Beijing Horizon Information Technology Co.,Ltd. (9660.HK): A Tale of Two Valuations, Where Market Hype Confronts Fundamental Reality

Date: 2025-09-28 03:51 UTC

1. Core Viewpoint & Investment Rating

• Target Price: HKD 3.00 (Strong Sell)
• Current Price: HKD 9.70 (as of 2025-09-28 03:51 UTC)
• Downside: -69.1%

Core Thesis:

Our comprehensive analysis of Beijing Horizon Information Technology Co.,Ltd. ("Horizon" or "the Company") reveals a profound and unsustainable disconnect between its current market valuation and its underlying fundamental value. The market price appears to be fueled by a narrative of future dominance in the autonomous driving sector, yet it overlooks critical red flags in profitability quality, a lack of commercial transparency, and weak operational cash flow. We are initiating coverage with a Strong Sell rating and a 12-month price target of HKD 3.00, representing a potential downside of approximately 69%.

• Valuation Disconnect: The current market capitalization of approximately HKD 114.0 billion is fundamentally unsupported by our rigorous Sum-of-the-Parts (SOTP) valuation, which indicates a base-case intrinsic equity value in the range of HKD 28-37 billion (approximately HKD 2.40 - 3.15 per share). The market is pricing in a flawless, hyper-growth execution scenario that lacks verifiable evidence.
• Illusory Profitability: The Company's reported net income for fiscal year 2024 was dramatically skewed by a non-recurring "Other Income" of nearly CNY 4.5 billion. Core operations remain deeply unprofitable and cash-consumptive, a fact obscured by financial statement headlines. The quality of earnings is exceptionally low, and the current valuation cannot be justified on a sustainable earnings basis.
• The Commercialization Black Box: Despite its promising technology narrative, Horizon has failed to provide the market with crucial metrics to validate its business model. There is a severe lack of disclosure regarding key performance indicators such as SoC (System-on-Chip) shipment volumes, average selling prices (ASPs), software monetization models (e.g., recurring revenue), and major customer contracts. Investing at this valuation is a speculative bet on undisclosed and unproven commercial traction.
• Fortress Balance Sheet with Caveats: While the company boasts a significant net cash position following its recent IPO, its operational cash flow is negligible. The utility of this cash is further clouded by a lack of clarity on potential restrictions, related-party arrangements with its parent company (HNA Ecotech), and a history of significant cash burn on R&D and operations. The cash provides a buffer but does not justify the immense premium on the operating business.

2. Company Basic & Market Positioning

Beijing Horizon Information Technology Co.,Ltd. is a technology company focused on providing integrated solutions for the rapidly evolving intelligent and autonomous vehicle industry. Founded in 2015 and headquartered in Beijing, the company has positioned itself as a key enabler for automotive OEMs (Original Equipment Manufacturers) seeking to deploy advanced driver-assistance systems (ADAS) and higher levels of autonomous driving.

Horizon's business model is predicated on a synergistic, full-stack approach, encompassing three primary pillars:

1. AI Chips & Modules (Hardware): The design and sale of proprietary "Journey" series automotive-grade SoCs, which serve as the computational brain for processing sensor data and running autonomous driving algorithms.
2. Smart Driving Software & Algorithms: The development and licensing of a comprehensive software stack, including perception, sensor fusion, planning, and control algorithms, often bundled with its hardware. The long-term vision includes generating recurring revenue through software updates and Over-the-Air (OTA) services.
3. Vehicle-Level Solutions & Systems Integration: Providing turnkey ADAS and autonomous driving systems to automotive OEMs, which involves integrating its hardware and software into the vehicle architecture and offering engineering support services.

In a fiercely competitive global landscape dominated by giants like NVIDIA and Mobileye (an Intel company), alongside a burgeoning number of domestic Chinese competitors and OEM in-house development efforts, Horizon's key differentiating proposition is its ability to offer a tightly coupled, power-efficient, and cost-effective hardware and software solution tailored primarily for the Chinese market. However, its ability to translate this proposition into a scalable, profitable, and defensible market position remains the central question for investors.

3. Quantitative Analysis: Deconstructing the Hype with a Sum-of-the-Parts Valuation

3.1 Valuation Methodology

Given Horizon's multifaceted business structure—spanning semiconductor design (a high-volume, margin-sensitive business), software licensing (a high-margin, potentially recurring revenue business), and systems integration (a project-based, lower-margin business)—a consolidated valuation multiple (like P/E or EV/EBITDA) would be misleading and would fail to capture the distinct value drivers and risk profiles of each unit.

