The Zhitong Finance App learned that CITIC Securities released a research report stating that satellite internet is one of the key promising directions and trends for 2024. 5G and satellite internet are the same key development directions of “new infrastructure” in the communications industry. The bank hopes to provide forward-looking lessons for satellite Internet circuit investment through a review of the 5G industry cycle. The 5G industry entered the fast track of development in 2018. The capital expenditure of the three major operators increased, driving performance improvements in key areas such as base station construction and terminal equipment.
Reviewing the historical performance of 5G, at the end of 2018, along with the recovery of the general market and anticipated acceleration of 5G licensing, the 5G market began to kick off. The 5G index (884224.WI) reached a phased high by March 2020, and the overall increase was more than double. In comparison, the satellite Internet is expected to usher in the first batch of low-orbit communication satellites in 24H1. The bank believes that it can be compared to the time in December 2018 when the Ministry of Industry and Information Technology issued test licenses for the 5G medium and low frequency bands to the three major operators. The satellite Internet sector may usher in a better layout window for 24H1.
Looking at the investment process, reviewing the historical performance of various aspects of the 5G industry, the bank summarized that the core of the high increase in stock prices and the long duration of the market is high value elasticity and barriers, including main equipment, PCBs, antennas, filters, etc. in upstream base stations, as well as terminal antenna and RF chip manufacturers in downstream 5G phones. Reflected in the satellite Internet industry, the satellite space segment and ground segment infrastructure-related industry chains are expected to usher in golden development opportunities:
1) In the early stages of domestic commercialization, SpaceX's supply chain is expected to be the first to benefit.
2) Currently, China's satellite Internet construction focuses on satellite manufacturing and satellite launch. The value and barriers of satellite critical payloads, space-borne phased array antennas, and T/R components are high. It is recommended to focus on A. communication payloads; B. radio frequency and related devices.
3) Terrestrial equipment accounts for more than 50% of the output value of the global satellite Internet industry chain (American Satellite Industry Association SIA data), and it is expected to leverage a wider market space in the future.
The main views of CITIC Securities are as follows:
The 5G industry, which also belongs to the communications industry, is highly comparable in terms of macro background, policy, technology, and application in the early days and current satellite internet.
1) The macro background is highly similar. Satellite internet was born in a complex macroeconomic and external environment, which is similar to the economic environment 5G faced when it started in 2018;
2) There is a high degree of similarity in policy support. The two major industries are on the same “new infrastructure” circuit for national efforts, and have received intensive policy support;
3) In terms of the similarity of key technical points, one of the technical barriers between satellite internet and 5G as communication industries is communication chips, but the satellite internet industry also requires iteration of satellite and rocket technology, which is relatively new;
4) In terms of the similarity of downstream applications, 5G continues to penetrate C-terminal applications, and Tob/ToG private network applications such as industrial Internet, smart cities, and telemedicine continue to expand; on the satellite Internet side, the demand for mobile phones directly connected to the C-side in China is still unclear. Currently, relatively clear markets are more in Tob/ToG fields such as navigation, aviation, military, and offshore, but the specific pace of implementation remains to be seen.
Revelation 1: Core catalysis. Operators' capital expenditure is the key to driving the development of the industry. Focus on the pace of Starnet and Kakinobu networking. 2024 is expected to be the first year of low-orbit satellite launches.
The development of satellite internet and all aspects of the 5G industry chain revolves around operator tenders. In June 2019, after the 5G commercial license was issued, the capital expenditure of the three major operators accelerated markedly. Large-scale tenders brought continuous orders to all parts of the industry chain, which in turn led to an increase in revenue from manufacturers such as base stations, transmission network facilities, optical modules, and RF chips. By analogy, the key to the commercialization of domestic satellite internet is the launch rhythm of the “Starnet” and “G60 Starlink” low-orbit satellites. 24H1 is expected to launch the first batch of stars; while China Starnet and Shanghai Yuanxin are operators of “Starnet” and “G60 Starlink” respectively, and their bidding progress is worth closely tracking.
Revelation 2: Time points. Satellite Internet 24H1 may welcome the launch of the first batch of stars and start a new round of trading, which can be compared to the market performance of the 5G Index after the end of 2018.
Reviewing the historical performance of 5G. Although the three major operators were not officially granted 5G commercial licenses until June 2019, in December 2018, the Ministry of Industry and Information Technology issued licenses to the three major operators to use the 5G medium and low band test bands. Market sentiment was ignited, and the market picked up. The 5G market began half a year before the license was issued. From December 2018 to the end of April 2019, the 5G index (884224.WI) increased by about 60%, and PE (TTM, weighted) climbed from about 60x to about 130x. Subsequently, on June 6, 2019, China officially issued 5G commercial licenses to the three major operators; on July 26, Huawei released the first 5G phone, the Mate 20X 5G, and commercialization of 5G officially reached an inflection point. From June 2019 to March 2020, the 5G index rose by about 60%, but overall stock price fluctuations increased, and the PE (TTM, weighted) index fell all the way from 110x to around 90x.
In comparison, the satellite internet is expected to usher in the first batch of low-orbit communication satellites in 24H1. The bank believes that it can be compared to the time in December 2018 when the Ministry of Industry and Information Technology issued test licenses for the 5G medium and low frequency bands to the three major operators. Although the industry has not yet been commercialized on a large scale, the market will start ahead of schedule under strong expectations+intensive catalysis. Therefore, the bank believes that the current satellite internet (January 2024) may be able to target the downward phase of 18H2 in the 5G sector, and it is expected that 24H1 will usher in a better layout window period. However, it should be pointed out that the introduction period of satellite internet may be longer than 5G, and the PE valuation of the current satellite internet index is significantly higher than 5G at the end of 2018, so the overall interpretation time of the satellite internet market may be lengthened, and it may have an impact on explosive power.
Revelation 3: The investment process. First, focus on the SpaceX supply chain and the key satellite payloads related to high-value, high-technology barriers.
Reviewing the historical performance of various segments of the 5G industry, the bank concluded that the core of the high increase in stock prices and the long duration of the market is high value and elasticity. Looking upstream, large-scale tenders from operators brought in a large number of orders for all aspects of the base station. Base station core main equipment and core component suppliers such as PCBs, antennas, and filters increased their revenue in 2019, which also led to higher stock prices. Looking downstream, according to Skyworks data, the RF value of 5G flagship models increased from $28 for 4G to $40. After large-scale commercialization of 5G, the revenue and stock prices of manufacturers such as terminal antennas and RF chips also generally entered an upward channel.
As reflected in the satellite internet industry, the bank believes that high value and high barriers are still the key. Considering that construction of a low-orbit satellite constellation in mainland China has yet to officially begin, SpaceX suppliers are expected to take the lead in benefiting with Starlink networking. As China's satellite manufacturing and launch process progresses, suppliers of key satellite payloads with high value and barriers (accounting for 50%-70% of satellite manufacturing value according to iResearch), space-borne phased array antennas (core components, high technical barriers), and T/R components (core components, high technical barriers) are expected to achieve better market performance. Finally, in the future large-scale deployment stage of satellite internet, ground equipment and operation services (American Satellite Industry Association SIA data), which account for up to 90% of the total output value, are expected to leverage a wider market space.
Risk Factors:
The construction of the satellite Internet constellation fell short of expectations; the satellite launch plan fell short of expectations; the construction of ground facilities and operation services fell short of expectations; and the pace of commercial space development fell short of expectations.