A Developer and Distributor of Automotive Software
The author is an analyst of NH Investment & Securities. He can be reached at kyeongkeun.kang@nhqv.com. -- Ed.
Having built a track record with global automakers, Obigo is well-positioned to enjoy stable profits and strong operating leverage. We expect the firm’s growth to accelerate on an expansion of mass production. The company boasts strong growth potential in line with the current mobility paradigm shift.
Dominant market status on successful early commercialization of automotive software
Obigo is a specialized developer and distributor of automotive software. The firm’s software solutions consist of: 1) its AGB browser; 2) an app framework; 3) development toolkits; and 4) an app store. Following its success in HMI browser development for a global finished carmaker in 2008, the company has been building a solid track record, including automotive software development for a domestic carmaker in 2013 and for a global top-three automaker in 2017.
Given: 1) the importance of automotive software for vehicle safety; and 2) the automotive industry’s conservative business practices, there exists a high entry barrier to the automotive software market. Given such, Obigo’s early entry into the market and its solid track-record in software commercialization should enable the firm to enjoy stable sales and capture new business opportunities.
Set to enjoy high operating leverage based on stable profit model
Obigo has a stable profit model, with sales breaking down into joint R&D (W0.3bn~W1.0bn per case), license & royalty (US$1~US$8 per unit), and maintenance & repair (3~7 years). Depending on how its contracts proceed with two of the global top-three automakers (Company R and Company N) and domestic car companies, the firm is expected to secure a 20% share of the global market and an 80% share of the domestic market. With full-fledged mass production soon to be in place, the firm’s software is to be installed in 5.8mn vehicles on a cumulative basis by 2022. As license & royalty sales do not incur any fixed costs, the company is well-positioned to enjoy high operating leverage effects.
Driven by full-fledged license & royalty sales, Obigo’s 2022 sales are estimated at W24.2bn (+134.2% y-y) and OP at W6.8bn (TTP y-y; OPM of 28.0%). It is trading at a 2022F P/E of 92.4x and 2023F P/E of 45.7x (vs 2022F P/E of 104.7x and 2023F P/E of 70.1x for Qt Company, a global automotive software firm). We believe that Obigo boasts strong growth potential in line with the current mobility paradigm shift.