HKD 7.50 following the result. The stock trades at around a 44% discount to our fair value estimate, which combined with our Very High Morningstar Uncertainty Rating drives a 4-star rating as of March 28. We also retain our narrow moat rating due to the company’s solid reputation and strong customer relationships in supplying electronics to auto original equipment manufacturers, which have historically been reluctant to change reliable suppliers. The moat rating is supported by its return on invested capital, which has historically been well over its cost of capital except for the COVID-19-affected 2020, and we expect above-cost-of-capital returns over our forecast period.

New energy vehicle solutions revenue increased by 91% year on year, with the company supplying products and solutions to the top 10 established NEV brands such as BYD, SAIC, GWM and GAC Aion, as well as electric car startup brands such as XPeng, Li Auto and Leapmotor.