Incident: Recently, the company released its 2022 semi-annual report, achieving revenue of 2,485 million yuan, an increase of 1.77% over the previous year, and achieving net profit of 292 million yuan, an increase of 6.13% over the previous year.

The company's gross margin remained stable, and the Beidou navigation business grew rapidly. 2022H1, the company's gross profit margin was 37.59%, in line with the same period last year. 2022Q2 achieved operating income of 1,281 million yuan, a decrease of 1.42% over the previous year, an increase of 64.93%; realized net profit of 239 million yuan, an increase of 5.71% over the previous year, an increase of 358.37% over the previous year; gross margin was 39.00%, a decrease of 0.11% over the previous year, and an increase of 3.74% over the previous month.

By business, the software and information services business achieved revenue of 1,166 billion yuan, an increase of 2.10% over the previous year; gross profit margin was 18.72%, a decrease of 0.05 pct over the previous year. The wireless communication business achieved revenue of 944 million yuan, a decrease of 1.87% over the previous year; the gross profit margin was 52.02%, a decrease of 0.60 pct over the previous year. The Beidou navigation business achieved revenue of 234 million yuan, an increase of 26.54% over the previous year; the gross profit margin was 60.55%, a decrease of 6.49 pct over the previous year. The pan-aviation business achieved revenue of 106 million yuan, a year-on-year decrease of 8.52%; gross margin was 52.43%, a year-on-year decrease of 2.04 pct.

Expenses were well controlled during the period, and net interest rates increased. 2022H1, the company's expenses rate for the period was 24.87%, a decrease of 1.14pct over the previous year. Among them, sales costs/management costs/R&D costs/financial expenses ratios were 3.24%/5.82%/16.84%/-0.59%, respectively -0.73pct/+0.13pct/-0.01pct/-0.01pct, respectively. The company's net interest rate was 12.04%, an increase of 0.37 pct over the previous year. Among them, the net interest rate for the second quarter was 16.24%, an increase of 0.92 pct over the previous year.

Inventory and contract liabilities decreased year-on-year, and cash flow from fund-raising activities increased. 2022H1, the company's inventory was 1,842 million yuan, down 13.62% year on year, down 3.60% from the beginning of the period; contract debt was 612 million yuan, down 0.14% year on year, down 26.19% from the beginning of the period. The company's net cash flow from operating activities was -554 million yuan, a year-on-year decrease of 334 million yuan. This is due to the increase in the scale of payment payments in the current period and the high concentration of repayments in the same period last year. Net cash flow from investment activities was -013 million yuan, a year-on-year decrease of 969 million yuan, mainly a year-on-year increase in the scale of financial investment. Cash flow from fund-raising activities was 308 million yuan, an increase of 90 million yuan over the previous year, due to increased borrowing in the current period.

The wireless communication business continues to break through, and Beidou products have achieved a comprehensive layout in the special institutional market. The wireless communication business accounts for 46.95% of the company's revenue and is the company's core business. The company's shortwave business completely broke through the field of airborne mainstream platforms, and achieved a breakthrough in the field of satellite vehicles through bidding for next-generation satellite communication system projects. In addition, the company also won bids for the optoelectronic terrestrial digital television transmitter project and a certain type of ship navigation radar project, achieving a major breakthrough in the new radio and television market and order in the radar field. In the field of Beidou products, the company relied on the competitive advantages of the Beidou-3 chip to achieve the comprehensive layout of the Beidou-3 terminal in the special institutional market, and entered the field of high-end new platforms. The market capacity is impressive. In addition, the company also won the bid for China Southern Power Grid's high-level command center construction project to deal with extreme situations with the first overall score. The Beidou-3 civil series terminal achieved an effective breakthrough in the power industry market.

Investment suggestions: National defense informatization accelerated during the 14th Five-Year Plan period, and the company's wireless communication and unmanned business are expected to achieve relatively rapid growth. We forecast that the company's net profit from 2022 to 2024 was 769/907/1,112 million yuan respectively, and the corresponding PE was 26.7/22.6/18.5 respectively. It was covered for the first time and gave an “increase in holdings” rating.

Risk warning: National defense informatization construction falls short of expectations, and factors such as the epidemic affect product production and delivery.