For the first time, we covered China's leading satellite communications operations: China Satellite Communications (601698.SH), and gave it a “recommended” rating. The main reasons are as follows:
Through many capital operations, it has forged a leading position in the satellite communication operation industry. The company's predecessor, Weitong Group, was founded in 2001. After years of capital operation, it has created a leading position in the satellite communication operation industry; in 2019, the company was listed on the Shanghai Stock Exchange. The company is the second largest fixed communication satellite operator in Asia and the sixth largest in the world. It is currently the only basic telecommunications operator with autonomous and controllable broadcasting satellite resources in China, and has a wide range of services.
As of November 9, 2023, the company is operating 18 commercial communication broadcasting satellites, including 4 high-throughput satellites. The launch of Zhongxing 26 in early '23 was China's first high-throughput satellite with a capacity of over 100 Gbps, opening a new era of satellite Internet in China.
Performance is growing steadily; high-throughput satellites begin a new business journey. 1) From 2018 to 2022, the company's revenue remained at around 2.7 billion yuan, which is relatively stable; net profit from net profit increased from 4.2 million yuan to 920 million yuan, with CAGR = 17%. Among them, the performance growth rates in 2021 and 2022 both achieved double-digit growth, achieving net profit of 570 million yuan (YoY +17.1%) and 920 million yuan (YoY +60.9%), respectively, and the overall development is improving. 2) The company tracks the needs of key users and innovatively explores application models in various fields such as automotive and airborne vehicles.
As of the first half of 2023, the number of the company's online vessels exceeded 8,700. In addition, the company has continuously improved the Ka high-throughput satellite airborne network deployment and achieved coverage of the vast majority of domestic routes. For example, it cooperated with Sichuan Airlines to complete the deployment and modification of the Ka network for 15 narrow-body aircraft, and the aviation Internet service covered about 700,000 travelers; in terms of international business, on May 23, 2023, the company used Zhongxing 26 to achieve international Internet business applications overseas (Indonesia) for the first time, starting a new journey of international high-throughput satellite business.
The construction of satellite Internet is speeding up; there is a lot of market space for satellite services. 1) According to UCS, as of December 31, 2022, the number of satellites in orbit worldwide was 6718, of which communication satellites accounted for up to 72%, and overseas deployment accelerated. On the domestic side, on July 9, 2023, the satellite Internet technology test satellite was successfully launched; on July 25, Shanghai proposed the construction of a “G60 Starlink”, which will enable networking of more than 12,000 satellites in the long run.
Domestic satellite Internet construction has entered a stage of substantial development. 2) In 2022, the revenue of the global satellite industry was 281 billion US dollars, of which satellite service revenue was 113.3 billion US dollars, YoY -4.2%, accounting for 40.3%; satellite manufacturing revenue was 15.8 billion US dollars, YoY +15.3%; launch service revenue was 7 billion US dollars, YoY +22.8%, the fastest growth rate. We believe that satellite Internet construction at home and abroad has accelerated markedly, and that satellite services are the value focus of the satellite industry chain. As China's leading satellite communications operator, the company may be expected to benefit profoundly.
Investment suggestion: The company is the leading satellite communication operator in China, the second largest fixed communication satellite operator in Asia and the sixth largest in the world. Benefiting from the accelerated deployment of domestic satellite Internet, the company is expected to accelerate development. We expect the company's net profit from 2023 to 2025 to be 813 million yuan, 957 million yuan, and 1,094 million yuan, corresponding to the PE of 97x/82x/72x from 2023 to 2025. Taking into account the company's leading position in the field of satellite communication operations and development potential in the direction of satellite Internet, we covered it for the first time and gave it a “recommended” rating.
Risk warning: downstream demand falls short of expectations; price and profit margin changes; industry policy changes, etc.