As a national high-tech enterprise, 712 is a core supplier in the domestic private network wireless communication field. The company directly holds 4 subsidiaries. In 2018-2022, the company's revenue increased from 1,626 billion yuan to 4,040 billion yuan, with a CAGR of 25.56%; in the first three quarters of 2023, the company achieved revenue of 2,266 billion yuan, an increase of 2.37% over the previous year. In the same period, the company's net profit to mother increased from 225 million yuan to 775 million yuan, with a CAGR of 36.24%; in the first three quarters of 2023, the company achieved net profit of 308 million yuan, an increase of 2.06% over the same period in 2022. Over the same period, the company's gross margin and net profit margin were relatively stable:

The company's gross margin during the third quarter of 2018-2023 stabilized in the 44%-49% range; net margin fluctuated greatly compared to gross margin, but remained stable in the 13%-20% range during the third quarter of 2018-2023.

In recent years, the global private network communication industry has shown a steady growth trend. The market size in 2022 was about US$25 billion, and is expected to grow to US$27.2 billion in 2023. The market size of China's private network communication industry has maintained a steady growth trend. In 2021, the size of China's private network communication market was 32.65 billion yuan, mainly in the equipment market. The CAGR in 2016-2021 reached 21.40%; it is expected that the size of China's private network communication market will exceed 40 billion yuan in 2023. In terms of market competition, Hytera gradually took the leading position in the field of military industry, including 712, Haeger Communications, Shanghai Hanxun, etc., and in the field of public security, the leading position in the railway sector is mainly China Communications. In terms of competition in the private network communication market, Hytera's 23 annual report shows that related revenue exceeds 1.7 billion yuan. In addition, 712 and Haige Communications are on a large scale, achieving revenue of 829 million yuan and 1.32 billion yuan respectively in the first half of '23.

Looking at the two major categories of wireless private network communication: military products and civilian products, military products mainly include data links, satellite communications, communication navigation and identification (CNI) systems, etc. Civilian products are mainly used in the field of public safety and railway rail transit. Among them, in terms of military data chains, China's military comprehensive tactical chain largely refers to the communication model and function design of the US military Link-16 tactical data chain, and construction of the military's comprehensive data link system is being accelerated. In 2017-2022, the company's R&D expenditure increased from 356 million yuan to 809 million yuan, with a CAGR of 17.88%. Of these, total R&D expenditure in 2022 accounted for 20.04% of revenue, and R&D expenditure in the observed range accounted for more than 20% of revenue. The company's main business revenue is divided into five categories according to application platforms for different products: aviation wireless communication terminals, terrestrial wireless communication terminals, railway wireless communication terminals, system products, and others. The company announced the 2023 equity incentive plan in January 2024 to actively carry out equity incentives; at the same time, since its listing, the company has continued to pay stock dividends, and ROIC has continued to increase, helping the company develop with high quality.

Profit forecast: The company is a leading wireless communication equipment company in China. The company's revenue for 2023-2025 is 43.04/52.40/6.517 billion yuan, net profit to mother is 792/9.90/1,346 billion yuan, corresponding EPS is 1.03/1.28/1.74 yuan, PE is 27.30/21.83/16.06 times, maintaining the “recommended” rating.

Risk warning: Technological innovation R&D investment risk, product technology iteration risk, and increased market competition risk.