Incident: On August 18, 2023, Zhenyou Technology released its report for the first half of 2023. In the first half of 2023, the company achieved operating income of 323 million yuan, an increase of 34.4% year on year, achieved net profit of 45 million yuan, loss narrowed by 03 billion yuan year on year, net profit excluding non-attributable income of -46 million yuan, a year-on-year loss of 06 billion yuan.

Revenue continued to grow at a high level, and the overall cost base was large. In the first half of 2023, the company achieved operating income of 323 million yuan, an increase of 34.4% over the same period last year, achieved net profit of 45 million yuan, loss narrowed by 03 million yuan year on year, net profit after deducting non-attributable net profit of -46 million yuan, a year-on-year loss of 06 billion yuan. The company's revenue has increased dramatically, but it is still losing money.

On the one hand, the company's orders have increased dramatically, but the overall cost base for the period is quite large. Among them, sales expenses are 52 million yuan, management expenses are 40 million yuan, financial expenses are 03 million yuan, and R&D expenses are 81 million yuan, and gross operating profit cannot cover the period expenses. On the other hand, due to the characteristics of the company's industry and the macroeconomic downturn, accounts receivable repayment progress is slow, the overall age of accounts has been extended, and the expected credit loss amount is still large due to the increase in the migration rate. Currently, the company's net accounts receivable amount is 514 million yuan, accounting for 36.5% of the company's current assets at the end of the period.

Core technology remains advanced, and scientific research and innovation results are remarkable. The company's main products cover the core layer, aggregation layer and access layer of public network communication and private network communication. The products and solutions include core networks, access networks, optical networks, command and dispatch, smart applications, etc., and will continue to be based on existing core technology to continuously develop 5G satellite applications, 5G slicing and edge computing, 5G core networks, and 50G PON technologies to maintain technological advancement. In the first half of 2023, R&D expenses were 81 million yuan, up 17.75% year on year, R & D investment capitalization reached 22.1%, up 7.51 pp year on year; R & D personnel were 744, up 31.2% year on year, accounting for 59.3% of the total number of people in the company, up 8.9 pp from the previous year; 55 invention patents, 1 utility model patent, 35 software copyrights were added, and a total of 91 intellectual property rights were added. Currently, 743 intellectual property rights have been obtained.

Overseas business is yet to be repaired, and the satellite Internet continues to gain strength. The company insists on equal emphasis on domestic and overseas markets, and has obtained an order for India Telecom MNP number carrying expansion in the Indian market; it has signed an all-IP mobile core network project with Banglalink, a mobile operator in Bangladesh. Overseas operators' business is affected by the international environment and political factors, etc., and revenue has declined seriously. It will take some time for the traditional Indian market to return to its previous scale. Southeast Asian and Middle Eastern countries have both market demand for “going straight in and out,” as well as demand for renewal, and there is a lot of market space. At present, 6G technology research has begun to enter a critical stage. As an important part of the 6G network architecture, the satellite Internet is maturing and has advantages such as full coverage and low latency. The company is one of the few companies that can provide satellite 5G core networks, including high-orbit satellites and low-orbit satellite core networks. It continued to gain strength in the first half of the year and won bids for several satellite Internet core network projects, which is expected to create a new growth pole.

Investment suggestions: The company is a leading supplier of communication system equipment and technical solutions in China, and has comprehensive advantages in the field of core networks, centralized local terminals, and command and dispatch. We maintain our profit forecast. We expect the company's revenue for 2023-2025 to be 628/7.34/846 million yuan, up 17.9% /17.0% /15.3% year on year, and the company's net profit to be 0.52/1.04/160 million yuan respectively, up 124.1%/100.8%/53.8% year on year. The corresponding EPS is 0.27/0.54/0.83 yuan, PE is 50.0/24.9/16.2, maintaining the “increase” rating.