Incident: The company released its semi-annual report for 2023. 23H1 achieved operating income of 2,877 million yuan, an increase of 15.80%; net profit of 311 million yuan, an increase of 6.80%; net profit of non-return net profit of 252 million yuan, an increase of 7.63%.
The Beidou business declined year on year, the wireless communication & aerospace & digital intelligence ecosystem business sector all grew steadily in the first half of the year; the revenue of the Beidou business fell 52.99% year on year to 110 million yuan; the wireless communication business recovered significantly, and the market continued to break through. The first half of the year increased 37.45% year on year, and the aerospace business increased 26.86% year on year to 135 million yuan. The company's industry position was further stabilized and operating efficiency was further improved; the digital intelligence ecosystem business grew steadily by 10.07% to 1,266 million yuan. Operation and maintenance capabilities have been recognized by customers, and the bid amount for China Mobile's comprehensive network maintenance service procurement project from 2023 to 2026 reached 1.89 billion yuan.
Gross margin has declined, and the cost ratio has shrunk
23H1's comprehensive gross margin decreased by 3.58 pct to 33.97%. Among them, the gross margin of wireless communications/Beidou navigation/aerospace/digital intelligence ecosystem decreased by 6.62/15.34/10.20/0.78 pct, respectively. The cost rate was reduced by 1.73 pct during the 23H1 period, and the sales/management/development/finance expense ratio decreased by -0.21/0.05/1.90/0 pct, respectively. Among sales expenses, employee remuneration increased by a certain margin, and travel expenses and hospitality expenses also increased after the epidemic recovered.
There are enough winning wireless communication projects, which are expected to form long-term increments
In the first half of the year, there were significant signs of recovery in the wireless communications business. We believe that the company has won sufficient bids and is expected to effectively drive medium- to long-term performance. Next-generation main shortwave and ultra-high frequency products continue to break through new market fields; they bid for a next-generation satellite communication system application subsystem, master the core technology and waveform system, and Tiantong-1 products entered the new high-end platform field for the first time; Weitong satellite guidance products achieved a breakthrough in the new market segment for institutional users; the 5G direction achieved a major breakthrough in the 5G direction, and various products obtained licenses for telecommunication equipment to enter the network; cluster products won the bid for the “Virtual Power Plant Communication Resource Scheduling Simulation Material Procurement” project of the China Electric Power Academy of Sciences Co., Ltd., breaking through the field of digital communication for private power networks for the first time.
Beidou-3 products have been ordered in batches, and major customers in the industry have made a breakthrough in the market. The company is the unit with the largest number of Beidou-3 chip models and the most complete range of products in the special institutional market. In the first half of the year, the Beidou-3 terminal entered the certification and batch order stage, and orders were obtained one after another; successively won the bid for the Beidou-3 application project in the energy industry - Sinopec Petroleum Engineering Geophysics Co., Ltd.'s 2022-2023 Beidou Positioning Bracelet and Accessories Framework Agreement Procurement Project and China Petroleum Transportation Co., Ltd. vehicle terminal and active safety monitoring equipment procurement project, the first to achieve mass application in the energy industry; undertook major national Beidou industrialization projects to create a new highland and model for the industrialization of Beidou satellite navigation systems.
Investment advice: We forecast net profit for 23-25 to be 797 million yuan, 941 million yuan, and 1,093 million yuan, respectively. Corresponding PE is 28/24/20 times, respectively, maintaining the “increase in holdings” rating.
Risk warning: downstream demand is low expectations; the impact of the global epidemic exceeds expectations; market competition risk; product development risk; the company's technological development falls short of expectations.