DD Format borrowed from this post. Even though that stock did not age well, I thought the DD post format was great.

Here's my take on

Cepton (GCAC)

with the conclusion that they are flying under the radar at the moment and this is quite an opportunity to invest.

Topics to be Discussed:

Overview
Leadership
Board of Directors
Products, Services, and Technology
Partnerships and Customers
Competition
SPAC Transaction Overview
Financials and Fundamentals
Forward-Looking Statements and Speculation
Bear Case
Notes and resources for further DD
Conclusion

Overview

Cepton provides state-of-the-art, intelligent, lidar-based solutions for a range of markets such as automotive (ADAS/AV), smart cities, smart spaces, and smart industrial applications. Cepton’s patented MMT®-based lidar technology enables reliable, scalable, and cost-effective solutions that deliver long range, high resolution 3D perception for smart applications.

From the very start, Cepton has focused on the advanced driver assistance systems (ADAS) market. As disclosed in the S-4 filing, Cepton has the largest known lidar production award - GM selected Cepton as their lidar supplier for upcoming 2023-2027 cars featuring UltraCruise functionality. Cepton has designed a suite of lidars exceptionally attractive to original equipment manufacturers (OEMs) like GM, Ford, and all other top 10 OEMs by being:

automotive grade
small form factor & best-in-class performance
ultra competitive price (tech advantage)
partnership with tier 1 supplier (mass production)

Founded in April 2016 and led by industry veterans with over two decades of collective experience across a wide range of advanced lidar and imaging technologies, Cepton is focused on the mass market commercialization of high performance, high quality lidar solutions. Cepton is headquartered in San Jose, California, USA, with a presence in Germany, Canada, Japan and India, to serve a fast-growing global customer base.

Cepton is going public via a SPAC merger ticker GCAC. A press statement released on August 5th, 2021 suggests that the merger is "expected to close in the Q4 2021". The S-4 was filed September 8th, 2021, and is available here.

Investors:

Koito Manufacturing, LDV Partners, GRC SinoGreen, Plug and Play Tech Center

Leadership

Jun Pei, CEO, from Velodyne, Ph.D. in Electrical Engineering from Stanford
Mark McCord, CTO, from KLA-Tencor, Ph.D. in Electrical Engineering from Stanford
Winston Fu, CFO, from LDV Partners, Ph.D. in Applied Physics from Stanford, MBA from Kellogg
T.R. Ramachandran, CMO, from Velodyne, Ph.D. in Material Science from USC
Balaji Ekambaram, Sr. Marketing Director from Velodyne
Klaus Wagner, Marketing Director, from Innoviz
Dongyi Liao, Sr. VP Applications, Ph.D., from NVIDIA
Hull Xu, VP Finance, from Royal Bank of Canada, Agilent Technologies
Liqun Han, Sr. VP Operations, from KLA-Tencor

Interestingly there is a very high amount of Ph.D.'s in Cepton's leadership. Also, there are strong backgrounds for all leadership, including experience at relevant competitors like Velodyne & Innoviz.

Board of Directors

Jun Pei, Chairman, from Velodyne, optics and lidar specialist
Mark McCord, from KLA-Tencor
Winston Fu, from LDV Partners
Takayuki Katsuda, from Koito, Lexus
Liqun Han, from KLA-Tencor
Dongyi Liao, from NVIDIA
Jinying (Jenny) Chen, from Deloitte, PWC, GenapSys
Jun Ye, from Founton (now Alibaba)
Xiaogang (Jason) Zhang, from CFT Capital
George Syllantavos, from GCAC, ITHX, PHUN, STLR

Notable mention: Takayuki Katsuda is the managing corporate officer of Koito since 2016 & the Chief Engineer, Product Planning at Lexus from 2007 to 2016.

Products, Services, and Technology

Cepton offers a diverse portfolio of lidars covering the needs of the automotive and other smart industry spaces:

Auto-Grade Lidar

Vista X:

Used for ADAS L2+/L3, AV L4+, Smart Infrastructure
Price: <$500
Range: 200m
Notes: high resolution + range, compact, low power, competitive cost
Specs here

Vista T:

Used for ADAS L2+/L3, AV L4+
Price: <$500
Range: 300m
Notes: high resolution + range, embeddable, low power, competitive cost

Nova:

Used for automated parking, ADAS L2+/L3, AV L4+, Smart Infrastructure
Price: <$100
Range: 30m
Notes: small wide field of view lidar, easy to hide/embed, ultra-low power, unbeatable cost
Specs here

Industrial Grade Lidar

Vista P / Sora P:

Used for ADAS development, Low-speed AV L4+, Smart Infrastructure
Price: <$1000
Range: 200m
Notes: Good resolution/range, compact, low power, cost-effective
Sora-p specs
Vista-p specs

Smart Infra Lidar

Helius:

Used for Smart Infrastructure, anonymized data, 3d object detection, classification, tracking
Specs here

Patents

I haven't had the time to dig through them, but a quick search on google patents got me this list)

Partnerships and Customers

Partners:

Key partnership with tier 1 supplier Koito. Koitio is the global #1 supplier of headlamps and will be critical to integrating lidar solutions into the headlamp as well as mass production.

