1H22 performance is in line with our expectations

The company announced 1H22 results: realized income of 129 million yuan, YoY-23.81%; return to the mother net profit of 10 million yuan, YoY-78.98%. In a single quarter, 2Q22 has an income of 117 million yuan, YoY-21.98%, a net profit of 22 million yuan, and YoY-52.11%. The company's performance is in line with our expectations.

Trend of development

The epidemic affected the progress of research and batch production projects, and the business income of Weidong and Weitong decreased compared with the same period last year. Affected by the epidemic, the on-site technical exchange and joint test of some research projects among the company, user units and some supporting units have been delayed to a certain extent, resulting in delays in the overall progress of the project and the release of orders; in addition, some approved production projects are affected by the supply chain and acceptance, and the delivery of some products is delayed, resulting in a decline in the company's operating income in the first half of the year compared with the same period last year. From a product point of view, 1) the company's revenue from satellite navigation products reached 105 million yuan in the first half of the year, YoY-16.6% and YoY-16.6%. 2) Satellite communications products achieved revenue of 24 million yuan, YoY-44.9%, of which overseas revenue was 4.39 million yuan, an increase of 420% over the same period last year. We think it reflects the recovery of the company's civil aviation ZTO Express antenna export business.

Equity incentive and depreciation amortization expenses increased, and the net interest rate decreased significantly compared with the same period last year. 1) 1H22's gross profit margin is 60.1%, year-on-year-1.0ppt. 2) during the first half of the year, the expense rate is 52.4% Personality YoY + 22.0ppt. Among them, the sales expense rate increased by 0.5ppt to 6.2% compared with the same period last year, while the management expense rate increased sharply to 26.3% from the same period last year, mainly due to the implementation of equity incentive share payment in the first half of the year and the substantial increase in depreciation and amortization expenses after the completion of the new production base. The rate of R & D expenditure increased by 5.4ppt to 20.6% compared with the same period last year. 3) affected by the increase in the rate of expenditure, the company's net interest rate in the first half of the year was-20.5ppt to 7.8%.

Equity incentive shows business confidence and is optimistic about the long-term development potential of the company. 1) in the first half of the year, the company completed the award of 1.247 million restricted shares to 67 incentive targets, accounting for 1.09% of the total share capital, and the grant price was 23.28 yuan per share. The unlocking condition is that on the basis of 2021, the growth rate of non-homed net profit deducted in 2022, 2023, and 2024 (excluding share payment fees) is not less than 40%, 90%, 150%, indicating the company's confidence in future development. 2) based on the field of satellite navigation and communication, the company has established the strategic direction of actively expanding the electronic countermeasure business and properly exploring new applications in the general field, and 1H22 has completed the relocation of production and operation sites and the upgrading of hardware equipment to provide guarantee for the improvement of the company's production and delivery capacity and the extension of the business matrix. We believe that the short-term impact of the epidemic on the company's business is expected to recover, and we are optimistic that the company's business is expected to expand from Wei Guowei to other homologous technologies, with broad room for long-term growth.

Profit forecast and valuation

Keep profit forecasts for 2022 and 2023 unchanged. The current share price corresponds to a price-to-earnings ratio of 46 / 34 in 2023. Maintain an outperform industry rating and a list price of 81.50 yuan, corresponding to 50 times 2022 price-to-earnings ratio and 37 times 2023 price-to-earnings ratio, which has 8.7% upside space compared with the current stock price.

Risk

Orders and deliveries in special areas are not as expected, and business expansion in overseas markets is not as expected.