Event

Recently, the company released a report for the third quarter of 2022, with revenue of 350 million yuan in the first three quarters, an increase of 75.09 percent over the same period last year, and a net profit of 51 million yuan, an increase of 196.22 percent over the same period last year. 35 million yuan was deducted from non-net profit, an increase of 349.48 percent over the same period last year.

Brief comment

1. The performance remains high and the orders on hand are full.

2022Q3, the company achieved revenue of 127 million yuan, an increase of 108.87% over the same period last year, a net profit of 20 million yuan, an increase of 1602.61% over the same period last year, and a deduction of 16 million yuan for non-net profit, an increase of 942.40% over the same period last year, consistent with the previously disclosed forecast value. The company's rapid revenue growth is mainly due to the substantial growth of the power Internet of things business. By the end of 2022Q3, the company had orders on hand of 166 million yuan, an increase of 61.32% over the same period last year, and the future performance is expected to continue to increase.

2. The gross profit margin is getting better, and the expense rate is decreasing.

2022Q3, the company's gross profit margin of 40.99%, increased 2.49pp and 2.75pp compared with the same period last year, which is expected to be mainly due to a decline in the proportion of revenue from non-electric products and machine products with relatively low gross profit margin. The company's 2022Q3 net interest rate was 15.52%, up 13.62pp from the same period last year and 0.96pp from the previous year, mainly due to a sharp drop in the expense rate. During the 2022Q3 period, the expense rate of the company was 27.41%, down 16.01% from the same period last year, including the R & D expense rate of 13.70%, the decrease of 8.42pp, the sales expense rate of 9.54%, the decrease of 3.88pp, the management expense rate of 4.56%, the decrease of 3.50pp, the financial expense rate of-0.39%, and the decrease of 0.21pp over the same period last year, mainly due to the substantial increase in revenue, good cost control and scale effect.

3. The dual-mode chip has been tested by the national network, and the large-scale shipment is expected to start.

According to the company announcement, the HPLC+HRF high-speed dual-mode communication chip independently developed and designed by the company has passed the high-speed dual-mode chip-level interconnection test of the State Grid, and obtained the relevant test report. Since the beginning of this year, the national network has carried out bids for dual-mode products in Shandong, Shaanxi, Fujian, Anhui and other provincial networks. as the dual-mode products of leading manufacturers such as Lihe Micro have passed the national network test, we believe that formal shipments are expected to be started. bring increment to the carrier communication unit industry.

In addition, as the first manufacturer to obtain dual-mode product testing reports, the company's share of shipments is also expected to increase.

4. It is proposed to issue convertible bonds to raise 380 million yuan, and photovoltaic and smart home business is expected to speed up.

The company intends to issue convertible corporate bonds to unspecified objects, raising a total of no more than 380 million yuan, intended for smart photovoltaic and battery smart management PLC chip research and development and industrialization project (153 million yuan), smart home multimode communication gateway and intelligent device PLC chip research and development and industrialization project (137 million yuan) and science and technology reserve fund project (90 million yuan). At present, the company's application for convertible bond issuance has been accepted by the Shanghai Stock Exchange. If the company's convertible bond issue landed smoothly, the company's photovoltaic, smart home and other businesses are expected to usher in speed-up.

5. Profit forecast and investment suggestions. We estimate that the company's revenue in 2022, 2023 and 2024 will be 534 million yuan, 848 million yuan and 1.248 billion yuan respectively, and the net profit will be 83 million yuan, 120 million yuan and 186 million yuan respectively. The current market capitalization corresponds to 46x, 32x and 20x respectively. With the acceleration of digital power grid construction and the increase of distribution side investment, the demand for power carrier chips, modules and terminals is expected to increase. As one of the main domestic power carrier communication chip suppliers, the company is expected to fully benefit. The company's dual-mode products have passed the national network test, the orders are full, and the market share is expected to increase in the future.

Cover for the first time, giving a "buy" rating.

6. Risk hint.

The scale and progress of power grid investment are not as expected. The downstream customers of the company are mainly State Network and South Network, which are greatly affected by the bidding of State Network and South Network. The domestic COVID-19 epidemic may affect the pace of power grid bidding and company delivery, and may lead to lower-than-expected revenue growth.

The gross profit margin is affected by the intensification of industry competition, the profit of channels, the change of product structure and so on. We assume that the gross margin of the company's derivatives based on self-developed chips and core technologies will be 39.5% in 2022, down slightly from 39.79% in the previous three quarters. If the company's gross profit margin decreases significantly in the fourth quarter due to increased competition, channel profits, and the increase in the proportion of revenue from low gross profit margin products, it will affect the annual performance. Assuming that the gross profit margin of the company's derivatives based on self-developed chips and core technology is reduced to 38.5% in 2022, the net profit will be affected by 5 million yuan, a decrease of 6%. If the gross profit margin is reduced to 37%, the net profit will be affected by 12 million yuan, a decrease of 14%.

Cost control is not as expected, affecting the company's net interest rate and so on.