NavInfo Co Ltd:Premium valuation outweighs technology potential;SELL

High-level autonomous driving adoption a long way to go

    Leader in pre-installNavInfo’s appeal lies in three key areas. First, its 40% share in pre-installed navigation system, a high margin but maturing business, along with its ongoing investment in HD mapping. Second, is the recent RMB3.9bn acquisition of Jiefa which supplies SoC solutions for infotainment systems. Third, is its position as an investment within Tencent group. While we see consistent growth of 7% for the former operation and the major contribution that Jiefa already generated, the RMB18bn market cap and 2018 PER of over 50x is above our expectations for developments in the ADAS field on a 2-3 year time horizon, and we initiate coverage with a Sell and RMB14.9 target price.

    Leader in pre-installed auto navigation maps and Internet of Vehicles (IoVs)

    Navigation maps contributed 48-54% of NavInfo’s revenues in FY12-16 and 49-64% of its gross profit. Given increasing pre-installation penetration and pricing competition, we expect muted growth in in-dash car navigation system sales. Moreover, we expect the revenue contribution from IoVs to fall from 33% in FY16 to 28% in FY19 and the gross profit contribution from 22% to 20% during the period, after the inclusion of the Jiefa acquisition.

    Jiefa consolidation to drive growth; HD maps and ADAS investments still early

    The major revenue contributor in FY17-19E will be the consolidation of Jiefa, which NavInfo acquired for RMB3.9bn. We expect the revenue contribution to grow from nil in FY16 to 33% in FY19. However, it is difficult for Jiefa to penetrate into ADAS SoC solutions, as its chips are used mainly in after-market navigation and infotainment. Investments in HD maps and ADAS solutions are still at an early stage and will take time to yield meaningful contributions.

    Initiating with a Sell on a fair valuation and TP at 45x FY18E P/E; risks (p.18) Our TP is set at 45x FY18E P/E. We expect NavInfo to deliver 39% FY16-19E EPS CAGR, driven by consolidation of Jiefa & growth in the connected car business, but offset partly by heavy investment in ADAS projects. Upside risks: stronger-than-expected China auto sales; faster-than-expected growth at Jiefa.