Release an equity incentive plan to demonstrate confidence in long-term development

The company issued a draft equity incentive. The total number of stock options to be granted in this incentive plan will not exceed 21.616 million shares, accounting for about 2.8% of the current company's share capital, and no reserved shares will be set.

The awardees: Including the company's senior management (including 9 people including the general manager, deputy general manager, and chief accountant), management cadres (149 people), and professional technical cadres (273 people), a total of 431 people. Based on the number of employees at the end of 2022, 2275 employees at the end of 2022, the number of people encouraged this time accounted for 19% of the total number of people. Among them, the number of equity options granted by management cadres and professional technical executives accounted for 34.48%/62.93% of the total amount of incentives.

Exercise price: 28.89 yuan/share.

Exercise conditions: The exercise assessment year is 2024-2026, 1) Based on 2022, the main business revenue growth rate in 2024-2026 is not less than 20%/35%/50%, and not lower than the 75th quartile of the target enterprise or the average value of the same industry. 2) Based on 2022, the growth rate of R&D expenses from 2024-2026 is not less than 20%/25%/30%.

3) The return on total assets in 2024-2026 is not less than 7%/7.2%/7.5%, and not lower than the 75th quentile value of the target company or the average value of the same industry.

Cost amortization estimate: The estimated amortization of equity incentive expenses from 2024-2028 will be 51,5897 million yuan/56.2797 million yuan/32.469 million yuan/14.4307 million yuan/1,0883 million yuan, respectively.

The equity incentive plan targets management and core technical talents, etc., and is expected to improve the company's long-term incentive and restraint mechanism, fully mobilize the enthusiasm and creativity of senior managers and core technical/business personnel, effectively enhance the cohesion of the core team and the core competitiveness of the enterprise, combine the interests of shareholders, the company and the core team, and pave the way for the company's long-term steady development.

Implement incentives for core backbone projects and improve the level of governance and competitiveness. In order to stimulate and mobilize the enthusiasm and creativity of core key talents, the company decided to implement investment incentives for core backbone projects. The investors will jointly invest in the project company with the company through a follow-up investment platform. This follow-up investment project, Guiyang Xinluo Electronics, is mainly engaged in module business. It is one of the company's expansion layout projects to the upstream of the industrial chain. In the future, it will help the company develop simultaneously in supply chain management, technical cooperation, product collaboration, and market expansion. The total amount of follow-up investment of the investors participating in the project was 6 million, accounting for 13.04% of the total share capital of the project company. Among them, Mr. Pang Hui, director and general manager of the company, participated in this follow-up investment as the project coordinator, with an investment amount of 152,500 yuan.

Profit forecasting and valuation

China's national defense informatization construction continues to be strengthened, and military informatization construction is expected to develop rapidly. The company is a leading domestic military wireless communication enterprise, and is expected to enjoy the dividends brought by the boom in the industry. We expect the company's net profit from 2023-2025 to be 874 million yuan/1,118 million yuan/1,347 million yuan respectively, and corresponding PE is 25x/20x/16x, respectively, maintaining the “buy” rating.

Risk warning

Military spending growth falls short of expectations; railway construction investment falls short of expectations; risk of shareholders' holdings reduction