Event: the company released its 2023 interim report. In the first half of 2023, the company achieved revenue of 2.26 billion yuan,-7.4% year-on-year, and net profit of 80 million yuan, + 608.1% of the same period last year. In the single quarter of 23Q2, the company achieved revenue of 1.4 billion yuan, + 0.8% year-on-year, and net profit of 130 million yuan, + 58.4% year-on-year, exceeding market expectations.

The communications business has grown steadily, and the profit level has improved significantly. On the revenue side, affected by the divestment of Sepuller, the company's consolidated operating income decreased by 7.4% in the first half of the year compared with the same period last year, and H1 revenue increased by 4.5% year-on-year after excluding the influence of Sepuller. Excluding the adjusted year-on-year increase in revenue, the main reason is the continuous launch of new products in the company's communication terminals and the steady growth of dedicated communications business revenue. In terms of profit margin, 23H1's gross profit margin increased by 49.6% compared with the same period last year, while its net profit margin changed from negative to positive to 3.4%. The main reason for the increase in gross profit margin is that the company continues to reduce costs in its supply chain, the scale effect of mature business appears and the growth business is gradually mature. at the same time, the company adopts the strategy of "making profits step by step", and the effect of fee control is remarkable. In the first half of 23, the comprehensive expense rate of the four items of the company was 45.5%, which decreased 3.2pp compared with the same period last year, and the management and financial expenses decreased significantly, resulting in a big increase in the net interest rate.

Overseas orders are growing rapidly, and new domestic tracks continue to make efforts. In the overseas market, the company focused on strengthening the market expansion along the "Belt and Road Initiative" route, held partner summits in the Middle East, Europe, America and other countries and regions and issued global channel partner recruitment plans, and the overseas business growth trend improved in the second half of the year. In the domestic market, the company's product line continues to improve, covering areas continue to expand. New H-series terminals, TETRA terminals, new generation base stations and new public transit fusion products have been launched. While the existing traditional narrowband communication field is deeply cultivated, it will continue to develop new tracks in commercial industries such as emergency command, petrochemical industry, police equipment, and smart rail communication. In terms of marketing, the company's digital marketing reform continues to advance in depth, using digital marketing to enhance brand influence, focusing on key industries such as public safety, government emergency, transportation, energy, industry and commerce, and promoting "Haineng online Mall" in China to cover more small and medium-sized channels and individual users, and continue to create a dedicated communications cooperation ecology.

The "2-3-1" strategy contributes to the company's long-term growth. "2" refers to narrowband digital products, which constitute the company's basic disk business; "3" refers to public-professional integration, 4G/5G broadband, intelligent pointing integration and other services that constitute the company's growth business plate; "1" refers to language, image, data, video and other fully integrated solutions. Among them, in the field of satellite Internet, the company has industry-leading technology and design level, able to deliver satellite communication key components and antenna terminals for customers. 23H1, the company's satellite products are deeply distributed and sold on a large scale in the "Belt and Road Initiative" area. At the same time, the company conducts research and technical research and technical research on the Leo satellite communications industry chain and related modules, and the development of prototype terminals is under way. In addition, in the field of intelligent manufacturing, the company focuses on new energy and automotive electronics, robotics, communications and server industries, providing customers with high-quality one-stop EMS services, including product research and development, material procurement, Seiko manufacturing, global logistics and other high-quality one-stop services.

Profit forecast and investment advice: the company has a strong technology accumulation in wide and narrow band communications, and has a wide coverage of vertical industry solutions, which is expected to continue to benefit from the upgrading trend of wide and narrow band communications and the demand growth brought about by the digitization of the vertical industry. It is estimated that the EPS in 23-25 will be 0.25,0.32 and 0.41 yuan respectively. Referring to the comparable companies in the industry, the company will be given 25 times PE in 24 years, corresponding to the target price of 8 yuan, and the "buy" rating will be given for the first time.

Risk tips: downstream demand is lower than expected, vertical industry network construction is not as expected and other risks.