Incident: The company released 23 interim reports. 23H1 achieved revenue of 6.970 billion yuan (+4.09% YoY), net profit of 198 million yuan (-36.37%), net profit of 138 million yuan (-51.94% YoY) after deducting non-attributable net profit of 138 million yuan (-51.94% YoY), and gross profit margin of 35.14% (YoY +1.29pct). Among them, 23Q2 revenue was 3.617 billion yuan (-3.42% year on year, +7.88% month on month), net profit of 117 million yuan (YoY -3 9.43%, +45.13% month on month), net profit of 65 million yuan after deducting non-attributable net profit of 65 million yuan (-65.45% year on year), and gross profit margin of 35.65% (+2.07 pct year on year). The subsidiary Ruijie Network 23H1 achieved revenue of 4.831 billion yuan (+6.82% YoY) and net profit of 140 million yuan (-46.75% YoY). Starnet Smart 23H1 achieved revenue of 937 million yuan (+10.01% YoY) and net profit of 65 million yuan (-36.83% YoY).
The network equipment business is growing steadily. By business, 23H1's enterprise-grade network equipment revenue was 4.485 billion yuan (YoY +10.29%), with a gross profit margin of 42.26% (YoY +1.51 pct); communications product revenue of 1,162 million yuan (-2.29%), gross profit margin of 17.09% (YoY -3.49pct); network terminal revenue of 364 million yuan (+3.26% YoY), gross profit margin of 25.22% (YoY -0.43 pct); other revenue was 959 million yuan (-11.83% YoY), gross profit margin 27.49% (YoY +) 2.25pct).
Profits from overseas business have improved markedly. By region, the company's 23H1 domestic revenue was 6.032 billion yuan (YoY +5.67%), with a gross profit margin of 35.58% (YoY -0.26pct); overseas revenue of 938 million yuan (-5.02% YoY), with a gross profit margin of 32.35% (+9.95pct).
The Kemi network is also listed. The company's 23H1 investment income reached 117 million yuan (+541.16% year-on-year). This is the benefit generated by 23H1 from merging with Kemi Network under different control and re-measuring the shares originally held prior to the purchase date according to fair value. According to the announcement of Starnet Ruijie Company on May 31, 2023, the shares of Kimi Network held by the company through Starnet Mutual Entertainment increased from 42.36% to 66.16%. Kimi Network became a holding subsidiary of the company and was included in the scope of the company's consolidated statement. Kimi Network had revenue of 127 million yuan and net profit of 48 million yuan in '22.
Continued investment in R&D. In terms of expenses, 23H1's sales, management, and R&D expenses were 13.15% (year-on-year +1.29pct), 4.73% (year-on-year +0.74pct), and 16.62% (year-on-year +2.81 pct), respectively.
Profit forecasts and investment recommendations. We expect the company's revenue for 2023-2025 to be 17.969 billion yuan, 21.01 billion yuan, and 24.264 billion yuan respectively; net profit to be 620 million yuan, 959 million yuan, and 1.157 billion yuan respectively, corresponding EPS of 105 yuan, 1.62 yuan, and 1.95 yuan respectively. Referring to comparable companies, the 2023 PE range was 20-23 times, corresponding to a reasonable value range of 20.91-24.05 yuan, and a “superior to the market” rating.
Risk warning. Technology risks; market demand falls short of expectations; product competition increases risk.