The leading manufacturer of Ethernet switching chip, the revenue volume is growing rapidly. The company has been deeply engaged in the field of Ethernet switching chips for a long time, and its main products cover 100G-2.4T switching capacity and 100M-400G port speed, and the products are widely used in enterprises, operators, data centers and industries. There are customer and application barriers in the company's products. After successfully introducing the customer supply chain of Xinhua third, Ruijie Network, Maipu Technology, ZTE Corporation and other customers, the company has strong customer stickiness, low willingness to switch suppliers, and the product life cycle can be as long as 8-10 years. And is expected to continue to benefit from domestic substitution to improve permeability. In the first half of 2023, the company realized operating income of 640 million yuan, + 83% of the same period last year, and net profit of 40 million yuan, + 202% of the same period last year. It is estimated that in the first three quarters of 2023, the operating income will be 8.7-900 million yuan, which is + 57.4%-62.8% compared with the same period last year, and the net profit will be 0.38-40 million yuan, which is + 4757%-5247% compared with the same period last year.
With the rapid growth of the domestic market, the company speeds up the layout of high-end products to break the overseas monopoly.
1) in terms of market size, according to the company's prospectus, China's commercial Ethernet switching chip market is expected to reach 17.14 billion yuan in 2025, CAGR 13.8% in 20-25, and data center subdivision track CAGR 18.0%. 2) from the perspective of the competition pattern, the domestic market is highly concentrated and monopolized by overseas manufacturers. In 2020, Broadcom, Mei Man and Ruiyu together accounted for 97.8% of the market share of China's commercial Ethernet switching chips, and the company ranked fourth with a share of 1.6%. There is a wide space for domestic substitution. 3) from the development trend of the industry, due to the accelerated development of artificial intelligence, cloud computing and other technologies, overseas leading manufacturers have gradually launched chips with 25.6T and 51.2T switching capacity, and high-speed switching chips have gradually become the mainstream of the industry. the data center subdivision track shows a high growth rate. The company plans to launch the Arctic series in 2024 to face the demand of super-large-scale data centers in order to break the monopoly of overseas manufacturers.
Earnings forecasts, valuations and ratings
In September 2023, the company issued 50 million new shares at an issue price of 42.66 yuan per share, raising a total of 2.133 billion yuan, of which 1 billion yuan will be used for the research and development of new generation network switching chips and mass production projects, routing switching converged network chip research and development projects and supplementary liquidity projects, and the rest will be over-raised.
We estimate that the income for 23-25 will be 1.094 billion yuan, 1.415 billion yuan and 1.737 billion yuan respectively, and the net profit will be-48 million yuan, 7 million yuan and 35 million yuan respectively. Using the PS valuation method, we will give 20 times PS for 24 years, with a market capitalization of 283.06 billion yuan and a corresponding target price of 69.04 yuan per share, giving a "buy" rating for the first time.
Risk hint
The risk that the company has no real controller; the risk that financial investors reduce their holdings; the risk that the mass production progress of exchange chips is not as expected; and the risk that downstream demand is not as expected.