Incident: Beidou Xingtong recently released its 2023 performance report. It is expected to achieve operating income of 4,082 billion yuan, YoY +6.97%; achieve net profit of 160 million yuan, YoY +10.22%; achieve net profit without return to mother - 367 million yuan, YoY -638.77%. Revenue achieved steady growth, and performance on the profit side was divided. After deducting large losses in net profit due to non-return to mother, net profit increased slightly, mainly due to a decline in business revenue and a large increase in investment income.

Comment: Revenue from chip and navigation products declined, and non-net profit after deducting impairment declined sharply.

During the reporting period, the company divested its automotive electronics business. Total profit declined by 220 million yuan year-on-year due to the impact of customer inventory removal and marketing falling short of expected revenue. On the cost side, the company continued to increase strategic investment in cloud services, low-power chips, inertial navigation, etc., with an increase of about 50 million yuan over the same period last year; in addition, asset impairment losses such as inventory and intangible assets and credit impairment losses totaled about 299 million yuan, of which the automotive electronics business depreciated about 169 million yuan. Furthermore, the company obtained an investment income of 410 million yuan in 2023, mainly due to the sale of 15% shares in Beidou Zhilian Technology Co., Ltd.

The divestiture of the automotive electronics business focuses on the main business, and profitability is expected to improve significantly. During the reporting period, the company sold 15% of the shares of Beidouxingtongzhilian Technology Co., Ltd., a holding subsidiary of the automotive electronics business, for a transaction price of 253 million yuan. After the transaction was completed, the company indirectly held 18.21% of the shares, and Beidou Zhilian was no longer included in the scope of consolidated statements of listed companies. The automotive electronics business is fiercely competitive and capital is in high demand. The gross margin of Beidou Zhilian declined year by year. The gross margin from 1-5 in 2023 was only 6.19%, which is lower than the overall gross profit level of comparable companies and Beidou Xingtong. According to the exam preparation report, the company's gross margin increased from 20.65% to 49.08% in January-May 2023 after this transaction. The divestment of the automotive electronics business is expected to enable the company to further focus on its main chip and navigation business, and significantly increase profit levels.

The “cloud+core” business layout continues to advance, consolidating the competitive advantage of location information services. The company pioneered the first large-scale civilian application of Beidou in China. It is in a leading position in the field of chips and navigation, and continues to empower thousands of industries through highly reliable, high-accuracy, and continuous location information services in the intelligent era.

Profit forecast: Beidou Xingtong is a leading navigation and positioning manufacturer in China. It is optimistic that the company's profitability will improve significantly after divesting its automotive electronics business. The company is expected to achieve operating income of 40.82/20.13/2,540 billion yuan in 2023-2025, and achieve net profit of 160/3.36/487 million yuan, corresponding to EPS of 0.29/0.62/0.90 yuan. This is the first coverage, giving it an “increase in weight” rating.

Risk warning: Increased market competition and R&D risks.