The company is a supplier of 5G core networks, access network software and hardware, and emergency dispatch private network systems. It has a global business layout and is growing rapidly. The global public network market has broad space for a long time. With its unique advantages of lightweight/customization and the technical strength of major equipment vendors, the company is expected to increase its market share in some segmented tracks; the domestic private network communication market is growing rapidly, and the company is expected to rapidly increase its market share with its relatively broad industry layout and the technical advantages of the source network. The first coverage gave an “increase in holdings” rating.

Company: Equipment vendors have a global layout, and public and private networks work hand in hand. We have been deeply involved in communication network equipment and system solutions for 15 years, moving from coal to government, electricity and other industries, from private networks to public networks, and from domestic to overseas. Currently, the business covers multiple levels of public and private network core/aggregation/access. The company's revenue/profit CAGR in 2015-2019 was 29%/30%; in 2019, the revenue/profit affected by the postponement of the Indian project was -11.9%/+0.5% year-on-year to 42/60 million yuan. Looking at the breakdown, core network systems/centralized local systems/command and dispatch systems/technology and maintenance services accounted for 17%/12%/55%/17% of revenue in 2019, respectively, with a gross profit margin of 82%/41%/48%/64%.

Public network: The long-term space of the industry is broad, and the company's advantages are relatively unique. Gartner expects the global public network communication equipment market to reach US$320.5 billion by 2023, corresponding to about 10% of the 2017-2023 CAGR. Looking at the breakdown, ABI expects that, driven by 5G, the 5G core network market will increase from 29 million to 8.4 billion US dollars in 2020-2024, and CAGR will reach 313%. We expect the overall core network market to grow by more than 15% in 2019-2022. The company is expected to continue to increase its market share with its lightweight and customized advantages, and strong technology research and development capabilities will help stabilize profit levels. In terms of access networks, overseas cable demand is still huge, and the domestic wireless white-boxing trend brings opportunities for new players to enter the market. Dell'Oro expects the global market to exceed 45 billion US dollars in 2022 and CAGR of nearly 50% in 2017-2022. Thanks to the launch of the Indian project and the company's comprehensive product layout, market share is expected to continue to increase in the future, but profit levels are expected to decline due to increased competition.

Private network: The industry is expected to grow rapidly, and the company's technology is more advanced. The construction of smart cities at the government level and the refinement of command and dispatch at the industry level are driving the rapid growth of private network business. The Forward-looking Industry Research Institute expects the domestic private network communication market to increase from 14.7 billion to 27.3 billion in 2017-2022, with CAGR of about 15%. As of 2019, the company's emergency command and dispatch system business accounted for about 0.93% of the domestic market, and it is expected that the market share will continue to increase through the technical advantages derived from the public network product line. However, as competition in the private network market gradually and fully will bring price pressure, it is expected that the company's gross margin will decline slightly in the future.

Risk factors: technology research and development falls short of expectations; increased market competition; geopolitical and epidemic uncertainty, etc.

Investment advice: With 5G in the public network sector driving a new boom cycle for core networks, the continued impetus of overseas demand for centralized local systems, and the continued boom brought about by national policies and 5G network construction in the private network sector, the company's net profit for 2020/2011/2022 is estimated to be 0.92/156/238 million yuan respectively, and the corresponding EPS forecast is 0.47/0.81/1.23 yuan respectively. The first coverage gave an “increase in holdings” rating.