Key points of investment

Incident: On August 25, 2023, Information Technology Mobile released its report for the first half of 2023. In the first half of 2023, the company achieved operating income of 3.446 billion yuan, an increase of 30.24% over the previous year, achieved net profit of -73 million yuan, a year-on-year loss of 95 million yuan, net profit after deducting non-return net profit of -144 million yuan, a year-on-year loss of 76 million yuan.

Domestic and overseas businesses are being developed simultaneously, and revenue has maintained rapid growth. In terms of the company's domestic market, the main equipment business won the bid for China Mobile's 5G wireless main equipment collection from 2023 to 2024, and the overall winning bid share grew rapidly; the antenna feed business, which won the bid for China Mobile's urban and rural base station antenna collection from 2023 to 2024, ranked second in the winning bid share; the office division business, provincial procurement, new bid share led the industry; service business, room integration, and main equipment installation, etc., with a steady increase in market share, and comprehensive maintenance achieved new market breakthroughs in many provinces. In terms of international markets, the company continues to focus on target regional markets such as Southeast Asia, the Middle East, and South America. The first 5G FWA end-to-end commercial network for the main equipment business was launched in the Middle East, and the antenna feed business achieved breakthroughs in high-end European and American markets. In the first half of 2023, the company achieved operating income of 3.446 billion yuan, which continued to maintain rapid growth, with a year-on-year increase of 30.24%; net profit at the same time was 73 million yuan, a year-on-year loss of 95 million yuan, and losses continued to narrow sharply.

Maintain a high level of R&D investment and expand vertical applications in multiple dimensions. In the first half of 2023, the company invested 611 million yuan in R&D, an increase of 7.05% over the previous year, and total R&D investment accounted for 17.74% of revenue; the number of R&D personnel reached 2,464, an increase of 12.98% over the previous year, and the proportion of R&D personnel in the total number of people in the company reached 47.9%; 640 new intellectual property authorized projects were added, and a total of 14,964 intellectual property rights were obtained; the subsidiary Datang Lianyi Technology Co., Ltd. was certified as a national specialized and new “little giant” enterprise in 2023. The company leads the industry in product customization and functional diversification in the field of private network equipment. It has deep technology accumulation and market advantages in the fields of transportation, energy, instrumentation, etc., has implemented many 5G vertical application projects in the fields of coal mines, petroleum and petrochemicals, power grids, etc., and participated in the formulation of standards related to CCSA, mining and railway 5G-R.

Satellite Internet has made a major breakthrough and promoted 6G key technological innovation. The successful launch of China's satellite Internet technology test satellite on July 9, 2023 marks that the construction of China's satellite Internet industry will enter a stage of rapid development. Currently, the development of satellite Internet mainly revolves around low-orbit communication satellites. The company is deeply involved in the construction of China's low-orbit satellite Internet. It has the ability to provide products and technical services such as communication payloads, customs terminals, core networks, network management, and test instruments. It has made a major breakthrough in 5G satellite Internet solutions and achieved its first satellite application. The company continues to carry out innovative research work on 6G basic theory and core technology, actively participate in various test tasks of the IMT-2030 (6G) promotion team; develop 6G principle verification equipment such as RIS next-generation large-scale antenna transmission systems and new ultra-large-scale antenna arrays, and carry out technical verification; in the first half of 2023, it submitted more than 2,100 3GPP R18 and R19 standard proposals, including more than 1,500, which have a high influence in the industry.

Investment suggestions: The company is a high-tech enterprise controlled by a central enterprise engaged in international standard setting, core technology research and development and industrialization of mobile communications. It has strong competitiveness in the fields of 6G pre-research and standardization, computing network integration, and space-terrestrial integration, and is optimistic about the company's long-term development. We maintain our profit forecast. We expect the company's revenue from 2023 to 2025 to 91.89/119.69 billion yuan /15.09 billion yuan, up 32.8%/30.3%/25.4% year on year. The company's net profit to the parent is -2.60/1.55/322 million yuan, up 61.4%/159.5%/108.1% year on year, corresponding to EPS of -0.08/0.05/0.09 yuan, PE is -97.1/163.2/78.4, maintaining the -B proposal.

Risk warning: The downstream demand market falls short of expectations, 5G construction falls short of expectations, and market competition intensifies.