Key points of investment
Next Wednesday (August 30), a company listed on the Science and Technology Innovation Board, “Senke Communications” made an inquiry.
Shengke Communications (688702): The company is a leading Ethernet switching chip design enterprise in China. Its main business is R&D, design and sales of Ethernet switching chips and ancillary products. The company achieved revenue of 264 million yuan/459 million yuan/768 million yuan respectively in 2020-2022, YOY was 37.59%/73.91%/67.36%, and a compound annual growth rate of 58.80% of the three-year operating income; realized net profit at return home - 0.1 million yuan/-03 million yuan/-29 million yuan, and YOY was -254.05%/63.93% /- 751.18 million yuan. In the latest reporting period, 2023H1 achieved operating income of 643 million yuan, an increase of 82.88% over the previous year, and net profit of 35 million yuan, an increase of 202.02% over the previous year. The company expects net profit attributable to owners of the parent company from January to September 2023 to be 380.00 million yuan to 42.0 million yuan, a year-on-year increase of 4,756.83% to 5,247.02%.
Investment highlights: 1. The company has remarkable technical advantages. It is a leading domestic manufacturer of commercial Ethernet switching chips. China Electronics and the Industrial Fund are the main shareholders of the company. As one of the necessary hardware to achieve basic network carrying technology, Ethernet switching chips are still mainly monopolized by foreign manufacturers, and domestic replacement is imminent.
Since its establishment in 2005, the company has continued to be deeply involved in the Ethernet switching chip field. It is one of the first manufacturers in China to invest in Ethernet switching chip development, and has a remarkable technology first-mover advantage. Furthermore, all of the company's R&D team leaders have worked for leading domestic and foreign Ethernet communication companies, including Mr. Sun Jianyong (Sun Jianyong) and Mr. ZHENG XIAOYANG (Zheng Xiaoyang), who have been senior Cisco engineers, and Mr. Xu Jun has been a ZTE R&D engineer. Outstanding R&D leaders have led the company to maintain technological leadership.
After years of development, the company has become the number one domestic manufacturer in the domestic commercial Ethernet switching chip market. In 2020, the market share was 1.6% (sales volume), breaking the previous technology monopoly of foreign manufacturers in this field. Among them, the share of the commercial Ethernet switching chip market of 10 megabytes and above reached 2.3%, ranking first among domestic manufacturers; however, at present, the domestic commercial market is still mainly dominated by Broadcom, Meiman, and Realtek (accounting for a total market share of 97.8%), and domestic alternatives are imminent. Furthermore, as of the date the prospectus was signed, China Electronics and its subsidiary China Zhenhua held a total of 32.66% of the company's shares, and the Industrial Fund held 22.32% of the company's shares. 2. The company's Ethernet switching chips have a comprehensive layout of high-end and low-end products; at the same time, the company has further extended its product line to route switching integrated network chips, and continues to expand the breadth of its product line. The company has a comprehensive layout of high-end and low-end products around the commercial Ethernet product line. Among them, the mid-range product lines TSingMA.mx, GoldenGate and TSingMA series have achieved mature mass production; the low-end product line TSingma.ax series, which is positioned as a new industrial network and SME network, is already in the transition to mass production; the high-end product line Arctic series is scheduled to be launched in 2024, and the downstream application field is large-scale data centers. Furthermore, on the basis of Ethernet switching chip technology, the company plans to develop high-capacity, large-format routing and switching network chips through the fund-raising project “Route Switching Integrated Network Chip Research and Development Project” to further expand the product line. Considering that due to insufficient input-output ratio of routing core chips, most domestic router core chip manufacturers are currently shut down or acquired one after another, high-end router needs cannot be met, and the innovative architecture of integrated routing and switching is expected to achieve better chip performance and optimize the 5G/5G user experience. The company may have good prospects for development.
Comparison of listed companies in the same industry: Considering that there are currently no companies in A-shares that are consistent with the company's main products, chip design companies with similar product types and business models to the company were selected as comparable listed companies of Senke Communications: Cambrian, Lanqi Technology, Jing Jiawei, Fudan Microelectronics, and Anlu Technology. Judging from the comparable companies mentioned above, the average revenue scale of the industry in 2022 was 2,027 billion yuan, the comparable PE-TTM (excluding negative values, abnormal values/arithmetic average) was 60.59X, and gross sales margin was 54.14%; in comparison, the company's revenue scale and gross sales margin were lower than the industry average.
Risk warning: There is still a possibility that companies that have begun the inquiry process will not be able to go public due to special reasons; company content is mainly based on the content of prospectus and other public information; there is a risk that the selection of listed companies in the same industry is not accurate enough; there may be interpretation deviations in the selection of content data. The specific risks of listed companies are shown in the text.