Events:

The company issues the annual report of 2021 and the quarterly report of 2022. In 2021, the company achieved revenue of 3.601 billion yuan, an increase of 49.57% over the same period last year, and its net profit was 244 million yuan, an increase of 15.74% over the same period last year. In the first quarter of 2022, the company achieved revenue of 1.287 billion yuan, an increase of 103.60% over the same period last year, and a net profit of 113 million yuan, an increase of 40.10% over the same period last year.

At the same time, the company has recently announced a number of important orders:

1) on April 19, China Mobile Hubei signed a 2022 procurement framework contract for WiFi-free intelligent gateways with a contract amount of 62.4031 million yuan.

2) on April 18, China Mobile Limited signed a framework agreement for emergency collection of intelligent home gateways from 2022 to 2023, with a contract amount of about 653 million yuan including tax.

3) winning bid on April 14, China Mobile Limited 22-23 collection of 444 antennas and single 4 antennas (including 700m), with a winning bid share of 7.25%, with a tax amount of about 1.04-116 million yuan; 4) winning bid China Mobile Limited 2022 base station antenna project on April 13, the total amount of tax included in the two bid packages is about 46.1075 million yuan.

5) on April 12, we signed a 2022 framework contract with China Mobile for the procurement of intelligent set-top boxes, with a maximum amount of 135 million yuan including tax.

6) on April 11, he signed a contract with China Mobile Limited Terminal Company for specific models such as WiFi6 Gigabit dual-band routers, with a total tax limit of 273 million yuan.

Our comments are as follows:

Driven by the digital economy and gigabit broadband policy, Shenzhen Zhaoneng orders continue to fall to the ground, a strong driving force for growth.

Reading business grows steadily, layout meta-universe, and open up more room for growth.

The sustained and rapid growth of the company's revenue comes from: 1) the 21-year income of smart home business and 5G communications business is 2.661 billion yuan, an increase of nearly 70 percent over the same period last year. The company ploughs deeply into the operator market, continues to expand its products, continues to increase its market share, and has won a number of contracts for large-scale collection of smart homes and base station antennas, resulting in strong long-term growth. 2) the 21-year revenue of Mobile Reading is 938 million yuan, an increase of 12.82% over the same period last year. The company continues to improve the quality and quantity of copyrighted content, with its own original reading platform + CPS mode, and the double expansion of content and channels to promote the steady growth of the reading business; 3) the company's massive digital copyright resources, combined with channel advantages, cut into meta-universe from the field of operators, and reached strategic cooperation with China Mobile Limited and China Unicom to focus on layout in the field of virtual digital human, opening up more long-term growth space.

Gross profit margin fluctuates slightly, and the overall profitability is expected to be further optimized in the future.

In 21 years, the company's overall gross profit margin was 14.96%, down 5.54% from the same period last year, including 27.46% for reading business, down 10.30% from the same period last year, and 10.56% for smart home business and 5G communications business, down 0.83% from the same period last year. The fluctuation of the overall raw material cost in 2021 has a certain impact on the short-term gross profit margin of smart families and 5G communication business, and the cost input such as reading business, Internet channel promotion and so on increases rapidly, which has a certain impact on the gross profit margin. The company's overall gross profit margin in the first quarter of 2022 was 14.55%, a significant increase of 5.38 percentage points from the previous quarter. As the company continues to reduce costs and increase efficiency, and the volume of reading business revenue continues to grow, the overall gross profit margin is expected to continue to improve. In terms of expense rate, the overall expense rate of the company in 21 years was 5.77%, down 1.48% from the same period last year, and the 22Q1 expense rate was 3.52%, down 3.06% from the same period last year. With the rapid growth of the company's revenue, the scale effect is expected to continue to appear, and the company's overall profitability is expected to continue to strengthen.

Investment advice and profit forecast

The company's mobile reading has a deep accumulation, further development to meta-universe, and is expected to grow steadily in the future. The layout of the communications sector has continued to improve, with the subsidiary Shenzhen Zhaoneng actively laying out smart families and the 5G communications market, and driven by policies such as the digital economy and gigabit broadband, the company has signed a multi-band (including 700m) antenna framework contract with China Mobile to substantially cut into the 5G equipment market and open up room for future growth.

It is estimated that the company's net profit from 2022 to 2024 will be 4.3,5.3 and 650 million yuan respectively, corresponding to 12 times and 10 times of price-to-earnings ratio for 22-23 years.

Risk hint: the development of the industry is lower than expected, the risk of market competition, the actual winning situation and amount of the framework and pre-winning contract are subject to the final contract.