ADAS LiDAR Demand And Lower Costs Will Forge Future Success

Key Takeaways

• Strong demand for ADAS LiDAR products and improved margins could significantly boost future revenue and earnings stability.
  
• Enhanced technological offerings and strategic expansion efforts may drive future earnings growth and investor confidence.
  
• Declining service revenues, price reductions for solutions, and currency losses could pressure revenue growth and impact Robosense Technology's profitability.

Catalysts

An investment holding company, provides LiDAR and perception solutions in the People’s Republic of China, the United States, and internationally.

• The significant increase in sales of ADAS-related LiDAR products, with a 71.8% growth in revenue and more than doubling of unit sales, indicates strong market demand that is likely to boost future revenue streams.
  
• Despite a decrease in average unit prices for ADAS LiDAR products, the reduction in raw material procurement costs and economy of scale have led to improved gross margins, which should positively impact net margins going forward.
  
• The decrease in R&D expenses as a percentage of revenue, along with increased specialization in AI algorithms and proprietary chip development, positions the company to enhance its technological offerings, potentially driving future earnings growth.
  
• A strategic focus on increasing sales and marketing efforts, reflected in an increase in personnel and promotional activities, suggests an expansion plan that could lead to greater revenue generation in new and existing markets.
  
• The conversion of preferred shares to ordinary shares and the dramatic reduction in net loss by 88.9% reflect improvements in financial management and capital structure, which are likely to enhance future earnings stability and investor confidence.

Robosense Technology Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Robosense Technology's revenue will grow by 45.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from -29.2% today to 9.0% in 3 years time.
• Analysts expect earnings to reach CN¥461.3 million (and earnings per share of CN¥1.0) by about April 2028, up from CN¥-481.8 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting CN¥586 million in earnings, and the most bearish expecting CN¥304.3 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 55.4x on those 2028 earnings, up from -27.8x today. This future PE is greater than the current PE for the HK Electronic industry at 9.6x.
• Analysts expect the number of shares outstanding to grow by 1.88% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.98%, as per the Simply Wall St company report.

Robosense Technology Future Earnings Per Share Growth

Risks

• The decrease in average unit prices for ADAS LiDAR products, despite higher sales volumes, could pressure revenue growth and erode profit margins if such price reductions continue or become necessary to maintain competitiveness.
  
• The revenue generated from solutions decreased by 11%, primarily due to a shift towards lower-priced standard solutions, which could impact overall revenue and reduce net margins due to diminished profitability from previously higher-margin projects.
  
• A significant decline in the provision of services and other revenues by 63.1% indicates potential challenges in this segment, potentially affecting overall earnings if the decline continues or spreads to other service offerings.
  
• The increase in net impairment losses on financial assets, up by 414.4%, suggests rising credit risks associated with trade receivables, which could negatively impact net profits and the company's financial stability.
  
• Significant foreign exchange losses, primarily due to exchange rate fluctuations, increased by 82.8%, which could further strain net margins and overall profitability unless managed effectively.

Valuation

• The analysts have a consensus price target of HK$43.323 for Robosense Technology based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of HK$66.55, and the most bearish reporting a price target of just HK$17.88.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CN¥5.1 billion, earnings will come to CN¥461.3 million, and it would be trading on a PE ratio of 55.4x, assuming you use a discount rate of 8.0%.
• Given the current share price of HK$30.2, the analyst price target of HK$43.32 is 30.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.