Core views

The company's 23H1 operating income was 3,446 million yuan, an increase of 30.24%; net profit was 73 million yuan, reversing a loss of 56.48% over the previous year (2022H1 attributable net profit was -168 million yuan); 2023Q2 achieved operating income of 2,087 billion yuan in a single quarter, an increase of 23.88%; net profit of 110 million yuan, reversing loss of 30.92% year on year (2022Q2 net profit for a single quarter was -160 million yuan). In the first half of the year, the company continued to maintain close cooperation with various operators. The overall tendering situation was good. The share of shortlisted procurement tenders in the field of mobile communication system equipment rose steadily, and the domestic market share of antenna feed and room division equipment remained among the highest in the industry. The 5G satellite Internet solution has achieved a major breakthrough, achieved the first star application, further enriched the satellite Internet product sequence, and occupied a high ground in R&D. The company's overall gross margin has increased, cost reduction and efficiency have continued to be reflected, and losses have dropped sharply.

occurrences

The company announced its 2023 mid-year report. 23H1 achieved operating income of 3,446 million yuan, up 30.24% year on year; net profit to parent - 73 million yuan, reversing loss of 56.48% year on year (2022H1 homologated net profit was -168 million yuan); net profit after deducting non-return net profit - 144 million yuan, reversing loss 34.58% year on year (2022H1 net profit not attributable to net profit of -220 million yuan).

Looking at 2023Q2 alone, we achieved operating income of 2,087 billion yuan in a single quarter, an increase of 23.88% over the previous year; net profit to parent - 110 million yuan, a reversal of loss of 30.92% year on year (2022Q2 net profit for a single quarter was -160 million yuan); net profit of non-attributable income was -141 million yuan.

Brief review

(1) The share of system equipment tenders has been rising steadily, and the overseas promotion company 23H1 has maintained a good growth trend. The revenue growth rate increased by 8.11 pct compared to the full year of 2022, and the single Q2 revenue increased 23.88% year-on-year. The company is one of the 5G mobile communication system equipment vendors. It continued to benefit from the steady progress of 5G construction in China during the year. As of 2023H1, the total number of 5G base stations added each year in China reached 625,000, accounting for 65.5% of the global 5G base station deployment, and the total number of 5G base stations built and opened has reached 2.937 million.

In the first half of the year, the company continued to maintain close cooperation with various operators. The overall tendering situation was good. The share of shortlisted procurement tenders in the field of mobile communication system equipment rose steadily, and the domestic market share of antenna feed and room division equipment remained among the highest in the industry. Specifically, in the first half of the year, the company won the bid for China Mobile's 5G wireless main equipment collection from 2023 to 2024, and its overall bid share grew rapidly; the antenna feed business won the bid for China Mobile's urban and rural base station antenna collection from 2023 to 2024, ranking second in the winning bid share; and the office division business led the industry in terms of winning the new bid share. At the same time, the company's service projects have been expanded at an accelerated pace, and its share of advantageous businesses such as office division integration and main equipment installation has continued to increase, and comprehensive maintenance has achieved new market breakthroughs in many provinces.

In the international market, the company continues to focus on target regions such as Southeast Asia, the Middle East, and South America, accelerate the improvement of the marketing service system, and the international project service delivery system continues to improve. Among them, 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 a breakthrough in the high-end European and American markets.

Furthermore, the company has successfully promoted the exploration of patent operation models, carried out patent operation business with domestic and foreign terminal manufacturers, Internet manufacturers, and car companies through various methods, and continued to obtain large-scale revenue, and optimized its diversified business structure.

(2) Satellite Internet has achieved its first satellite application, and continues to occupy the development of dedicated networks for the highland industry. The company continues to focus on energy, transportation, communication instruments and other fields, realizes the vertical application of 5G in various projects such as coal mines, petroleum and petrochemicals, power grids, etc., and participated in the formulation of standards related to CCSA, mining, and railway 5G-R. In terms of satellite Internet, the company continued to strengthen its first-mover advantage. In the first half of the year, the company achieved a major breakthrough in its 5G satellite Internet solution, achieved its first star application. At the same time, it further enriched the satellite Internet product sequence, built a full range of products such as communication payloads, antennas, core networks, and instruments, and actively expanded the civil satellite Internet market.

