Event Overview
The company released its performance forecast for the first three quarters. It is expected to achieve net profit of 3-4 billion yuan, turning the previous year's loss into profit and achieving a large profit. Among them, the third quarter is expected to achieve net profit of 289-389 million yuan in a single quarter, an increase of more than 30 times over the previous year.
Excluding the profit brought by the sale subsidiary Sepura and the profit contribution from the transfer, the company's non-net profit deducted in the first three quarters increased sharply by 218-268 million yuan compared to the same period last year.
Analytical judgment:
The reason for the improvement in performance is mainly due to the continued implementation of the overall goal of “striving for growth and efficiency”: channel construction and industry partner development have achieved remarkable results, next-generation digital products have been comprehensively replaced, and growth businesses have maintained a good development trend; continuous promotion of fine management, steady increase in gross margin, a year-on-year decline in operating expenses, and a significant reduction in interest-bearing debt has led to a reduction in interest expenses.
The overseas epidemic has abated, and demand for private network digital cluster terminals has gradually recovered. According to research firm Omdia's report, global dedicated communication digital cluster terminal shipments began to recover about 7% growth in 2021 after experiencing a decline caused by the epidemic in 2020. Since this year, with the resumption of overseas travel, the gradual normal development of business activities, and the further improvement of channel construction and coverage, the company's main business has maintained a steady growth trend.
At the Global Key Communications Exhibition (CCW), with continuously innovative products and industry solutions, the company received 14 nominations in the “2022 World Key Communications Awards (ICCA)” selection in the field of dedicated communications, and finally won five awards, covering one-third of the awards. The nominations and awards covered various products such as narrowband, broadband, 5G, public-private sector integration, etc., and covered various industry segments such as public safety, transportation, power and energy, mining, etc., making it the enterprise with the most nominations and awards in the industry.
Selling Cypress's shares, optimizing debt ratios to continuously relieve financial and financial pressure, focusing on new growth business directions, the 25th meeting of the fourth board of directors was held on July 13, 2022, and the “Proposal on Transfer of Shares in Subsidiaries” was reviewed and passed. It was agreed that the company would transfer 100% of its wholly-owned subsidiary Cypress's shares to SBL at a price of 159.5 million euros (about RMB 1,076 million). According to preliminary estimates, the transaction (including the restructuring that occurred as a result of this transaction) is expected to bring in pre-tax revenue of approximately RMB 290 million (the specific amount is subject to the audit results).
Proceeds from this transfer of Cypress's shares will all be used to repay the company's debts that have mature/are about to expire, comprehensively improve the company's liquidity. Interest-bearing liabilities are drastically reduced. It is expected that the balance ratio will fall below 50%. At the same time, high interest expenses will be reduced, which will help the company improve its resilience to risks and sustainable profitability.
Currently, the company is in a critical period of business transformation. Growing businesses such as public-private integration, 4/5G broadband, and command and dispatch have gradually become important pillars of the company's growth. The deal helps the company focus resources more on investing and promoting growth businesses.
Investment advice
Considering the company's continuous release of new orders and the gradual growth of domestic order business, continuing to be optimistic about the company's leading position in private networks, rising demand for domestic rail transit, 5G, public security networks, etc. is also expected to improve the company's fundamentals. Considering the stabilization of the company's business, the sale of Cypress's shares is expected to receive one-time pre-tax revenue of about 290 million yuan this year, maintaining profit forecasts. The estimated revenue for 2022-2024 will be 665/ 77.3/89.5 billion yuan respectively, and earnings per share will be 0.22/0.22/0.26 yuan respectively. Corresponding to the closing price of 4.78 yuan/share on October 14, 2022, PE was 21.7/21.5/18.3 times, respectively, maintaining the “increase” rating.
Risk warning
The sale of Cypress's shares has not yet been completed, and there is still uncertainty; overseas epidemics continue to recur and customer orders are not sustainable; the Sino-US technology war has led to instability in the company's supply chain; the patent dispute with Motorola requires large compensation, etc.
