Revenue and profit increased steadily throughout 2022; maintaining market leadership Starnet Ruijie released its 2022 annual report. The company's revenue for 2022 was 15.741 billion yuan (YOY: 16.18%); net profit of the mother was 576 million yuan (YOY: 6.37%); net profit after deducting non-return to the mother was 515 million yuan (YOY: 5.80%). 4Q22 achieved revenue of 4.921 billion yuan in a single quarter (YOY: 12.94%), achieving net profit of 25 million yuan (YOY: -61.2%). The decline in profit in the fourth quarter was mainly due to the company's increased R&D investment to promote product performance improvement. The company's total R&D investment in 2022 was 2,494 billion yuan, accounting for 15.85% of the company's operating income for that year. We expect the company's net profit of 7.57/9.85/1,183 million yuan in 2023-2025. Comparable with the company's Wind 23, the average PE value expected to be 24.18x. Considering that the profitability of the industry may fluctuate under the white-boxing trend, the company was given 22xPE in '23 with a corresponding target price of 28.08 yuan (previous value: 28.82 yuan), maintaining the “increase in holdings” rating.
The network equipment business share remained leading; in terms of the rapid growth in communication product revenue by business segment, enterprise-grade network equipment achieved revenue of 10.443 billion yuan in 2022, an increase of 19.82% over the previous year. Mainly due to the trend of white-boxing and innovation localization, Ruijie's network market share gradually increased.
In 2022, the subsidiary Ruijie Network achieved revenue of 11.326 billion dollars, an increase of 23.26% over the previous year. According to IDC, in 2022, Ruijie Network had the highest share of enterprise-grade WLAN market in the domestic education/internet/service industry, and the highest revenue growth rate in the domestic manufacturing/internet/government industry data center switch market.
Communications product revenue in 2022 increased 25.09% year-on-year to 2.182 billion yuan, mainly benefiting from the acceleration of operators' dual-gigabit network construction; in 2022, network terminal revenue fell 20.44% year-on-year to 918 million yuan, mainly due to delays in customer demand or bidding in some industries under the influence of the epidemic in the first half of the year.
Comprehensive gross margin has steadily increased, and investment in R&D has increased
In 2022, the company's comprehensive gross margin was 36.58%, an increase of 2.48pct over the previous year. We think that the company's continuous breakthrough in the high-end operator market brought about optimization of the shipment structure and the easing of tight supply of upstream raw materials. In terms of expenses, the 2022 company's sales expenses rate/ R&D expenses rate/ management expenses ratio were 13.84%/15.73%/4.21% respectively. Among them, the sales rate remained unchanged year over year, and the R&D expense rate/management expense ratio increased 2.78/0.67 pct year on year, and R&D investment increased by 2.78/0.67 pct respectively. Furthermore, the company's financial expenses in 2022 were -37 million yuan, mainly benefiting from exchange gains from the increase in the exchange rate of the US dollar against the RMB.
Maintain an “increase in holdings” rating
As a leading manufacturer in the field of cloud infrastructure in China, the company is expected to continue to benefit from the domestic cloud infrastructure construction process. Considering the impact of increased R&D investment on the profit side, we expect the company's net profit of 7.57/995/1,183 billion yuan in 2023-2025 (previous value: 9.33/1,111 million yuan). Comparable to the company's Wind 23, the average PE value expected to be 24.18x. Considering that industry profitability may fluctuate under the white-boxing trend, the company was given 22x PE for 23, corresponding to the target price of 28.08 yuan (previous value: 28.82 yuan), maintaining the “increase in holdings” rating.
Risk warning: repeated epidemics; demand for data centers is lower than expected; demand for Xinchuang falls short of expectations.