3Q22 performance is in line with our expectations
Xinwei Communications announced 1-3Q22 results: operating income was 6.178 billion yuan, up 15.03% over the same period last year, and net profit was 601 million yuan, up 25.82% over the same period last year. In the single quarter of 3Q22, Xinwei achieved operating income of 2.485 billion yuan, an increase of 7.33% over the same period last year, and a net profit of 417 million yuan, an increase of 36.64% over the same period last year, which is in line with our expectations. 3Q22 Xinwei has made good progress in management and business: 1) the gross profit margin has increased by 3.45 ppt compared with the same period last year; 2) in terms of business, Xinwei continues to expand in precision connectors, LCP, modules and automotive interconnection products.
Trend of development
The development of new business and scenarios is accelerated, and the interconnection of cars can be expected in the future. 1) in the field of connectors, CITIC relies on the advantages of radio frequency and magnetic materials to break through products such as precision connectors, magnetic connectors and board-to-board connectors, and develop new application scenarios such as commercial satellite communications. 2) in the field of LCP and millimeter wave antennas, Xinwei strengthens the one-stop capability of "LCP material → LCP antenna → LCP module" to enhance the competitiveness of products. We believe that Xinwei LCP products have supplied watches from major customers in North America in bulk and continue to promote millimeter wave antenna products. Xinwei LCP products have also made a breakthrough in some Android phones. 3) in the field of automotive interconnection, Xinwei has the ability to supply products such as wireless charging, on-board antenna and UWB module, and has won customers such as Volkswagen, Honda, Mercedes-Benz and Changan. In addition, we expect Xinwei to break through potential auto customers such as Tesla, Inc., Zoox, Huawei and XIAOMI in the future to help the company continue to grow.
Persist in R & D investment and strengthen competitive advantage based on accumulated strength. 1-3Q22 invested 519 million yuan in R & D, accounting for 8.41% of revenue. According to the company announcement, as of 3Q22, Xinwei has applied for 2338 patents; 1-3Q22 has applied for 278 new patents, including 64 5G antenna patents, 23 LCP patents, 18 UWB patents, 57 WPC patents, 37 BTB connector patents, 5 resistance patents and 16 MLCC patents. We believe that the company continues to maintain R & D investment in materials and modules in the downward cycle of the industry, and is expected to achieve more rapid growth after the industry resumes growth.
Profit forecast and valuation
We maintain a net profit of 773 million yuan in 2022 and 2023, with the current share price corresponding to 20.4 times 2022 price-to-earnings ratio and 14.4 times 2023 price-earnings ratio. We maintain an outperform industry rating and a target price of 19.80 yuan, corresponding to 24.8 times 2022 price-to-earnings ratio and 17.5 times 2023 price-to-earnings ratio, which is 21.4% higher than the current stock price.
Risk
Downstream customer shipments fell short of expectations; downstream market development of automobiles and commercial satellites fell short of expectations.