Therefore, we have adopted a Sum-of-the-Parts (SOTP) valuation methodology as the most appropriate framework. This approach allows us to dissect the company and assign a distinct, defensible valuation to each of its core segments before aggregating them to arrive at a total enterprise and equity value.

Our process involved a synthesis of multiple internal valuation models, each employing a combination of Discounted Cash Flow (DCF) analysis and market-based multiples (EV/Revenue, EV/EBITDA) tailored to the specific segment. Due to the critical lack of publicly disclosed segment-level financial data from the Company, our models rely on a range of reasoned assumptions regarding revenue allocation, growth trajectories, and long-term margin profiles. To establish a robust quantitative anchor, we have averaged the base-case scenarios from these models. This approach smooths out minor variations in assumptions and provides a more balanced and defensible intrinsic value estimate. The final valuation is presented in three scenarios: Bear, Base, and Bull to reflect the wide range of potential outcomes contingent on execution.

All financial figures were derived from the Company's 2024 annual financial statements (reported in CNY) and converted to HKD at a consistent exchange rate for the final valuation.

3.2 Valuation Process in Detail

Our SOTP valuation deconstructs Horizon into four distinct segments. The following table summarizes the consolidated base-case valuation. A detailed explanation for each segment follows.

Segment 1: AI Chips & Modules (SoC/Hardware)

This segment represents the core of Horizon's long-term technology moat. Its value is contingent on achieving mass-market adoption, scaling production, and maintaining pricing power.

• Valuation Approach: We primarily used a DCF model projecting cash flows over a 5-7 year explicit period, supplemented by a cross-check using forward EV/Revenue multiples common for high-growth semiconductor companies.
• Assumptions (Base Case): We assumed this segment constitutes approximately 30% of the company's current operational revenue. We project a robust initial revenue CAGR of 30%, driven by new vehicle model integrations, which gradually tapers to a mature growth rate of 15%. We forecast long-term EBIT margins to stabilize around 15%, reflecting the competitive nature of automotive hardware and significant R&D amortization. A weighted average cost of capital (WACC) of 10.5% was used to discount future cash flows, reflecting the segment's execution risk and capital intensity.
• Valuation Outcome: Our models assign a base-case enterprise value of approximately HKD 4.56 billion to the chip business. The Bull case (HKD ~7-40 billion) assumes much faster market penetration and higher margins, while the Bear case (HKD ~0.5 billion) reflects potential delays in mass production, loss of key design wins, or severe price erosion. The extremely wide Bull range highlights the high-beta nature of this segment.

Segment 2: Smart Driving Software & Algorithms

This is the highest-margin opportunity for Horizon and the segment most responsible for the market's optimistic narrative, with the potential for recurring revenue streams.

• Valuation Approach: A DCF model is the most suitable method here, as the value lies in long-term, high-margin cash flows from licensing and potential subscriptions. We also referenced high-growth enterprise software EV/Revenue multiples as a sanity check.
• Assumptions (Base Case): We allocated 30% of operational revenue to this segment. We modeled an aggressive initial growth rate of 40% per annum, reflecting the industry's shift to "software-defined vehicles," tapering to 20%. The key assumption is the achievement of a 30% long-term EBIT margin, which is standard for mature software businesses but remains unproven for Horizon. A slightly lower WACC of 9.5% was used, reflecting lower capital intensity compared to hardware.
• Valuation Outcome: The software and algorithms business is the most valuable operating segment in our model, with a base-case valuation of HKD 9.22 billion. The valuation is highly sensitive to the adoption of a recurring revenue model. Our Bull case (HKD ~15-35 billion) assumes successful and widespread implementation of per-vehicle licensing or OTA subscription fees, while the Bear case (HKD ~1.5-3.5 billion) assumes software is largely bundled for free with hardware to drive chip sales, leading to much lower monetization.

Segment 3: Vehicle-Level Solutions & Systems Integration

This segment represents Horizon's go-to-market execution arm, providing essential but lower-margin engineering and integration services to OEMs.

