Key points of investment

Incident: On March 29, 2023, Sanwang Communications released its 2022 annual report. In 2022, the company achieved operating income of 33,568885 million yuan, an increase of 32.24% over the previous year; net profit of 96.8898 million yuan, an increase of 59.03% over the previous year; net profit after deducting non-net profit was 75.099 million yuan, an increase of 66.99% over the previous year.

Focusing on industrial communication market opportunities, the company's performance grew rapidly. The company focuses on industrial communication market opportunities, deeply cultivates stock and core markets, and expands incremental markets. The stock market and core market have been growing steadily. The smart energy, industrial Internet, smart transportation, and smart city industry sectors have achieved main business revenue of 146.2888 million yuan, 52,872 million yuan, 51,0734 million yuan, and 293.36 million yuan respectively. Among them, the smart energy and industrial Internet industries achieved revenue growth of 56.48% and 99.23% year-on-year; the company's main products are mainly industrial Ethernet switches, focusing on products in the field of wireless communication for in-depth expansion. The company's revenue in 2022 was 335.6885 million yuan, an increase of 32.24% over the same period last year. Among the company's main products, the revenue of industrial switching products increased 505.035,500 yuan over the same period last year, an increase of 24.70%; the revenue of industrial gateway products increased by 2.1616 million yuan over the same period last year, an increase of 6.81%; the revenue of industrial wireless products increased by 5,223 million yuan, an increase of 60.35% over the same period last year.

Strengthen R&D and innovation efforts to create industrial Internet communication solutions. The company actively grasps the development trend of the industrial Internet sector and its downstream application industry, and creates overall solutions for industrial Internet communication around various industry fields such as steel and metallurgy, smart cities, digital smart grids, new energy, smart light poles, petroleum and petrochemicals, and intelligent manufacturing. In 2022, the company invested 58 million yuan in R&D, +7.63% over the same period last year. A large amount of resources was invested in research and development of new technologies and products to continuously maintain the competitive advantage of core technologies, continue to explore and develop 5G, edge computing, TSN, HaaS, Profinet, WiFi6 and other technologies and related series of products, and made good progress. Among them, the industrial IoT 5G+ smart gateway project and the industrial Internet time-sensitive network switch project have been completed to meet development expectations. By the end of 2022, the company had obtained a total of 21 invention patents, 61 utility model patents, 8 design patents, and 146 software copyrights.

Adhere to the “industrial interconnection” development strategy and achieve a multi-industry layout in multiple fields. According to the “China Internet Development Report 2022”, the systematic development of the industrial Internet has achieved remarkable results and has gradually become an important support for national economic growth.

The core industrial Internet industry reached 1,074.9 billion yuan in 2021, a growth rate of 18.1%, and it is expected that the market will continue to grow rapidly. The company adheres to the “industrial interconnection” development strategy. At the core technology level of the industrial Internet, the company's technology and products have initially covered the four major directions of network, edge computing, platform, and security of the industrial Internet standard system framework, and can provide an end-to-end industrial Internet empowerment solution. At the same time, there have been technological breakthroughs and product launches in the main technology direction of time-sensitive networks (TSN), IPv6, industrial 5G, intelligent gateways, industrial wireless WiFi6, etc. covered in the 2022 Government Work Report. In terms of market segmentation applications in the industrial sector, the company has formed a high level of popularity and brand influence in four major fields, including smart energy, smart cities, smart transportation, and industrial Internet. Among them, in the mining field, underground application scenarios are used as a starting point to further expand the underground underground integrated mining network; in the field of rail transit, it has formed multi-scenario application advantages from cars on and off vehicles to promote a new generation of intelligent operation and maintenance rail transit networks.

Investment advice: The company is on a high level of industrial connectivity, and we believe the company will maintain long-term growth. It is predicted that the company's revenue for 2023-2025 was 473/6.39/ 869 million yuan, a year-on-year increase of 40.9%/35.2%/35.9%. The company's net profit to the mother was 133/174/242 million yuan respectively, up 38.5%/30.4%/39.4% year-on-year, corresponding to EPS 2.62 /3.42 /4.77 yuan, PE 38.5/29.5/21.2; initial coverage, giving a “increase in holdings - B” rating.

Risk warning: Market expansion falls short of expectations; product competition intensifies; accounts receivable collection is not timely.