Focusing on wireless communication RF chips, with great application prospects Broadcom Integrated was founded on December 1, 2004. It is an integrated circuit design company that provides wireless communication RF chips and solutions. It mainly designs highly integrated, high-performance semiconductor products based on world-leading RF-CMOS transceiver design technology and innovative digital signal processing systems, focusing on wireless digital transmission chips and wireless audio chips. According to the company's 2020 mid-year report, wireless digital transmission chip terminal customers cover well-known domestic companies including Jinyi Technology, Leber Technology, DJI, Alibaba, Midea, Xiaomi, etc., and wireless audio terminal customers include Motorola, Amazon, and Lenovo. With the development of the Internet of Things, wireless digital transmission chips designed for wireless smart terminals will have broad market prospects. The company achieved operating income of 1,175 billion yuan in 2019, an increase of 115.09% over the previous year, and realized net profit attributable to shareholders of listed companies of 252 million yuan, an increase of 103.67% over the previous year. Revenue for 2019 Q3 and 2019 Q4 was $480 million and $394 million respectively, and net profit was $109 million and $89 million respectively. Revenue and net profit increased significantly. The main reason is that the company closely followed national policy requirements and increased its efforts to upgrade and stock up ETC products to meet policy and market demand. Since 2020, due to the slowdown in ETC market demand, the sales revenue of related products in the first three quarters of 2020 has decreased by about 350 million yuan compared to the same period last year, which has had a certain impact on related revenue and profits since 2020. Increased investment in R&D and technological leadership highlights that the company has leading chip design and R&D advantages in China. As of June 30, 2020, the company has more than 100 patents from China and the US, covering key areas such as energy consumption, noise reduction, filtering, and wake-up in the wireless radio frequency field, reflecting the company's strength in technology research and development. From the perspective of R&D investment, since 2020, the company's R&D expenses have accounted for more than 10% in each quarter. The company's R&D expenses for the Q3 quarter of 2020 were 28.26 million yuan, accounting for 12.28% of revenue. We believe that for IC design companies, core technology is the main factor driving their rapid growth, and the continuous strengthening of R&D investment has laid a sufficient foundation for the company's future long-term development of products and technology. Investment recommendations We expect the company's revenue from 2020 to 2022 to be 883 million yuan, 1,267 million yuan, and 1,825 million yuan respectively; it is estimated that net profit attributable to the parent company's shareholders will be 104 million yuan, 247 million yuan, and 402 million yuan, respectively. From a valuation perspective, we compared domestic IC design companies and excluded the highly valued Star Semiconductors, Sirep, Shengbang, and Clean Energy. Compared with the 2021 PE valuation, it was within the 40 to 70 times range. Given the impact of the company's reduced ETC chip shipments, we gave it an “increased holding” rating for the first time. Risks indicate the risk of product development, the risk of increased competition in the industry, the risk of brain drain, etc.