Core views

The company released its semi-annual report for 2023. During the reporting period, the company achieved revenue of 111 million yuan, an increase of 6.08% over the previous year; net profit of 34 million yuan, a year-on-year decrease of 33.47%; net profit of non-return net profit of 30 million yuan, a year-on-year decrease of 34.94%. The short-term pressure on the company's business performance was mainly due to the expansion of the company's business scale during the reporting period, which led to an increase in sales and management personnel, and the company continued to focus on product research and development and maintained a high level of investment in R&D. Expenses increased dramatically during the period. The company's products have obtained substantial applications in airborne digital phased array radar and other fields, and at the same time have achieved varying degrees of progress in fields such as electronic confrontation, data links, next-generation radio, and satellite communications.

occurrences

1. The company released its semi-annual report for 2023. During the reporting period, the company achieved revenue of 111 million yuan, an increase of 6.08% over the previous year; net profit of 34 million yuan, a year-on-year decrease of 33.47%; net profit not attributable to 30 million yuan, a year-on-year decrease of 34.94%.

2. The cost rate of 2023H1 increased, and R&D expenses increased 75% over the same period last year.

Brief review

2023H1 Revenue increased steadily by 6%, and operating performance declined year-on-year

Revenue increased steadily in the first half of the year, and net profit declined somewhat. In the first half of 2023, the company's revenue was 111 million yuan (+6.08% year on year), net profit attributable to mother was 34 million yuan, (-33.47% year on year), after deducting net profit not attributable to 30 million yuan (-34.94% year on year). Looking at a single quarter, 2023Q2 had quarterly revenue of 70 million yuan (-5.39% YoY), net profit of 26 million yuan (-39.54% YoY), net profit of 223 million yuan (-40.58% YoY) after deducting non-net profit of 0.23 million yuan (-40.58% YoY).

The short-term pressure on the company's business performance was mainly due to the expansion of the company's business scale during the reporting period, which led to an increase in sales and management personnel, and the company continued to focus on product research and development and maintained a high level of investment in R&D. Expenses increased dramatically during the period. On a higher base last year, the 23Q2 performance dropped significantly year-on-year.

By product, in 2023HI, the company's RF transceiver chips and high-speed high-precision AD/DA chips achieved revenue of 53.09 million yuan (YoY +4.16%), accounting for 47.73% of total revenue; power management chips achieved revenue of 38.58 million yuan (-9.50% YoY), accounting for 34.69% of total revenue; microsystems and modules achieved revenue of 10.4 million yuan, (+22.02%), accounting for 6.81% of total revenue; terminal RF front-end chips achieved revenue of 1.57 million yuan, YoY (+68.32%), Occupy the head office The revenue ratio is 1.41%.

2023H1's cost rate increased, and R&D expenses surged 75% year over year. The gross margin of 2023H1 remained high at 89.81% (-2.77pct), and the net interest rate was 30.15% (-17.92pct). The company's total expenses during the period were 57.1207 million yuan (+38.79%), and period expenses accounted for 51.36% of operating income; of these, sales expenses were 7.8729 million yuan (+67.73% YoY), mainly due to an increase in employee remuneration due to an increase in the number of personnel in the company's marketing department, and an increase in market development expenses. The management fee was 175.98 million yuan (+41.57% YoY), mainly due to the expansion of the company's operation and management scale, the increase in employee remuneration due to the increase in the number of employees, and the increase in rental property fees. Financial expenses - 200,193 million yuan (year-on-year - 146.5541 million yuan); R&D expenses of 51.6691 million yuan (YoY +75.76%), mainly due to the increase in the company's R&D personnel remuneration, R&D materials and technical service investment during the reporting period.

The company experienced short-term performance fluctuations due to factors such as the acceptance of products and services on the demand side and increased investment in R&D. The company's customers are mainly subsidiaries of the National Defense Science and Industry Group. They usually concentrate on product and service inspection work in the fourth quarter of the second half of the year, so the company's confirmed revenue in the fourth quarter was relatively high. At the same time, the company's various expenses, such as employee wages and depreciation of fixed assets, were incurred relatively evenly during the corresponding year. Combined, customers generally put forward business requirements at the beginning of the year. The company followed up and set up R&D projects in the first half of the year to increase investment in R&D. Therefore, fluctuations in the company's performance may cause its profit level in the first half of the year to be low, thereby affecting the company's operating performance.

The company is a core enterprise in the analog and digital chip segment of the special industry. It has long benefited from the high prosperity of national defense and military industry. In 2023, the game of major powers intensified. Anti-globalization is forming a trend. The global semiconductor civilian market has entered a stagnation cycle under the influence of global inflation and the sluggish terminal consumer market, and the growth rate of leading semiconductor companies has clearly slowed down. The global semiconductor market capacity in 2023 will drop 10.3% from US$574.1 billion in 2022 to US$5151. At the same time, major global analog chip manufacturers such as ADI and TI have announced price cuts one after another to seize market share, and domestic consumer semiconductor suppliers are facing increasingly serious challenges. However, the analog and digital chip segment of the special industry where the company is located benefits from three factors: accelerated equipment construction, increased informatization rate, and increased localization rate. Industry prosperity is steadily rising.

In this context, the company's products and technologies are used in special industries such as wireless communication terminals, communication radar systems, electronic systems power supply and distribution, etc., and in civilian fields such as communication base stations and satellite communications, etc., and have long benefited from the high prosperity of the national defense and military industry. The company focuses on R&D, production and sales of integrated circuit chips and microsystems, and provides technical services around related products. The company's main products include terminal RF front-end chips, high-speed high-precision ADC/DACs, power management chips, microsystems and modules, etc., to provide customers with chip and microsystem products and technical solutions from antennas to signal processing.

