Event: The company released its report for the third quarter of 2023. The first three quarters of 2023 achieved revenue of 6.66 billion yuan, -17.5% year-on-year; net profit of 180 million yuan, -47.8% of the same period last year. Among them, Q3 achieved revenue of 2.31 billion yuan in a single quarter, -19.9%, +3.3% month-on-month; net profit of -22.41 million yuan, -114% year-on-year and -117.8% month-on-month.
Net profit attributable to shareholders of listed companies declined year-on-year. First, demand for domestic orders has declined, leading to a decline in gross margin. The global economic situation is weak, and industry demand has declined compared to the high base for the same period last year. Especially in the third quarter of 2023, price competition in the domestic communication terminal equipment market was fierce, manufacturers' gross margin fell sharply, and the company's gross margin fell to 10.7%, down 2.1 percentage points from the previous year. In addition, the company's subsidiary, Shandong Wenyuan Communication Technology Co., Ltd., also declined in order gross margin due to weak customer demand. Its net profit loss in the first three quarters of 2023 exceeded 30 million yuan, resulting in a year-on-year decrease of 120 million yuan in gross profit in the third quarter of 2023.
The rate of administrative expenses and financial expenses has risen, and government subsidies have been reduced. Since 2021, the company's management expense ratio and financial expense ratio have continued to rise. In 2021, the company's management expense ratio and financial expense ratio were 2.9% and -0.4% respectively, and 2023Q1-Q3 rose to 3.7% and -0.1%; the company's sales expense ratio remained at the level of 2022, with 2023Q1-Q3 at 1.8%. In the third quarter of 2023, the company's financial expenses increased by 92.5 million yuan over the same period last year, mainly due to exchange losses caused by the appreciation of the denominated exchange rate and fluctuations in settlement and the US dollar, while the depreciation of the denominated exchange rate in the same period last year led to exchange gains. Corporate government subsidies were reduced. In the third quarter of 2023, government subsidies were reduced from 33.45 million yuan in the same period last year to 13.34 million yuan, a decrease of 2011 million yuan.
The Netcom business is under pressure in the short term, and the digital communication business and mobile communications business are developing steadily. In the first three quarters of 2023, the company's network communication business season was under pressure, and the digital communication business maintained a steady trend; in the mobile communications business, the scale of base station communication and FWA business continued to expand; and the total sales volume of the sensor sealing and automotive electronics businesses had doubled compared to the whole of last year. The company invested 270 million yuan in 2023Q1-Q3 R&D expenses, a decrease of 15% over the previous year. The company has invested 1.19 billion dollars in R&D in the past three years, and continues to innovate in the digital communication and mobile communications business. It is expected that in the future, with the gradual recovery of the Netcom business, the increase in the share of digital communication business, the expansion of the scale of new business, changes in the company's high-value-added product structure, and cost reduction and efficiency measures, the company's profitability will improve markedly.
Profit forecasts and investment advice. The 2023-2025 EPS is expected to be 0.49 yuan, 0.64 yuan, and 0.77 yuan respectively, corresponding to 18, 14, and 12 times PE, respectively, covering the “hold” rating for the first time.
Risk warning: Risks such as AI development falling short of expectations, technology iteration falling short of expectations, switch demand falling short of expectations, changes in the competitive landscape, increased competition, and the company's new business development falling short of expectations.