Customers:

Key lidar production awarded by GM (top 5 global OEM), 2023-2027 cars Source
Ford partnership on smart cities & ADAS features
Ongoing engagements with ALL top 10 OEMs Source

Competition

Innoviz, Microvision, Velodyne, Aeva, Ouster, Aeye, Luminar

Cepton has a huge leg up on its competitors by having the largest production award (GM) as well as partnership with a key tier 1 supplier (Koito). According to both Cepton's investor presentation and S-4 filing, these things take considerable time (2+ years) & have incredible competition (at least 30 lidars considered for GM production award). No other lidar company expects deployment on a significant number of vehicle models (especially non-luxury) anytime in the near future.

Microvision (MVIS) has completed their prototype lidar in April 2021. Cepton finished their prototype in 2017, and is currently fine tuning the mass production process. Futhermore, Microvision recently claimed that they would win the markets by being cheap and selling their lidars for an AVERAGE of less than $1000. Cepton lidars are < $500 with the Nova lidar being < $100. Needless to say, Cepton is not concerned with competition from Microvision at the moment.

Another interesting fact I noticed: many Velodyne and Innoviz leaders have left and decided to join Cepton.

SPAC Transaction Overview

Transaction reflects a ~$1.5Bn value for Cepton
Ownership: 85% Cepton shareholders, 12% SPAC IPO & founder shares, 3% PIPE investors
$58.5mm PIPE raised
$1.774 bn pro forma equity value
$1.549 bn pro forma enterprise value
- 1.8x 2025E revenue of $861mm
- 4.6x 2025E Adj. EBITDA of $339mm
$225mm pro forma cash (includes Cepton's $34mm cash position)
The transaction has been unanimously approved by the Boards of Directors of both Cepton and Growth Capital Acquisition Corp.
Expected to close "Q4 2021"
Form 8-K

Financials

All data derived from SEC forms and the investor presentation.

2025E EBITDA: 39%
2026E Free Cash Flow: $389MM
'21E-'26E CAGR: 207% (Peer median 153%)
'25E-'26E Adj. Gross Margin: 51-53% (Peer median 56%)
'25E-'26E EBITDA Margin: 39%-44% (Peer mediuan 31%)
'25E Valuation: 1.8x (Peer median 2.1x)
'26E Valuation: 1.3x (Peer median 2.1x)

As of writing this, GCAC is trading at $9.89, below the theoretical floor of $10 for SPACs.

Bear Cases

The merger falls apart. This seems quite unlikely as both Cepton and GCAC have experienced leadership & backgrounds.

Cepton's deal with GM falls through. While again this is theoretically possible, the chances seem very small based on the investor presentation & S-4 filing. Cepton had been in talks with GM for years before the announcement, and GM went through an extensive selection process of over 40 other lidar companies. Furthermore, Cepton is already partnered and supported by Koito, a Tier 1 supplier already approved and supplying parts for GM vehicles.

The AV market is a bust. Cepton is currently focused on mass-market Lidar serving ADAS, which is a very real & growing market. While it is true that currently the lidar market is pretty saturated, there is definitely an addressable market for ADAS in vehicles in the next 5 years. Cepton's ability to actually land the largest known Lidar production deal is nothing to scoff at.

Notes and resources

I urge everyone to do their own research & DD.

Here's a list of resources to start with:

Conclusion

Cepton has strong fundamentals, landed impressive deals and partnerships, and is positioned to be a breakout leader in the lidar market. ADAS (safety & assist) is not as sexy as AV (self driving), but there is a clear market for it TODAY, and Cepton has already taken the first step with the landmark deal to supply lidar for multiple GM cars.

As of writing this post, GCAC is trading at $9.89, and is a relatively low-risk investment as SPAC's typically have a $10 floor due to the ability to redeem the stock at closing of the merger for $10.

While the lidar & SPAC markets are not so hot at the moment, I still see Cepton as undervalued at the moment, and the situation as a great low-downside investment opportunity. If Cepton succeeds with its engagements with all top 10 OEM's, then this current price would be one hell of a steal.

Game plan

I bought & plan to hold shares for several years.

You can also just play the merger - buy now, then hold until the merger date & decide then whether to keep or sell.

Buy shares, GCAC will change to CPTN after the merger. Shares will be 1:1
Warrants, GCACW, if you're not familiar how warrants work they are essentially call options with a fixed strike price of $11.50
Options trading - buying calls & selling puts

TL;DR:

Cepton quietly landed massive deals & partnerships, and is positioned to be a breakout lidar company. Currently GCAC is trading at <$10, which is usually the floor for SPACs. This seems like a fairly low-risk low-downside investment, with great upsides at the moment since awareness of Cepton is so low.

You could also check out their investor presentation.

Disclaimer: I am not a financial advisor, nothing I ever say or do is a financial recommendation. Any words urging someone to do something is only going as far as suggesting they do their own DD, it is in no way an attempt to convince anyone to make any financial decisions.

Submitted September 20, 2021 at 11:02AM by samkxu https://ift.tt/3lLC0kh

Frugal Tip

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