Innovation-driven and diversified applications: The company's core products have made substantial progress in military electronic warfare, commercial satellite leadership, etc. The company was selected by the Ministry of Industry and Information Technology as the fifth batch of specialized, advanced, and small giants. In the first half of 2023, the company strived to shape new advantages in technological innovation and greatly increased high-tech research and development. R&D investment increased by 75.76% year-on-year, accounting for 46.46% of revenue. By the end of the first half of 2023, the company had 153 R&D personnel (+33.04%); the number of R&D personnel accounted for 55.84% of the total number of people in the company; the total salary of R&D personnel was 264.2991 million yuan, an increase of 42.96% over the previous year. As a chip design enterprise, the company strengthened its technological innovation advantages by continuously increasing R&D investment and maintained the market competitiveness of the company's products. The company's R&D personnel remuneration, R&D materials and technical service investment all grew significantly during the reporting period.

During the reporting period, the company's products obtained substantial applications in airborne digital phased array radar and other fields. The company's products also achieved varying degrees of progress in fields such as electronic confrontation, data links, next-generation radio, and satellite communications, and some products made substantial progress in scenarios such as electronic confrontation and space-borne payloads. The company's high-speed and high-precision ADC/DAC has continuously increased R&D investment, enriched the product matrix, established a number of new projects for low cost, low power consumption, high integration and high performance products, and iteratively developed and finalized new products such as CX9261A and CX7442A. Among them, the CX9261A extends the frequency range to 30MHz-7GHz, extends the maximum bandwidth to 75MHz, and supports functions such as frequency hopping and multi-chip synchronization, and can be widely used in narrowband digital phased arrays and drone data links. The CX7442A increases the analog input bandwidth to 1.5 GHZ, reduces power consumption to 0.42 W/ch, and adds functions such as TDC, FD, FIR, and EQ, which can be used in large-scale digital array radar and other fields.

The direction of the company's power management chips closely follows cutting-edge trends in the industry. The developed products such as point-of-load power chips, low voltage difference linear regulator chips, logic and interface/point-of-load power modules have all been successfully used in many types of low-orbit commercial satellite industries due to their excellent performance, ensuring the steady growth of the company's power management chip business. The company has solidified its own product system and has formed 7 major power supply chip product lines, including point-of-load power supply chips, low dropout linear regulators, logic and interfaces, T/R power management chips, MOSFET/GaN drivers, PWM controllers, and battery balancers, as well as 2 major power module product lines, point-of-load power modules and solid-state electronic switching modules.

Driven by the rapid development of the domestic phased array radar market, the demand for phased array T/R components continues to increase. According to the “2023-2028 Phased Array T/R Chip Industry Market In-depth Research and Investment Prospect Forecast Analysis Report”, the domestic phased array radar market has reached 13.95 billion yuan in 2022, an increase of 16.2% over the previous year. In the future, as the penetration rate of the domestic phased array radar market continues to increase and low-orbit commercial satellites gradually enter a stage of rapid growth, the phased array T/R component market is expected to expand rapidly.

Profit prediction and investment suggestions: The company continues to increase R&D and diversified application implementation, the high prosperity of the defense and military industry brings long-term development space, and gives a “increase in holdings” rating

The company is one of the few domestic enterprises that can provide overall solutions and technical services for terminal RF front-end chips, high-speed and high-precision ADC/DACs, power management chips, microsystems and modules in special industries. It plays an important role in the leapfrog development of domestically produced equipment. As the core chip in the country's major equipment, the company's products have a high technical threshold and have formed a strong first-mover advantage domestically. Benefiting from the high prosperity of the defense and military industry, it is expected that during the coming period, through continuous R&D investment and iterative development of new products, the company will still maintain a favorable market position in related fields. We expect the company's net profit from 2023 to 2025 to be 137 million yuan, 179 million yuan, and 228 million yuan respectively, with year-on-year growth rates of 27.19%, 30.39%, and 27.82%, respectively. The corresponding EPS from 2023 to 2025 will be 0.90, 1.17, and 1.49 yuan respectively. The corresponding PE share price will be 52, 40, and 31 times, respectively. The initial rating will give it an “increase in holdings” rating.

Risk analysis

1. Risk that the business scale is still relatively small: From January to June 2023, the company's operating income was 1112.206 million yuan and net profit was 33.532 million yuan. Compared with comparable companies in the same industry, the company's operating scale is relatively small. The company's current business management capacity is still relatively limited. Facing increasing customer demand, it may not be able to accept orders from all customers. As a result, some business opportunities have been missed, and there is a possibility that the growth rate of the company's revenue will slow down.

2. High risk of customer concentration: The company's customers are mainly subordinate units of the National Defense Science and Industry Group, which usually concentrates on product and service inspection work in the fourth quarter of the second half of the year. The company's business development is mainly affected by the national defense information technology system construction master plan. If the future overall development policy of the national key sector industry and the overall budget for system construction change, leading to a drastic reduction in product demand from units under the national key sector group, it will adversely affect the company's performance.

3. Risk of falling gross margin: The company is affected by various factors such as raw material prices, market demand, and production capacity supply. If raw material prices rise greatly and downstream customers are under pressure to reduce prices, it will adversely affect the company's gross margin.