Incident: The company released its 2022 annual report. The company achieved revenue of 530 million yuan for the full year of '22, an increase of 14.7% over the previous year; the net profit of the mother was -220 million yuan. Among them, Q4 achieved revenue of 170 million yuan in a single quarter, a decrease of 13.5% over the previous year; net profit of the mother was -130 million yuan.

Revenue and operating cash flow have picked up, and high investment in the market and R&D has led to losses. The company continued to develop markets at home and abroad. The company's revenue increased 14.7% year-on-year for the full year of '22, achieving positive growth. At the same time, Q4 achieved operating cash flow of 68.3 million yuan in a single quarter, or -65041 million yuan for the whole year, a significant improvement from 21-230 million yuan. The company's net profit was negative. The reason was that the company maintained a large investment in R&D and sales to continuously improve product competitiveness and market position, and credit impairment increased due to the extension of the customer repayment cycle. The company's four-item comprehensive expense ratio for the full year of '22 was 67.4%, an increase of 2 pp over last year. In terms of gross margin, the company achieved a gross profit margin of 38.6% throughout the year, down 9.5 pp from last year.

The company has scarce 5G core networking capabilities, and 10G PON equipment helps the access network grow. The public network communication industry is highly concentrated and there are few participating players, and companies that can provide end-to-end solutions for 5G core network+base stations are scarce, mainly companies such as Huawei, ZTE, Ericsson, Nokia, and Zhenyou Technology. The company's core network and access network have the advantages of being cost-effective and highly customized, and have already gained some market share in countries along the “Belt and Road”. At the same time, the company is one of the few manufacturers that can provide a full range of 10GPON products. 10GPON products have already been supplied to China Radio and Television. The company's core and access network business will continue to grow in the future, benefiting from the advent of “Belt and Road” countries and the advancement of domestic FTTx and gigabit optical network projects.

Deeply segmenting the private network market, emergency and energy services are expected to expand. The private network communication industry has high requirements for customization, security and reliability. The company is deeply involved in the private network market and has completed the construction of a unified command and dispatch platform integrating voice, video, and data, focusing on smart emergency response, smart parks, smart mines, smart cities and other fields. The State Council issued the “14th Five-Year Plan” National Emergency System Plan in '22, which puts forward corresponding requirements for production safety. The private network dispatch platform is an important infrastructure for ensuring production safety, and companies are expected to benefit.

The company has leading cases in the field of satellite networking and will benefit from the construction of low-orbit satellite constellations in China. China Star Network Group has submitted 13,000 low-orbit satellite records to ITU, and there is broad demand for space-terrestrial networking in the future. The company is the only supplier of the core network of the first satellite communication system “Tiantong-1” in China, and has leading case experience. With the future launch of low-orbit satellite constellations and the promotion of ground station networking, the company's satellite internet revenue is highly elastic.

Profit forecasts and investment recommendations. The company's revenue for 23-25 is estimated to be 890 million yuan, 1.23 billion yuan, and 1.69 billion yuan respectively, while the net profit of the mother is 0.2 billion, 120 million yuan, and 210 million yuan respectively, covering the “holding” rating for the first time.

Risk warning: Network investment by domestic and foreign operators falls short of expectations; risks such as international shocks.