Incident Overview
In 2022, the company achieved operating income of 5.653 billion yuan, down 1.16% from the previous year; the net profit of the mother was 407 million yuan, which turned the previous loss into profit and increased sharply by 161.58%, after deducting the net profit of the non-return mother of 59 million yuan, the first correction since 2019.
Analytical judgment:
The company's management strategy, which mainly operates in dedicated communications business, grew steadily and gross margin rose steadily, and the company's management strategy began to bear fruit. After deducting net profit from non-return to the mother, the company actively strengthened traditional narrowband business under an active market strategy. At the same time, it accelerated growth businesses such as public-private integration, 4G/5G broadband, and intelligent regulation, in an effort to turn the company's performance into a profit. Among them, ① excluding the impact of the sale of Sepura, the dedicated communication business under the same caliber increased 16.77% year on year; ② the gross margin of the main business increased steadily; ③ refined management was promoted, operating expenses were effectively controlled, and the cost ratio for the period decreased significantly year-on-year; ④ the balance ratio decreased significantly, interest expenses decreased year-on-year, and exchange rate fluctuations brought about a certain amount of exchange income; ⑤ completed the sale of shares of the subsidiary Sepura, receiving 287 million yuan in investment income.
Looking at each industry, (1) the competitiveness of dedicated communication business products has been further consolidated, and gross margin has steadily increased. Revenue was achieved of 4.709 billion yuan, up 4.40% year on year, gross profit margin was 52.21%, up 2.58 pct year on year. Among them, gross margins of terminal and system products increased 3.77/2.32pct year on year, respectively.
(2) Revenue from OEM and other businesses shrank. Achieved revenue of 944 million yuan, a year-on-year decrease of 21.91%, gross profit margin of 19.34%, an increase of 0.92pct over the previous year.
Consolidate narrowband business and promote growth and exploratory businesses around the “2+3+1" business strategy
According to OMDIA's forecast, the growth rate of global narrowband digital terminal shipments will maintain a CAGR of around 7% by 2025. We believe that as the world's leading provider of dedicated communications and solutions, the company is expected to achieve growth higher than the average growth rate of the industry through active market strategies and continue to consolidate and increase the market share of traditional narrowband businesses.
In growth businesses such as public-school integration, the company has made key progress during the reporting period by setting up a growth business BU to increase special incentives and actively promote business development. In terms of public-private integration, we have collaborated with industry customers and more than 20 operators around the world to build more than 300 public-private integration platforms, formed more than 100 industry application cases, and won awards such as “Best Application Case in Transportation” in the 2022 World Key Communications Awards (ICCA). In terms of command and dispatch, we focus on advantageous areas and focus on building integrated command and dispatch projects that rely on AI and big data analysis to provide customers with a new generation of integrated command center solutions. In terms of 4G/5G broadband, the 4G DU board helped partners win bids for operator collection projects and became the mainstream solution for domestic open architecture dual-mode base stations. The next-generation 340M video transmission project based on 5G technology was successfully commercialized in the field of public safety, and made breakthroughs in mining, metallurgy, industry and other fields.
Refined development, increased profit levels, and continuous optimization of the asset structure on the cost side. The overall expense ratio in 2022 was 43.45%, down 9.24pct from the previous year. The sales/management/finance/R&D expenses ratio was 13.99%/11.25%/1.53%/16.69%, a year-on-year change of -1.11/-2.35/-4.31/-1.46 pct. Among them, with the exception of the subsidiary Sepure, which was affected by the post-merger decline, the company's marketing expenses, legal expenses, and consulting service expenses were all reduced. The financial expense ratio is due to reduced interest-bearing liabilities, lower interest expenses, and increased exchange earnings.
On the asset side and cash flow, net cash flow from operating activities in 2022 was 623 million yuan, a year-on-year decrease of 11.47%; the main reason was the disposal of the subsidiary Sepura and the reduction in the scope of the merger. The company strengthened customer credit management and collection, and maintained a high level of net operating cash flow for many years, maintaining a good trend. The balance ratio declined significantly, from 55.47% last year to 44.73%, and interest expenses decreased year-on-year.
Strengthen channel construction and strengthen digital marketing
The company promotes changes in the marketing system to drive the continuous expansion of global business. China is stepping up efforts to build dealer channels and expand industry partners. There are more than 90 branches overseas, and the sales and service network covers more than 120 countries and regions around the world. The company has provided dedicated communication networks for public safety, government emergency response, transportation, energy, industry and commerce in many countries. According to the company's annual report, the company signed relevant procurement projects or agreements with Canada, Mexico, Kazakhstan, etc. during the reporting period. The company has comprehensively expanded channels and industry partners, held partner summits in many countries and regions such as the Middle East, Europe, America, etc., and released global channel partner recruitment plans.
Furthermore, the company continues to promote digital marketing, establish extensive, real-time and efficient online connections with customers in many countries around the world, empower partners through digital means, and create a one-stop service platform. At the same time, the “Hynengda Online Mall” was launched domestically, covering more small and medium-sized channels and continuing to strengthen its position in the industry.
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 drive improvements in the company's fundamentals. According to the adjusted profit forecast, revenue for 2023-2025 is expected to be 77.3/89.5/N/A, adjusted to 65.1/75.3/87.0 billion yuan respectively, and earnings per share adjusted from 0.22/0.26/N/A to 0.23/0.29/0.37 yuan respectively. Corresponding to the closing price of 6.74 yuan/share on March 31, 2023, PE was 29.9/23.3/18.4 times, respectively, maintaining the “increase” rating.
Risk warning
The risk of exchange rate fluctuations, the risk of increased competition in the dedicated communications industry, the risk of overseas litigation, the risk of rising supply chain costs or shortages, systemic risks.