Incident: Zhenyou Technology recently released its 2023 performance report. In 2023, it achieved operating income of 884 million yuan, YoY +64.12%; achieved net profit to mother of -83 million yuan, YoY +61.42%, a loss of 132 million yuan over the same period of the previous year; the revenue side achieved rapid growth, and the profit side achieved a significant loss reduction compared to the same period of the previous year.

Comment: Revenue achieved steady growth, and cost control and fee reduction significantly reduced losses. During the reporting period, the company's revenue increased significantly compared to the same period last year. The main reason was that the company continued to explore domestic and foreign markets, business gradually resumed in overseas markets, and as the satellite Internet process progressed, there was a significant increase in winning projects and orders at home and abroad. On the cost side, the company focused on cost control and fee reduction, and expenses increased less during the period; in addition, the company strengthened receivables management and expected credit impairment losses to decrease year-on-year. Revenue side growth and cost side control led to a significant reduction in the company's net profit for 2023.

A new satellite project purchase and sale contract has been signed, and the satellite Internet business can be expected in the future. On March 1, 2024, the company received a contract for the purchase and sale of a satellite communication project in a certain country signed with a customer in Beijing. The total contract price was 112 million US dollars (excluding tax), and the satellite Internet business has made significant progress. The company is one of the few companies with satellite 5G core network capabilities. It actively participated in the construction of satellite communication standards and solution verification, and won bids for several satellite Internet core projects during the reporting period. The company's satellite core network business has served Tiantong-1 and cooperating satellites in other countries, and has successfully delivered autonomous satellite mobile communication system projects, cooperative satellite mobile communication switching systems and intelligent network system construction projects, and satellite Internet core network projects. In 2024, China's satellite Internet construction will enter a critical year. The industry has broad prospects, and the company's satellite Internet business can be expected in the future.

Overseas business gradually resumed, and operator business progressed steadily. During the reporting period, the company gradually restarted its overseas business, while developing markets in Southeast Asia and other regions, winning bids for 4 consecutive core network projects from Telecom Malaysia, and adding new core network projects to Bangladesh Telecom. Domestic companies have successively won bids for XGPON equipment from provincial operators such as Xiong'an Radio and Television and Hunan Radio and Television, and their technical capabilities have been recognized by customers.

Profit forecast: Zhenyou Technology is a high-quality integrated communication system supplier in China. It is optimistic that the company will continue to expand in the fields of satellite Internet, public network and private network communication through technology accumulation to achieve long-term performance growth. The company is expected to achieve operating income of 8.74/11.52 billion yuan in 2023-2025, and achieve net profit of -0.83/0.64 billion yuan, corresponding to EPS of -0.43/0.33/0.75 yuan. This is the first coverage, giving it an “increase” rating.

Risk warning: Increased industry competition, technology research and development risks.