Core views

The company released its report for the first quarter of 2023. The results for the first quarter remained stable, and net profit after deducting non-net profit grew rapidly, mainly because income tax expenses fell a lot compared to last year. In the face of a complex and changing external environment, the company's performance remained stable and performed well against the backdrop of a high base last year. With the rapid development of digital China and artificial intelligence, as a leading domestic ICT equipment manufacturer, the company's data center network equipment products are in a leading position in the industry. It is expected to seize the opportunities of technological change and achieve rapid growth in performance. The company's profitability has remained stable, and emphasis is placed on research and development to ensure future competitiveness. The company is in a leading position in many ICT equipment fields, and many new products are expected to seize the opportunities of the AI era.

occurrences

Recently, the company released its report for the first quarter of 2023. The company achieved operating income of 2.152 billion yuan, an increase of 6.37% over the previous year; the net profit of the mother was 119 million yuan, an increase of 7.43% over the previous year; after deducting non-net profit of 113 million yuan, an increase of 23.33% over the previous year.

Brief review

1. First-quarter results achieved steady growth, and after deducting non-net profit, increased rapidly.

In the first quarter of 2023, the company achieved operating income of 2,152 million yuan, an increase of 6.37% over the previous year; the net profit of the mother was 119 million yuan, an increase of 7.43% over the previous year; after deducting non-net profit of 113 million yuan, an increase of 23.33% over the previous year. The company's performance in the first quarter remained stable, and net profit after deducting it continued to grow rapidly, mainly because income tax expenses fell a lot compared to last year.

In the face of a complex and changing external environment, and against the backdrop of a high base in the first quarter of last year, the company's performance remained stable and performed well. With the rapid development of digital China and artificial intelligence, as a leading domestic ICT equipment manufacturer, the company's data center network equipment products are in a leading position in the industry. It is expected to seize the opportunity and achieve relatively rapid growth in performance.

2. Gross margin increased, R&D expenses increased dramatically, and profitability remained stable.

The gross margin of 2023Q1 company was 42.34%, up 4.27pct from the previous year; the net interest rate was 5.55%, an increase of 0.05pct over the previous year. The gross margin increased significantly. We expect it to be mainly due to changes in the company's revenue structure and increased product competitiveness. The 2023Q1 company's sales expenses ratio was 15.41%, up 0.19pct from the previous year; the management expense ratio was 5.11%, up 1.29pct from the previous year; the financial expenses ratio was 0.22%, down 0.13pct from the previous year; the R&D expenses ratio was 20.34%, up 3.49 pct from the previous year. The company continues to increase investment in R&D, mainly for research and development of data center high-speed switches, core routers, cloud solutions, etc., to consolidate the leading position of data center network equipment while ensuring the company's future competitiveness.

3. The company is in a leading position in many ICT equipment fields, and many new products are expected to seize the opportunities of the AI era.

With continuous R&D innovation and market development, the company remains at the forefront of the market in various fields such as switches, wireless products, and cloud desktops. In 2022, according to IDC data, the company ranked third in the Chinese Ethernet switch market, third in the data center switch market, third in the enterprise WLAN market, ranked first in the domestic shipment volume of WiFi-6 products, and ranked first in the domestic market for IDV cloud desktop computing.

At the 2023 Mobile Cloud Conference held recently, the company launched the latest 400G core +200G access data center switch, mobile cloud edge collaboration solution, small core networking for intelligent computing networks and a new DDC architecture, and NPO silicon optical switches to support the construction of new data centers and intelligent computing centers.

The company's main business revenue was divided by product. Network equipment revenue was 8.475 billion yuan, accounting for 74.83% of revenue, revenue from network security products was 866 million yuan, accounting for 7.65% of revenue, cloud desktop solution revenue was 737 million yuan, accounting for 6.51% of revenue. Network equipment, including switches and wireless products, is still the company's main product, and the company's market share is expected to continue to increase. As the company's leading product, cloud desktop is expected to consolidate its share advantage within the industry.

4. We recommend continuing to pay attention to the company and give it an “increase in holdings” rating.

The company is a leading ICT equipment manufacturer in China. Through continuous R&D investment and market development, it is expected to seize the technological transformation opportunities of digitalization and artificial intelligence, and its performance is expected to improve further. We expect the company's revenue for 2023-2025 to be 14.607 billion yuan, 18.643 billion yuan, and 23.543 billion yuan respectively, and net profit of 777 million yuan, 1,024 million yuan, and 1,248 million yuan respectively. The current market capitalization corresponds to PE 34X, 26X, and 21X, giving it an “increase in holdings” rating.

5. Risk warning: The company's products target operators and cloud vendors. If 5G, fixed network broadband and data center construction falls short of expectations, it will have an impact on the company's related business; the company's chip purchases in 2021 were 1.7 billion yuan, accounting for 25% of total purchases. If the industry lacks chips or changes in the international environment causes chip shortages, there is a certain impact on the delivery of the company's related products; changes in customer demand, product structure, raw material prices, etc. lead to a decline in gross margin; asset scale is relatively low; asset scale is relatively low; talent shortage, brain drain, rising employment costs; seasonal losses due to customer procurement cycles; Companies are highly dependent on tax incentives. If the income tax rate rises by 10 pct in 2022, net profit will drop by 8 pct; systemic risks brought about by the impact of the global pandemic, etc.