The intelligent automotive technology company ECARX is considering acquiring a stake in DreamSmart (Interstellar Meizu), whose core assets include an operating system that connects smart cars, smart glasses, and smartphones.
<h4>Key Points:</h4>
<ul>
<li>The board of ECARX has authorized the company to advance potential transactions, considering the purchase of a minority stake in DreamSmart, whose main asset is the Meizu smartphone brand.</li>
<li>Both ECARX Technology and DreamSmart are currently controlled by Geely Holding, which is one of the most successful private automotive companies in China.</li>
</ul>
Yang Ge
Being part of a large family has its advantages and disadvantages. The good side is that you can leverage various resources from family members, many of which are difficult for ordinary people to access and often come with favorable conditions; but the downside is that once you achieve success, the outside world often does not take it seriously, believing that your achievements come from unfair advantages due to family connections.
In the corporate world, ECARX Technology Holdings Co., Ltd. (ECX.US) is such an example. Despite its impressive performance in the smart automotive digital cockpit business, the company's valuation multiples are significantly lower than many peers, which seems to reflect a &#34;family discount,&#34; related to its control by Geely Auto (0175.HK), one of the most successful private automotive companies in China.
This skeptical attitude from investors was again evident on Thursday. In the face of news about a potentially significant acquisition, the market reacted lukewarmly. The stock price initially opened slightly higher after the announcement, peaking at a 4.2% increase during the day, but as investors further scrutinized the deal, which, if successful, would essentially be an internal asset adjustment within the Geely system, the stock ultimately closed down 1.8%.
ECARX stated that the board has approved a preliminary plan to advance a potential transaction to acquire a minority stake in the Singapore company DreamSmart Technology. The company noted that DreamSmart is its affiliated company, and its investment focus is on the latter's FlyMe operating system (OS). If the transaction is realized, ECARX may use both cash and shares as consideration, but specific amounts have not been disclosed.
One of DreamSmart's main assets is Meizu, a well-known brand in the Chinese tech circle for older users, which originally started with MP3 players and later entered the smartphone market, receiving decent reviews at one point. In 2015, Alibaba invested $590 million in Meizu (the shareholding ratio was not disclosed), coinciding with the e-commerce giant's large-scale acquisition spree, which pushed Meizu's valuation beyond $1 billion.
However, the situation has changed significantly since then, with the most obvious change being the gradual decline in Meizu's influence as a mainstream smartphone brand. In 2022, Geely acquired approximately 80% of Meizu's equity and incorporated it into the DreamSmart system. According to Bloomberg, DreamSmart had hired an investment bank in 2024 to plan for an IPO, with an estimated valuation of around $2 billion at that time. Although the IPO has not yet materialized, based on this valuation, if ECARX wants to acquire a significant minority stake, it may need to pay at least $200 million to $300 million
This may explain why Yikatong disclosed in February this year that it was close to completing a $200 million financing round. Unsurprisingly, Geely is one of the investors in this round, with another investor being the New York investment firm ATW Partners. For Yikatong, this funding is indeed necessary, as the company's cash and short-term investments were only about $125 million at the end of last year.
<h4>Underappreciated</h4>
Although the investment in DreamSmart may bring Yikatong an important new partnership, this deal is essentially just a move within the Geely system, weakening market expectations for its potential benefits. The main motivation for Yikatong to push this deal seems to be DreamSmart's FlyMe operating system, which can connect Meizu smartphones, smart glasses, and smart cars.
This means that in the future, Yikatong can utilize this system to assist its main clients, namely car manufacturers, in integrating the interoperability features of smartphones and smart glasses into in-car products. In the fiercely competitive field of smart automotive technology, this is undoubtedly an important differentiating selling point. From an investor's perspective, Yikatong also has another advantage, as the company achieved profitability for the first time in the third quarter of last year and continued to show profitability in the fourth quarter.
However, the company's stock price has fallen by more than one-third this year, with most of the decline occurring after the latest quarterly results were announced in February. At the current level, its price-to-sales ratio (P/S) is only about 0.5 times, significantly lower than almost all of its peers, such as Youjia Innovation (2431.HK) at about 4.3 times, and Mobileye (MBLY.US) at about 3.2 times, which typically enjoy higher valuations due to their greater growth potential.
Currently, most of Yikatong's revenue still comes from internal clients within the Geely system, including overseas brands Volvo, Polestar, and Lotus, as well as Geely, ZEEKR, and Lynk &amp; Co in the Chinese market. These brands contributed nearly $850 million in revenue to Yikatong last year, a year-on-year increase of 10%; among them, the core smart cockpit business grew by 27%, accounting for over 80% of total revenue.
As the business gradually stabilizes, the company's revenue growth showed signs of acceleration at the end of last year. In addition, analysts hold high expectations for the company's prospects this year, predicting that its revenue will exceed $1 billion, reaching $1.15 billion, a year-on-year growth of 33%.
The biggest catalyst driving this growth comes from the German automaker Volkswagen, which is currently one of the few major global brands that has not yet established a connection with the Geely system but has begun to adopt Yikatong's products. Yikatong previously disclosed that this cooperation will ultimately lead to its products being applied to &#34;a considerable number of models&#34; under the Skoda and Volkswagen brands, with the initial markets being India and Brazil. However, the company recently only mentioned the Latin American market, indicating that the original plan for India may be temporarily shelved.
UBS previously stated that the cooperation with Volkswagen could start contributing substantial revenue as early as last year, but reports have indicated that a more likely timeline is 2027. At the same time, Yikatong also stated that the latest $200 million financing will be partially used to establish R&amp;D and engineering centers in Germany and to build infrastructure in major growth markets such as South America and Southeast Asia, with the overall layout clearly closely related to the cooperation with Volkswagen
Overall, these factors are all positive, including the potential investment in DreamSmart, which is expected to further strengthen the differentiated competitiveness of Yikatong products. If the company can continue to reduce its reliance on the Geely system in the future and prove its ability to develop independently, its stock price may also have certain upside potential

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Yikatong Technology is considering acquiring a stake in DreamSmart, and the board has authorized the advancement of a potential transaction, planning to purchase a minority stake. DreamSmart's core assets include operating systems for smart cars, smart glasses, and smartphones. Although Yikatong's digital cockpit business has performed well, the market reacted lukewarmly to the acquisition news, with the stock opening slightly higher after the announcement but ultimately closing down 1.8%. If the transaction is finalized, Yikatong may use cash and shares as consideration, with specific amounts yet to be disclosed

- Intelligent automotive technology company ECX is considering a minority stake in DreamSmart, which includes a connected operating system for smart cars, glasses, and smartphones.  
- The board has authorized the potential transaction with DreamSmart, primarily known for its Meizu phone brand, but market reaction has been muted due to concerns over internal asset restructuring within Geely Holdings, ECX's parent company.  
- Despite achieving profitability and anticipated revenue growth in 2026, ECX's stock has declined significantly, largely due to its dependency on Geely and perceived market undervaluation compared to peers.

Yikatong plans to invest in DreamSmart, further integrating the Geely system