Matters:
Recently, Xinwei Communications released a report for the third quarter of 2023: the company achieved revenue of 5.594 billion yuan (YoY -9.45%), net profit of 517 million yuan (YoY -13.97%), net profit of 517 million yuan (YoY -13.97%), and net profit of 493 million yuan after deduction (YoY +0.66%). Looking at a single quarter, the company achieved revenue of 2,248 billion yuan (YoY -9.5%, QoQ +39.80%) in 23Q3, realized net profit of 324 million yuan (YoY -22.42%, QoQ +569.57%), and achieved net profit of 348 million yuan (YoY +7.95%, QoQ +1013.66%). Affected by weak demand for consumer electronics terminals, the company's performance in the third quarter declined year-on-year, but the month-on-month growth was steady. It was mainly affected by factors such as pulling goods driven by the recovery in consumer electronics, the gradual expansion of new business, and the merger of acoustics company Weishi Technology. With the further recovery of the consumer electronics market and the expansion of the company's new business, it is expected to usher in an inflection point in the company's performance.
Commentary:
As mature business products and customers have expanded, consumer electronics recovery companies are expected to fully benefit. The company drives business development with materials, deepens “materials → components → module” R&D capabilities, maintains process leadership and provides customers with more products and solutions, and has formed a product matrix including mature businesses such as antennas, wireless charging, and EMI/EMC. The company's various businesses are progressing steadily. In terms of wireless charging, the company's wireless charging module has expanded from the receiver end to the transmitter end, improving system-level integration capabilities; in terms of antennas, the company's LCP module has entered the North American major customer industry chain, and is expected to further improve performance as its share grows. According to IDC data, global smartphone shipments in the third quarter of 2023 were 303 million units (YoY -0.10%), and the decline narrowed markedly. Downstream of the company's products is mainly in the consumer electronics sector, which is expected to benefit from the recovery of the consumer electronics and mobile phone market.
Commercial satellite communications have already entered major overseas customers, and a number of new businesses have built the company's second growth curve. In addition to mature businesses, the company has also laid out a number of new businesses, including commercial satellites, automobiles, and passive components, which are expected to form the company's second growth curve. (1) Commercial satellites: The company's high-frequency high-speed connectors have been recognized by major overseas commercial satellite customers, achieved batch supply, and are becoming an important force in the company's business growth.
In recent years, more and more countries have begun construction of commercial satellite communication projects, which will bring good development opportunities to related industrial chains. The company is expected to seize the opportunity to cultivate commercial satellite communications into an important downstream application field for the company. (2) Automobile business: The company has increased the development of automobile-related business and has obtained supply qualifications from domestic and foreign OEMs such as Tesla, Volkswagen, Honda, FAW, Changan, Mercedes-Benz, Foxconn, etc., and the scale of business continues to grow. (3) Passive components: Aiming at the high-end positioning of passive components, the company has successfully developed multiple categories and models of high-end resistors and MLCC products. Among them, many high-end MLCCs have reached the level of products of the same type in Japan and South Korea.
Investment advice: The company's main business is steadily advancing product and customer expansion. The LCP module has entered the major customer industry chain in North America, and is also expected to fully benefit from the recovery of consumer electronics. Furthermore, the company's commercial satellite communications have already entered major overseas customers, which is expected to be an important increment in the company's performance growth. Since the company is still affected by weak demand for consumer electronics terminals in the short term, we lowered the company's net profit forecast for 23-25 to 8.48/9.74/1,109 billion yuan (previous value of 1,032/1,277 billion yuan in 2023/2024), giving it a “recommended” rating.
Risk warning: terminal demand falls short of expectations, new product development falls short of expectations, industry competition intensifies