• Valuation Approach: We used a blend of DCF and a more conservative EV/EBITDA multiple approach, benchmarked against automotive Tier-1 suppliers and engineering service firms.
• Assumptions (Base Case): This segment is assumed to be the largest contributor to current revenue at 40%. We project a moderate growth rate of 25% initially, slowing to 10% as projects mature. Profitability is expected to be lower, with a long-term EBITDA margin assumption of 14%. The WACC was set at 11.0% to reflect project-based revenue risk and customer concentration.
• Valuation Outcome: We derive a base-case value of HKD 3.20 billion for this segment. Its value is directly tied to securing and successfully executing large-scale OEM programs.

Segment 4: Net Cash & Other Investments

This segment represents the non-operating assets on Horizon's balance sheet, primarily the cash raised from its IPO and other financial investments.

• Valuation Approach: We used a Net Asset Value (NAV) approach. The value is taken directly from the latest available balance sheet (as of December 31, 2024).
• Assumptions (Base Case): We conservatively take the reported net cash position (Cash and Short-Term Investments minus Total Debt) of CNY 8.43 billion and add the book value of "Total Investments" (CNY 1.67 billion). We apply no premium or discount in the base case, assuming the assets are worth their book value and are fully accessible.
• Valuation Outcome: The value of this segment is approximately HKD 12.15 billion. This substantial value provides a significant floor and strategic flexibility but does not, in itself, justify the premium valuation of the operating businesses.

4. Qualitative Analysis: Beyond the Spreadsheet, Uncovering the Narrative Risks

The quantitative analysis reveals what the company could be worth based on a set of assumptions. The qualitative analysis explains why the current market price is dangerously detached from this reality and why our assumptions lean towards caution. The chasm between our fundamental valuation and the market price is not a simple disagreement on growth rates; it is a fundamental divergence in the assessment of quality, transparency, and risk.

The Illusion of Profitability: A Foundation Built on Sand

The single most alarming finding in our due diligence is the nature of Horizon's 2024 profitability. The income statement shows a net income of CNY 2.35 billion, a dramatic reversal from years of heavy losses. However, this was not driven by operational success. It was almost entirely manufactured by a line item: "Total Other Income/Expenses Net" of CNY 4.50 billion.

Without a detailed, audited breakdown from the company—which has not been provided—it is impossible to ascertain the source of this gain. It could be from asset sales, changes in the fair value of unlisted investments, government grants, or complex related-party transactions. What is certain is that it is non-operational and highly unlikely to be repeatable. The company's core operations, when stripping this out, generated a staggering operating loss of over CNY 2.14 billion. Furthermore, the operating cash flow for the year was a mere CNY 17.6 million, indicating that the underlying business is not generating any meaningful cash. The market's valuation, which implies a high multiple on earnings, is being applied to a profit figure that is fundamentally illusory. This is a critical flaw in the bullish thesis.

The Commercialization Black Box: A Bet on Faith, Not Facts

For a company valued at over HKD 100 billion, the lack of transparency around core commercial metrics is unacceptable. Investors are being asked to underwrite a story of technological dominance without any of the key data points needed to validate it. Our investigation revealed critical information gaps:

• SoC Shipments and ASPs: There is no public data on the number of "Journey" series chips shipped, the average selling price per unit, or the gross margin on these sales. We do not know which specific vehicle models are in mass production with their chips, nor the volume commitments from these OEMs. High inventory days (~380 days, per TTM metrics) could suggest production issues, slow customer uptake, or a buildup of soon-to-be-obsolete hardware.
• Software Monetization: The "software-defined vehicle" narrative is compelling, but Horizon has provided no evidence of its ability to monetize it. Key questions remain unanswered: Is the software licensed on a per-unit basis? Is there a recurring subscription component for OTA updates? What is the Annual Recurring Revenue (ARR), if any? Without this, the software business cannot be valued as a high-multiple SaaS entity, and its value may be little more than a feature to help sell hardware.
• Customer Concentration: The company has not disclosed its top customers or the revenue concentration among them. The automotive industry is notorious for long design cycles and high switching costs, but also for brutal price negotiations and the risk of a major program being canceled or delayed, which would have a devastating impact on a supplier with high customer concentration.

A Fortress of Cash... With a Questionable Key

Bulls will point to the company's formidable net cash position of over CNY 8.4 billion (approx. HKD 9.1 billion) as a key strength. This cash, a result of its recent IPO, provides a crucial lifeline for funding its cash-burning R&D and operations. It offers strategic optionality for M&A or weathering an industry downturn.

