The leading domestic RF front-end has reached an inflection point in demand recovery performance. The company's predecessor was founded in 2006. It initially focused on digital TV chip design. In 2010, it transitioned into the RF switch and LNA circuit. In 2013, it entered Samsung's supply chain with the RF CMOS process GPS LNA developed in cooperation with TSMC, and since then it has successively entered mainstream Android supply systems such as Xiaomi and OV, and the competitiveness of discrete devices has continued to increase.
In 2019, the company landed on GEM. In the context of profoundly benefiting from the increased penetration rate of 5G, on the one hand, it entered more difficult filters and PAs to improve the discrete device layout, and on the other hand, it began expanding to receiver and transmitter modules. After experiencing rapid growth in 2019-2021, it entered a two-year inventory removal cycle. In 2023, the company achieved revenue of 4.38 billion yuan, a year-on-year increase of 19.1%, and achieved a net profit of 1.16 billion yuan to mother, an increase of 8.9% over the previous year. The gradual recovery in demand has already reached an inflection point in performance.
The RF front-end market is 100 billion, and there are many opportunities for domestic manufacturers. Looking at the industry level, Yole predicts that the mobile terminal RF front-end market is expected to grow from US$19.2 billion in 2022 to US$26.9 billion in 2028, with a CAGR of 6%, while international giants such as Qualcomm, Qorvo, Skyworks, Murata, and Broadcom still occupy more than 80% of the market share, and domestic alternatives face urgent time and spatial demands. We believe that downstream inventory removal is nearing its end, and a new round of goods collection has begun. At the same time, with the gradual implementation of satellite communications and the continuous evolution of 5.5G, domestic RF manufacturers will usher in new growth opportunities.
The proportion of modules is steadily increasing, and Fab-Lite is building a competitive barrier. Focusing on Zhuo Shengwei, we believe that the company's future focus will still be on creating more cost-effective module products based on self-developed PA and Xinzhuo's own filters, especially transceiver modules represented by L-PAMID. As the “pearl” product with the highest technical complexity and integration among RF front-ends, L-PAMID will have an important impact on the redivision of the domestic competitive landscape. Currently, the company's L-PAMID is still in the research stage. In 2022, the company's module products achieved revenue of 1.12 billion yuan, increasing to 30.4%. We expect that module revenue will exceed that of discrete devices in 2025. Looking forward to the future, we are optimistic that the company will continue to strengthen its supply chain advantages under the Fab-Lite model and enhance product iteration and mass production capabilities through close cooperation in design and manufacturing.
Profit forecast and investment suggestions: We expect the company to achieve revenue of 43.8/56.71 billion yuan in 2023/2024/2025, up 19.1%/28.8%/19.0% year on year, and achieve net profit of 11.6/16.0/ 2.05 billion yuan, up 8.9%/37.3%/28.3% year on year. The current stock price corresponding to 2024/2025 PE is 36/28X respectively. Considering the company's leading position in the domestic RF field, the current valuation is already very attractive. Upgraded to “Highly Recommended” rating.
Risk warning: R&D progress falls short of expectations; industry competition intensifies; downstream demand is insufficient.