Core views:
An Ethernet switch is a key device for interconnecting various network terminals. The Ethernet switching chip determines the function of an Ethernet switch and is also its core value link. Looking back at the history of switch chip evolution, the iteration of switch chips often determines the evolution of the optical network ecosystem. It is a prerequisite for the upgrade and deployment of the entire optical network, and the “heart” of the entire network terminal interconnection.
Traffic demand resonates with port upgrades, and demand in the data center market is increasing. Ethernet switching chips are widely used downstream. According to research data, the market size of commercial Ethernet switches will reach 17.14 billion yuan in 2025. The Internet of Everything era has arrived. Driven by cloud computing and AI, the data center market has become an important incremental downstream of Ethernet switching chips. Driven by increased traffic and the demand for port rate upgrades, the commercial Ethernet switching chip market is facing a sharp rise in volume and price.
The concentration of the first super two companies is high, and there is plenty of room for domestic alternatives. The global concentration of commercial Ethernet switching chips is high. Broadcom, Miman, and Realtek together occupied 97.8% of the market share in 2020, and local commercial Ethernet switching vendors are clearly scarce. International trade frictions continue, and the “stuck neck” problem of Ethernet switching chip technology cannot be ignored. Domestic enterprises are deeply involved in core technology research and development, continue to catch up with high-end product lines, and there is plenty of room for domestic alternatives.
Shengke Communications is a leading domestic Ethernet switching chip company, covering multi-level Ethernet switching chip products, and continues to catch up and reduce the generational gap with overseas leaders in high-end products. The company has strong R&D capabilities, and is expected to use its localization advantages to break the long-term monopoly pattern of international giants and benefit from the boom cycle and domestic replacement demand. The company is expected to achieve operating income of 11.49 billion, 15.16, and 1,865 billion yuan in 23-25, and realized net profit of -0.34, 0.30, and 0.48 billion yuan. Referring to comparable companies, give the company a 2024 PS 16x, corresponding to a reasonable value of 59.17 yuan per share, and give it a “buy” rating.
Risk warning. The risk of international trade friction; the risk that R&D progress falls short of leading foreign companies; the risk that the promotion progress and pace of major customers falls short of expectations, etc.