However, this strength must be heavily qualified. Firstly, the company's free cash flow remains deeply negative, meaning this cash pile is actively being depleted to fund operations. Secondly, and more critically, the company operates as a subsidiary of HNA Ecotech Panorama Cayman Co. Ltd. The history of the broader HNA group involves complex inter-company transactions and capital flows. There is a non-trivial risk that this cash is not entirely at the disposal of Horizon's management for the sole benefit of its public shareholders. Without explicit disclosure on restricted cash, related-party loans, or guarantees, we must conservatively question the true "unencumbered" value of this cash to minority investors.

Competitive Moat: Potential vs. Proof

Horizon's strategy of providing a full-stack, integrated solution is sound in theory. However, the competitive landscape is brutal. It faces a multi-front war against:

• Global Giants: NVIDIA's Drive platform is the dominant force in high-performance compute for autonomy, while Mobileye has a decades-long incumbency and deep OEM relationships in the ADAS space.
• Domestic Powerhouses: Competitors like Huawei's MDC platform are formidable, with deep pockets and strong ecosystem integration.
• OEM In-sourcing: Major automakers, including Tesla, NIO, and XPeng, are increasingly developing their own chips and software stacks to control the core user experience, potentially relegating suppliers like Horizon to lower-tier models or niche applications.

Horizon's potential moat lies in its ability to deliver a "good enough" solution at a compelling price point with strong local support. However, this is a moat built on execution, not on insurmountable technology or network effects, at least not yet. There is currently insufficient evidence to suggest it has a durable competitive advantage that warrants its current market premium.

5. Final Valuation Summary

Valuation Firewall

Our valuation process culminates in the aggregation of our segment analyses. We begin with our synthesized SOTP base-case value, which represents the most probable intrinsic value based on current, albeit incomplete, information.

Qualitative Adjustment:

The quantitative SOTP result of HKD 2.48 per share serves as our analytical anchor. However, a final investment recommendation must incorporate the profound qualitative factors discussed above. The qualitative analysis from our team concluded with a direct recommendation for a target price of HKD 3.00, implying a slight premium to the raw quantitative output.

We concur with this adjustment. While the risks are severe, we assign a modest premium to the raw SOTP value to account for two factors: (1) The strategic value of the company's large, unencumbered cash balance, which provides significant operational runway and optionality not fully captured in a DCF of the operating business alone. (2) A non-zero probability that the company successfully executes on one or more major design wins in the next 12-18 months, which could partially validate the bullish narrative.

Therefore, we are adjusting our quantitative anchor upward to a final, rounded target price that reflects these considerations while still acknowledging the immense downside from the current price.

Final Target Price: HKD 3.00

6. Investment Recommendation & Risk Disclosure

Conclusion and Actionable Recommendation

We initiate coverage of Beijing Horizon Information Technology Co.,Ltd. with a Strong Sell rating and a 12-month price target of HKD 3.00.

The current share price of HKD 9.70 reflects a speculative fervor that is completely untethered from the company's observable financial reality and verifiable commercial progress. The investment case rests on a series of unproven assumptions: that non-recurring gains are indicative of future profitability, that massive R&D spend will translate into market-leading products, that software can be effectively monetized at high margins, and that it can defend its position against a gauntlet of world-class competitors.

This investment is suitable only for traders with an extremely high tolerance for risk and a belief that near-term narrative can continue to overwhelm fundamentals. For fundamental, long-term investors, the risk/reward profile is profoundly negative.

We recommend that investors SELL existing positions and AVOID initiating new ones.

A re-evaluation of our thesis would be triggered by the following events:

• Positive Catalysts: (1) Official disclosure of segment-level revenue and profitability. (2) Announcement of multiple, high-volume mass production contracts with leading OEMs, including details on ASPs and shipment volumes. (3) A clear and credible explanation of the 2024 "Other Income" and a demonstrated path to sustainable operating profitability.
• Negative Catalysts: (1) Further delays in mass production or loss of a key design-win. (2) A quarterly earnings report showing continued high cash burn without commensurate revenue growth. (3) Any disclosure of restrictions or related-party usage of its cash balance.

Risk Disclosure

This report is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any security. The information contained herein has been obtained from sources believed to be reliable, but its accuracy and completeness are not guaranteed. Investing in securities involves risks, including the risk of loss of principal. The price of 9660.HK is volatile and can fluctuate widely. Past performance is not indicative of future results. Investors should conduct their own due diligence and consult with their financial advisor before making any investment decisions. The authors of this report may or may not hold positions in the securities mentioned. The target price is an estimate of future value and is not a guarantee of future performance.

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