1H22 performance is in line with our expectations
Star net Ruijie announced its mid-2022 report: 1H22 achieved an operating income of 6.696 billion yuan, an increase of 26.65% over the same period last year. From a regional point of view, the company's overseas income increased by 67.41% to 987 million yuan, mainly due to the rapid growth in the export of network equipment and communication products. 1H22 achieved a net profit of 312 million yuan, an increase of 25.44% over the same period last year, while deducting non-net profit of 286 million yuan, an increase of 40.34% over the same period last year, in line with our expectations. Corresponding to the single quarter of 2Q22, the company's operating income increased by 11.22% year-on-year to 3.745 billion yuan, an increase of 26.93% compared with the same period last year; the return net profit was 194 million yuan, down 8.20% from the same period last year, mainly due to the increase in management expenses and R & D investment to match the growth of the company's operating scale; non-net profit increased by 0.24% to 189 million yuan over the same period last year.
Trend of development
Enterprise-class network equipment to achieve rapid growth, the industry leading position is solid. The revenue of 1H22's enterprise-grade network equipment reached 4.066 billion yuan, an increase of 25.25% over the same period last year, and the gross profit margin increased by 1.57ppt to 40.75% over the same period last year. Specific to the subsidiary Ruijie Network, Ruijie Network achieved revenue of 4.52 billion yuan during the reporting period, an increase of 34.2% over the same period last year. According to IDC data, 1Q22 Ruijie data center switch ranks first in the industry in terms of revenue growth in manufacturing and government industries, and enterprise-level WLAN products continue to maintain the leading position of market share in the education, Internet and service industries, demonstrating the high trust and satisfaction of the company's products among government and enterprise customers. We believe that the company is expected to continue to benefit from the digital transformation of government and enterprises.
Benefiting from the "double gigabit" strategic deployment, the growth rate of smart communication products is eye-catching. 1H22's communications products business achieved revenue of 1.189 billion yuan, an increase of 59.49 percent over the same period last year, accounting for 17.76 percent of total revenue, mainly due to the comprehensive deployment of the "double gigabit" network to pull up the demand for operators' communications products; gross profit margin fell 2.1ppt to 20.7 percent over the same period last year. Specific to the subsidiary Star Network Wisdom, 1H22 realized revenue of 860 million yuan, an increase of 115.4% over the same period last year. As the core business unit of Star net Ruijie for smart communications, Star net Wisdom is committed to promoting the optimization and upgrading of smart technology industry, focusing on various industry application scenarios such as smart park, smart campus, smart hotel, smart office, etc., in-depth mining of user needs, to provide customers with a variety of smart solutions, with strong customer stickiness.
Focus on research and development to build the company's sustainable competitive advantage, actively prepare goods to cope with supply chain fluctuations. The company always adheres to the innovation-driven development strategy and continues to increase R & D investment to promote product iteration. 1H22's R & D expenses increased by 37.58% year-on-year, accounting for 13.8% of revenue. In addition, in order to deal with the shortage of core raw materials such as chips, the company increased its strategic stock of raw materials and broadened its procurement channels. 1H22's inventory increased by 33.91% compared with the end of last year.
Profit forecast and valuation
We basically keep our 2022 Universe profit forecast unchanged in 2023. The current share price corresponds to a price-to-earnings ratio of 15.0 times 2023 / 11.4 times 2023. Maintain an outperform industry rating and a list price of 28.90 yuan, corresponding to 20.9 times 2022 price-to-earnings ratio and 15.9 times 2023 price-to-earnings ratio, which has 39.5% upside space compared with the current stock price.
Risk.
The procurement of domestic telecom and Datong market is not as expected; the recovery of customer demand in government and enterprise industries is not as expected.