occurrences

In 2023H1, the company achieved operating income of 2.88 billion yuan, an increase of 15.8% over the previous year; net profit from the parent group was 3.1 billion yuan, an increase of 6.8% over the previous year.

1. Stable business, wireless communication business drives performance growth

2023H1's overall revenue was 2.88 billion yuan, up 15.8% year on year; overall gross profit margin was 34.0%, down 3.6 pct year on year, and 1.0 pct month on month. The decline in gross margin was mainly affected by industry fluctuations.

If you look at it by product,

Wireless Communications achieved revenue of 1.32 billion yuan, a year-on-year increase of 37.5%, a gross profit margin of 45.4%, and a year-on-year decrease of 6.6 pct. During the reporting period, next-generation main shortwave and ultra-high frequency products continued to break through new markets, bid for a next-generation satellite communication system application subsystem, Tiantong-1 products entered the new high-end platform field for the first time; Weitong satellite guidance products achieved a breakthrough in new market segments; cluster products won the bid for the “virtual power plant” project of the Chinese Academy of Electric Power Sciences, breaking through the field of private power network digital communication for the first time.

Beidou Navigation achieved revenue of 110 million yuan, a year-on-year decrease of 53.0%, and a gross profit margin of 45.2%, a year-on-year decrease of 15.4 pct. Beidou-3 products were ordered in batches, successively won bids for energy industry application projects, and undertook major national Beidou industrialization projects.

Aerospace achieved revenue of 140 million yuan, a year-on-year increase of 26.9%, a gross profit margin of 43.2%, and a year-on-year decrease of 10.2 pct. The position of the industry continues to be stable. The six-degree-of-freedom all-electric sports platform independently developed by the subsidiary Mojie Innovation passed the civil aviation D-level certification, becoming the first domestic flight simulator motion system to meet the highest D-level standards of the CCAR-60 civil aviation parts, breaking foreign monopolies; Chida Aircraft has received large orders one after another, and its operating performance has increased markedly over the previous year.

The digital intelligence ecosystem achieved revenue of 1.27 billion yuan, an increase of 10.1% over the previous year, a gross profit margin of 17.9%, and a year-on-year decrease of 0.8 pct. Hagrid Yichuang became the winning candidate for China Mobile's 15 regional network maintenance projects. The contract amount reached 1.89 billion yuan, driving steady business growth.

2. The overall fee rate was basically the same, and the R&D expense rate declined slightly: 2023H1's overall cost rate was 23.1%, down 1.7 pct from the previous year, mainly due to the R&D expense rate of 14.7%, a year-on-year decrease of 1.9 pct. The management/sales/financial expense ratio was basically the same, at 3.4%/5.7%/-0.6%, respectively.

During the reporting period, the company continued to maintain a high proportion of R&D investment, and the construction of the Haeger Tianteng Information Industry Base began. It will build the country's first unmanned information industry base and intelligent manufacturing demonstration base covering land, airspace, water and other fields. The Nanjing Tianshu Building was officially fully opened, creating a new platform for business development, and gradually developing Nanjing into the company's strategic development base in the Yangtze River Delta region, and continue to build physical space advantages.

3. Normal seasonal fluctuations in cash flow: 2023H1 net operating cash flow - 550 million yuan, which is basically the same as the same period last year. The cash-to-income ratio is 0.64 (2022H1 0.69), which has declined slightly, and overall operating capacity is basically stable.

4. Release fixed increase plans and improve industrial layout. According to the company's announcement on July 26, the company plans to raise no more than 1.86 billion yuan in total capital, which will be used for the “Beidou+5G” communication integration R&D industrialization project, the unmanned information industry base project, and the Tianshu R&D center construction, and satellite Internet R&D projects. The company continues to increase strategic investment in the fields of unmanned systems, Beidou navigation and satellite Internet, improve industrial layout, and promote future performance development.

5. Investment suggestions:

During the 14th Five-Year Plan period, satellite navigation and satellite Internet were key industries supported by the country. As one of the leading Beidou manufacturers, the company's performance growth momentum is expected to be unleashed. As the project gradually recovers and maintains profit forecasts, it is estimated that 2023-2025 revenue will be 60.37/6706/7.512 billion yuan, earnings per share, 0.31/0.34/0.37 yuan respectively, corresponding to the closing price PE of 9.81 yuan/share on August 25, 2023, 31.4/28.7/26.6 times, respectively. Maintain a “buy” rating.

6. Risk warning:

Uncertainty about completion of fixed increases; risk of downstream orders falling short of expectations; increased risk of competition; risk of heightened risk of the epidemic; development of Beidou applications falling short of expected risk; systemic risk.