Domestic leading military optoelectronic transmission company, based on cable and component business, accelerates the growth of FC products and optoelectronic systems. Since its inception, the company has focused on the field of military electronic information, products from military optoelectronic cables and components, optoelectronic components, to the FC optical fiber high-speed network, optoelectronic systems and other higher levels of extension.

The cornerstone of long-term performance growth: stable matching of the five major military industrial areas, and the release of production capacity to meet the strong demand downstream. The company's high-performance transmission cables and components are stably matched in the five major military industrial fields of aviation, aerospace, warship, electronics and weapons, and meet the self-controllable needs of the national defense and military field with its high performance and high reliability. Advanced fighters are developing in the direction of "lightweight, high strength and high performance". Compared with the traditional extruded cables, the company has stronger high temperature resistance, scratch resistance and cutting resistance, supplying fourth-generation or more advanced fighters. The company is an important supporting unit of the space station and manned space project, providing continuous support for the sky and core module, Shenzhou manned spacecraft, Tianzhou cargo spacecraft and carrier rockets; the increase in the consumption of missile weapons and equipment under actual combat training has also led to an increase in the demand for the company's products. The 2021 additional investment project will effectively expand the production capacity of high-performance cables and components, and is expected to be gradually put into production in the second half of 2022, ensuring supporting supply in the military field and supporting the company's performance growth.

Short-term performance burst increment: FC optical fiber bus is the key to advanced avionics system. In March this year, the company completed the acquisition of minority shareholders in Shanghai Saj, further increasing capital investment in FC optical fiber bus technology and expanding the production scale of related products to fully meet the future growth of market demand. As the key of the new generation avionics system, FC optical fiber technology has been more and more used in missiles, aircraft and unmanned aerial vehicles. Under the high R & D investment in the early stage of Shanghai Saizhi, the technical level is in the leading position in the market, with revenue of 94.67 million yuan in 2021, + 65% year-on-year, and net profit of 24.5 million yuan and + 177% over the same period last year. It is expected that the performance of Shanghai Saj FC products will be expanded during the 14th five-year Plan period. Driven by the demand for advanced models, the growth rate will be higher than that of the company's cable and component business.

The ceiling of the long-term market is high: the blue ocean market layout of large aircraft and rail transit high-end civilian products is promoted, and the domestic substitution brings a broad market space. In 2021, the company made great progress in the localization of rail transit and aviation, obtained the CRCC railway product certification certificate, successfully entered the Comac QPL qualified supplier catalogue and began to supply small quantities. In the next two decades, Air China will become the largest market for new aircraft delivery, and domestic large aircraft traction commercial aviation cables are in great demand. The rail transit cable market is gradually open to domestic enterprises, and the import substitution is carried out in an orderly manner. In the follow-up, according to the supporting needs of the mainframe, the company's rail transit cable sales are expected to gradually expand.

Investment suggestion: the company's net return profit from 2022 to 2024 is expected to be RMB 2.6 million, respectively, and the current share price is 2022 times higher than that of PE. The company's products are stable and matched in five major military industrial areas, the downstream demand growth has strong certainty, and the focus on the field of high reliability of military products brings profit performance that is better than that of competitors. FC optical fiber products enter the market harvest period, performance is expected to quickly release volume, long-term look at the domestic large aircraft and rail transit market ceiling is high. We continue to be optimistic about the long-term growth of the company's performance and maintain the "overweight" rating.

Risk hints: the risk that the epidemic repeatedly affects the supply chain and product delivery; the risk of intensified market competition; the risk of falling prices of military products; and the risk that the progress of domestic substitution in the high-end civilian products market is not as expected.