Investment highlights:
A leading smart set-top box company in China, transforming into a smart connectivity comprehensive service provider, Jiulian Technology was founded in 2001 and has provided multimedia information terminals and services to more than 100 million households. The company's set-top box business started, gradually expanded the product matrix such as integrated smart home gateways, smart routers, NB-IoT modules, and Hongmeng AI, and transformed into an integrated solution and service provider for digital home and IoT communication. In 2022, the company achieved revenue of 2,403 billion yuan, of which smart terminals/communication modules and industry applications/operation services were $21.12/2.01/038 billion respectively, accounting for 87.9%/8.4%/1.6% of revenue.
The main smart terminal industry is expected to pick up. “Hongmeng +” promotes product interconnection and industry-deep companies with industrial manufacturing capabilities combining software and hardware, and actively promotes the collaborative layout of “Hongmeng OS+ computing power+terminal”, which is expected to benefit from the interconnection and industry expansion of the Hongmeng ecosystem.
① Smart terminals: In 2022, the company's intelligent network set-top boxes accounted for 27.0% of shipments in the Chinese mobile market, ranking first for four consecutive years. The company is actively deploying new products such as smart gateways, WIFI6 smart routers, and ultra-high-definition displays, and is transforming from a single product category to a comprehensive smart connected service provider.
② IoT communication and optical modules: The company began entering the IoT module and optical module market in 2017. Its main products include IOT modules, communication modules, and optical modules, and achieved large-scale shipments in the fields of smart homes, sharing economy, charging and switching, and security monitoring. According to Counterpoint, the market share of 2023Q1 Jiulian Technology's cellular IoT module reached the top five in China and the top ten in the world.
③ Harmony+ Edge Computing: In 2023, the company was upgraded to a Class A donor in the OpenHarmony Project Group. In terms of Huawei's “1+8+N”, the company promoted the implementation of products in the smart home scenario through Hongmeng Zhilian. In terms of OpenHarmony, the company's HoloceneOS distribution, 6 commercial devices, and 5 development boards/modules passed the compatibility evaluation. Related products have been launched in the fields of industrial robots and electric power.
Market space: Internet of Everything trend, IoT communication and equipment rapid expansion of smart terminals, ① Set-top boxes: In 2021, China's set-top box shipments exceeded 72 million units, +8.40% over the same period last year. The switch wave combined with the promotion and application of new technologies such as high-definition, AI, and the Internet of Things, is expected to reach 79.3 million units in 2023. ② Home network communication equipment: According to Verified MarketResearch data, the global home network communication equipment market will reach US$28.35 billion in 2030, with an average compound growth rate of 4.83% in 2022-2030. Among them, the home wireless router market is expected to grow to US$3.1 billion by 2026, with a five-year compound growth rate of 10.40%.
IoT communication: There is a one-to-one correspondence between communication modules and IoT terminals, and will grow simultaneously with the increase in IoT connected devices. The cellular module market in 2022 is about 34.123 billion yuan, and ABI Research estimates that the global cellular module market will exceed $6 billion in 2024. Hongmeng Ecosystem: HarmonyOS is a full-scenario, distributed operating system for the new era of the Internet of Everything, and is expected to become the third largest mobile operating system after Android and iOS. Hongmeng is compatible with hardware platforms to the south and connects a large number of applications to the north. As of August 2023, the Hongmeng ecosystem has more than 700 million devices, 2.2 million developers, and 59 billion API calls per day.
Profit forecast and investment rating: With the development of emerging technologies such as the Internet of Things and 5G, the company's smart terminal business is expected to bottom out and pick up. At the same time, the company participated deeply in the construction of the Hongmeng ecosystem, “OS+computing power+terminal” collaborative layout, and continued to promote product interconnection and industry depth.
We expect net profit from 2023-2025 to be 0.55/150/258 million yuan, EPS is 0.11/0.30/0.52 yuan/share respectively, and PE corresponding to 2024-2025 will be 39.72/23.09X, respectively, covering the first time, giving it an “increase in holdings” rating.
Risk warning: Macroeconomics affects downstream demand, market competition intensifies, Sino-US game intensifies, IoT industry development falls short of expectations, and orders from major customers fall short of expectations.