Event Overview: On March 31, 2023, the company released its 2022 annual report. It achieved revenue of 11.326 billion yuan in 2022, an increase of 23.26% over the previous year, achieved net profit of 550 million yuan, an increase of 20.14% over the previous year, and achieved net profit of 494 million yuan after deducting net profit of non-homogenous mothers, an increase of 20.76% over the previous quarter; Q4 achieved operating income of 3,819 million yuan in a single quarter, an increase of 28.00% over the previous quarter, achieving net profit of 359.361 million yuan, a decrease of 85.81% over the previous month, achieving net profit of non-homogenous mothers RMB 21.594 million, a decrease of 90.82% over the previous month.
The growth rate of network equipment revenue far exceeds the industry average, and data center switches continue to lead the way.
Facing the challenges of the complex and changing external economic environment in 2022, the company grasped the opportunities of the digital economy and the implementation of the country's new infrastructure strategy. The number of orders increased dramatically, and the company's product sales increased by 58.81% year-on-year in 2022.
By business, the company's main product, network equipment, revenue was 8.475 billion yuan, accounting for 74.83% of revenue, up 28.29% year on year, CAGR from 2020 to 2022 was 31.45%, far higher than the industry growth rate of 8.2%; network security products achieved revenue of 866 million yuan, an increase of 22.96% over the previous year; cloud desktop solutions achieved revenue of 737 million yuan, a decrease of 34.24% over the previous year, mainly due to the impact of the epidemic in '22, downstream customer demand was suppressed.
According to IDC 2022 Q4 statistics, the company's data center switch market share continued to increase, from 8.6% in 2019 to 16.8% in 2022, with the company's 200G/400G data center switch market share reaching 58.4% in 2022.
Gross margin continues to rise, and many technological breakthroughs have been achieved by increasing investment in R&D.
In 2022, the company's comprehensive gross margin was 39.66%, an increase of 2.21pct over the previous year. Mainly because the gross margin of network equipment products was as high as 43.25%, an increase of 3.41 pct over last year. The company's net profit margin declined slightly, from 4.98% to 0.12pct to 4.86%, mainly due to rising expense ratios. The total sales, management, and R&D expenses of the company increased by 33.35% year on year. The cost rate for the period increased by 2.87 pct over the same period. Among them, the management expenses rate increased by 0.55 pct and the R&D expenses ratio increased by 2.90 pct, mainly due to the company's business expansion and R&D investment. In 2022, the company continued to launch major programs in various business fields, and many technologies were iterated at an accelerated pace. In the field of network equipment, a simplified Ethernet full optical 2.X solution was launched for campus networks, and an all-optical wireless starry sky solution was launched for wireless networks. The cumulative number of registered users of the cloud platform created in the SMB product area exceeded 1.9 million, and the number of devices connected to the cloud exceeded 18 million; in the field of network security, a new secure cloud platform was released; in the field of cloud desktop, a unified workspace UWS was released to enhance the solution's user experience and competitiveness.
Investment advice: Optimistic about digital economic development opportunities, the company can closely follow market trends and have channel and product advantages. We expect the company's net profit to the mother in 2023-2025 to be 789/1010/1,179 million yuan respectively. The PE multiplier corresponding to the current market value is 42x/33x/28x. Maintain a “Recommended” rating.
Risk warning: demand in the downstream market falls short of expectations; market competition intensifies; some raw materials depend on imports.