Recruitment In AI And Chip Development Will Advance Future LiDAR Technology

Key Takeaways

• RoboSense's solid-state LiDAR sales surge and improved gross margins position it for strong future revenue growth, driven by economies of scale and cost efficiencies.
  
• Strategic R&D investments and enhanced expense efficiency could drive innovation, product differentiation, and higher future earnings despite initial revenue growth challenges.
  
• Aggressive price cuts and a shift to lower-margin products could pressure profit margins despite sales volume increases and higher R&D and marketing expenses.

Catalysts

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

• RoboSense Technology's significant increase in sales of automotive-grade solid-state LiDAR products, particularly for ADAS applications, indicates strong future revenue growth potential driven by heightened market demand.
  
• The decrease in average unit prices for LiDAR products might initially suppress revenue growth, but the scaling benefits from higher production volumes and reduced raw material costs are expected to enhance net margins over time.
  
• RoboSense is experiencing a marked improvement in gross margins for its LiDAR products, especially for ADAS applications, which can lead to improved overall earnings as the economies of scale and input cost efficiencies become more pronounced.
  
• The company's strategic focus on research and development, especially with the recruitment of specialized personnel in AI and proprietary chip development, is likely to propel future innovation and product differentiation, potentially increasing revenue through new product lines and higher margins.
  
• Despite increased sales and marketing expenses, improved efficiency indicated by the reduction in expenses as a percentage of revenue suggests better cost control, which could bolster net margins and ultimately enhance earnings.

Robosense Technology Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Robosense Technology's revenue will grow by 38.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from -213.7% today to 1.9% in 3 years time.
• Analysts expect earnings to reach CN¥82.8 million (and earnings per share of CN¥-0.65) by about March 2028, up from CN¥-3.6 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting CN¥94 million in earnings, and the most bearish expecting CN¥-6 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 274.3x on those 2028 earnings, up from -5.1x today. This future PE is greater than the current PE for the HK Electronic industry at 9.5x.
• Analysts expect the number of shares outstanding to grow by 2.8% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.11%, as per the Simply Wall St company report.

Robosense Technology Future Earnings Per Share Growth

Risks

• The aggressive reduction in average selling prices for products, while boosting sales volume, may impact revenue and profit margins adversely if cost reductions do not keep pace with price cuts.
  
• Sales of higher-margin products for robotics have decreased, resulting in a shift towards lower-margin products like the Helios and Bpearl Series, which could erode overall profit margins.
  
• Despite increased volume, the revenue from solution projects has decreased due to a shift toward lower-priced projects, which could pressure gross profit margins.
  
• Increasing R&D and marketing expenses, though aimed at growth, may pressure net earnings if they do not yield proportional revenue increases in the future.
  
• Although there is an improvement in gross margin for certain product segments, sustaining such improvements amidst potential upcoming costs and competitive pressures may impact long-term earning consistency.

Valuation

• The analysts have a consensus price target of HK$40.156 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$66.87, and the most bearish reporting a price target of just HK$18.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CN¥4.4 billion, earnings will come to CN¥82.8 million, and it would be trading on a PE ratio of 274.3x, assuming you use a discount rate of 8.1%.
  
• Given the current share price of HK$43.75, the analyst price target of HK$40.16 is 9.0% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.