Incidents:

The company released its 2023 interim report. 2023H1 achieved revenue of 234 million yuan, a year-on-year increase of 81.61%, a year-on-year increase of 208.91%, net profit of non-attributable income of 104 million yuan, a year-on-year increase of 486.44%; 2023Q2 achieved revenue of 193 million yuan, a year-on-year increase of 65.55%, and net profit of 51 million yuan, an increase of 124.86% year-on-year, net profit of non-attributable net profit of 048 million yuan, up 118.73% year on year. Performance changed from loss to profit, and performance exceeded market expectations.

Comment:

New satellite communication features of the new Huawei Mate60Pro were unveiled, boosting satellite communication concept stocks, and Mengsheng Electronics led the way. Mengsheng Electronics is a major supplier in the domestic satellite communication terminal equipment manufacturing field. It provides satellite communication antennas and component products, including Zhongtong antennas and beacons. With the release of Huawei's satellite communication phones, other mobile phone manufacturers are expected to follow suit, and the company is expected to participate. The company's performance increased in the first half of the year, with revenue of 234 million yuan, up 81.61% year on year. Among them, satellite communications revenue was 34 million yuan, up 29.05% year on year. Order delivery volume was stable, and performance is expected to maintain an upward trend.

Entering the high-end mobile phone supply chain boosts the prosperity of the industry. As the domestic high-end mobile phone market weakens, there is an urgent need for manufacturers to recreate demand by improving the level of product technology. Along with the commercialization of satellite communication technology, the Huawei Mate60Pro pioneered the satellite call function, which can answer satellite calls in an environment without terrestrial network signals to enhance product communication performance. Previously, the Apple iPhone 14Pro series only supported sending short emergency messages. As major mobile phone manufacturers successively launch mobile phones that support satellite communication functions, product iteration in the downstream market is expected to give new momentum to the satellite communications industry chain. In the future, satellite communication technology is expected to further expand the functional boundaries of mobile phones and redefine the development paradigm of domestic smartphones, and the company is expected to provide product solutions for the high-end mobile phone industry.

By strengthening independent research and development, it is expected that domestic production will be replaced. Satellite communication antennas have long been monopolized by foreign manufacturers. The company is one of the few domestic manufacturers that have a complete product line and can independently develop and produce antennas. The products have the ability to maintain accurate tracking of satellite signals under extreme conditions, have first-mover advantages in satellite communication product applications, and technology commercialization potential. It is expected to promote the upgrading of consumer electronics equipment represented by smartphones and promote the domestic substitution process. The company continued to increase R&D investment. The company spent 34 million yuan on R&D in the first half of the year, an increase of 29.05 percentage points over the previous year, accounting for 14.70% of business revenue, and is expected to continue to strengthen core technical barriers. At the same time, the company is deeply involved in the field of military electronic warfare. With the continuous development of China's low-orbit satellites, it is expected to further expand the satellite communication market space.

Investment suggestions: Considering that the company is a high-tech enterprise that develops and manufactures satellite navigation and communication equipment in China, according to the company's performance for the first half of 2023-2025, the revenue forecast for 2023-2025 will be 808/10.93/1,392 billion yuan, net profit will be 240/276/379 million yuan, corresponding EPS is 1.50/1.72/2.36 yuan, and the corresponding PE is 26X/23X/16X, covered for the first time, and given a “buy” rating.

Risk warning: performance forecasts and valuations fall short of expectations; product development falls short of expectations; competition intensifies