A leading company in RF devices and precision mechatronics, high R&D investment consolidates the competitive advantage of the industry.

The company has 20 years of high-volume manufacturing experience in the entire filter process, and is the world's largest mobile communication base station filter design and manufacturer. The company has full-process precision manufacturing and R&D capabilities with vertical mechatronics integration and vertical integration, which can shorten product technical preparation and manufacturing cycles, improve customer response speed, and adapt to the customized characteristics of the industry. The company continues to make forward-looking technology reserves and investment in R&D. The average annual R&D investment in the past three years is about 250 million yuan. R&D investment accounts for more than 10% of revenue, and has a self-made capacity of nearly 50 perfect precision manufacturing process products as high as 95%. As of June 30, 2023, the company has obtained a total of 1,394 authorized patents, including 309 inventions, 1,020 utility models, and 65 designs. The company builds a shared intelligent manufacturing platform based on multi-process precision manufacturing capabilities to provide customers with professional solutions “from hardware to software and hardware, from components to systems”.

The low-altitude economy is expected to promote 5G-A applications, and the company's base station filter business is expected to benefit. On March 27, four departments including the Ministry of Industry and Information Technology issued the “Implementation Plan for Innovative Application of General Aviation Equipment (2024-2030)”, which proposes top-level designs for general aviation equipment and the development of a low-altitude economy. On March 28, China Mobile launched the world's first commercial deployment of 5G-A, and plans to develop more than 20 million 5G-A end users within the year. Synesthesia technology is one of 5G-A's core innovations and is expected to be applied on a large scale in the low-altitude economy. China Mobile and Fengyi in Guangdong can accurately identify the drone's position, speed, and trajectory based on 5G-A, and enable scenarios such as express delivery and medical supplies delivery. Compared with traditional 5G base stations, the demand for the number of antennas and filters for 5GA base stations has increased dramatically, and the company is expected to benefit deeply as a major filter manufacturer in the industry.

The product market recognition is high, and the customer resources are high. The company has been highly praised and recognized by the market and customers for its leading technical strength, quality assurance capabilities, rapid response in production capacity, and high quality and fast service capabilities. The main customers include world-class high-quality customers such as Huawei, Ericsson, Nokia, Apple, British American Tobacco, and Bosch.

Profit forecast: Dafu Technology is a leading manufacturer of RF communication technology and filters in China. It is optimistic that demand for the company's downstream 5G-A will explode, driven by high boom tracks such as the low-altitude economy, which will drive the rapid development of the company's filter business. The company is expected to achieve operating income of 27.32/31.92/37.46 billion yuan in 2023-2025, and achieve net profit of 1.55/ 0.41/115 million yuan, corresponding to EPS of -0.20/0.05/0.15 yuan. This is the first coverage, giving it an “increase in weight” rating.

Risk warning: The promotion of the 5G-A industry falls short of expectations, and market competition intensifies.