The company continues to occupy a high ground in R&D. In terms of 6G, 23H1 continues to carry out research on 7 key technology directions for 6G wireless and 6 key technical directions for 6G networks and security, and has made breakthroughs in large-scale multi-antennas, network artificial intelligence, 6G wireless and network architecture, and sensor integration. The company developed 6G principle verification equipment such as RIS next-generation large-scale antenna transmission systems and new large-scale antenna arrays, and carried out technical verification. In terms of satellite internet, in June 2023, my in-depth participation in the “Future Technology Trends of Satellite International Mobile Communications (IMT)” project was officially approved as a co-editor. This is the first research project targeting 6G satellites set up by the ITU-R (ITU-R). In the same month, the Joint National Key Laboratory of Wireless Mobile Communications (China Information Technology) released the “White Paper on Intelligent Connectivity for Global Coverage Scenario-Star-Earth Integration”, which proposed the satellite-terrestrial integration network architecture and related key technologies, released the “90,000 Mile Plan” for space-terrestrial integration, and worked with various partners to promote the construction of a space-terrestrial integrated network with seamless coverage throughout the world.

(3) Overall gross margin increased, and cost reduction and efficiency continued to be reflected. The loss amount dropped sharply. The company's 23H1 comprehensive gross profit margin was 25.13%, up 1.61 pct from the previous year. Among them, the gross profit margin for Q2 was 21.05%, up 3.13 pct from the previous year. Overall, the company's high gross margin equipment sector's revenue share continues to rise. The gross margin of system equipment, antenna feed equipment, and room division equipment all performed well. Combined with the steady development of overseas business and private sector network business, the gross margin structure showed a good trend.

The cost rate for the 23H1 period was 24.79%, down 6.33 pct from the previous year, and all cost rates declined. Sales, management, R&D, and financial expenses decreased by 0.94 pct, 0.60 pct, 3.84 pct, and 0.95 pct respectively to 5.12%, 2.26%, 17.74%, and -0.33%. The company highlighted the scale effect as sales continued to grow rapidly. Combined with strengthened budget execution, the dynamic control effect was obvious. It continued to show efficiency improvements and fee reductions, combined with improvements in gross margin, and contributed to a significant year-on-year loss reduction in 23H1 and 23Q2.

Profit forecast:

The company's operating income for 2023-2025 is estimated to be 9.087 billion yuan, 11.736 billion yuan, and 14.141 billion yuan respectively, up 31.33%, 29.15% and 20.49% year-on-year, and net profit to parent is -271 million yuan, 157 million yuan, and 394 million yuan respectively. It is estimated that 2024 will turn a loss into a profit, corresponding to the current stock price PS of 2.7 times, 2.1 times, and 1.8 times, maintaining the “increase in holdings” rating.

Risk analysis

1. Core competitiveness risk: If the company fails to accurately predict and grasp market and industry trends, fails to keep up with communication technology trends, responds to new market requirements for products in a timely manner, experiences long-term stagnation in technology and process upgrades, or lags behind competitors in R&D and application of new technologies and processes, it may face repeated technology upgrades and risks of product replacement and elimination, thus adversely affecting the company's future ability to continue to operate and profitability. At the same time, if intellectual property rights are infringed or leaked due to the flow of core technical personnel, poor intellectual property protection measures, etc., it will weaken the company's technological advantages to a certain extent and have an adverse impact on core competitiveness.

2. 5G industry risks: From a global perspective, the strategic, basic, and leading role of the 5G information and communication industry in the development of the digital economy has not yet been fully exploited. There are still large regional gaps in related network construction, and overall industry applications are still being cultivated and evolved.

3. The risk of further intensification of market competition: In the application field of the 5G industry, there are many vendors such as telecom operators, communication equipment manufacturers, communication service providers, software and application developers, etc., and the company is facing more diversified competition. If the company's market reputation is damaged due to poor technology, product quality accidents, delays in delivery cycles, and untimely service, etc., it will adversely affect the company's operating results and financial status.