Core views
The company has been deeply involved in the industrial communications industry for more than 20 years, always adhering to independent innovation, and continuously developing AI, 5G, edge computing, TSN, HaaS, Profinet, WiFi6 and other related products. The company has completed the optimization and upgrading of a number of communication technologies, and is focusing on expanding and iterating cloud-based collaborative AI application development tools to develop new products that meet market commercial value, enhance core competitiveness, and launch an industrial Internet R&D base in Songjiang District of Shanghai, which is expected to further promote the downstream application of the company's products, and future performance growth can be expected.
occurrences
The company released its 2023 annual report, achieving operating income of 439 million yuan, a year-on-year increase of 30.9%, net profit to mother of 109 million yuan, an increase of 13.77% year-on-year, and net profit after deducting 95 million yuan of non-return to mother, an increase of 25.90% over the previous year.
Brief review
1. Revenue grew rapidly, and profitability remained at a high level.
The company released its 2023 annual report, achieving operating income of 439 million yuan, a year-on-year increase of 30.9%, net profit to mother of 109 million yuan, an increase of 13.77% year-on-year, and net profit after deducting 95 million yuan of non-return to mother, an increase of 25.90% over the previous year. 2023Q4 achieved revenue of 130 million yuan, a year-on-year increase of 12.08%, and achieved net profit of 33 million yuan, a year-on-year decrease of 5.04%. The increase in the company's revenue in 2023 was mainly due to the rapid development of the industrial Internet industry in which the company is located, and demand for downstream terminal applications grew steadily; the company initially achieved development from a product enterprise to an end-to-end full-stack product solution enterprise, transforming from a single communications product provider to a scenario-based software and hardware product solution provider, helping to further enhance the company's order development ability and market competitiveness. The company's orders remained stable and continued to increase, and revenue grew steadily over the same period last year.
Among the company's main products, the operating income of industrial exchange products was 310 million yuan, up 21.64% from the same period last year, and gross margin was 62.10% (+0.54pct); the operating income of industrial gateways and wireless products was 52 million yuan, an increase of 4.45 million yuan over the same period last year, up 9.32% year on year, with a gross margin of 56.66%; and solution business revenue of 64.737 million yuan, gross margin of 32.62%. The profitability of traditional businesses has improved, and the solution business is expected to contribute new momentum to growth.
Profitability remains at a high level. In 2023, the company's net margin was 24.76% (-3.67pct) and gross margin was 56.94% (-1.26pct). Profitability declined slightly but remained high. On the expense side, the comprehensive expense ratio was 34.25% (-2.43pct), of which the sales expense ratio was 12.82% (-0.96pct), the management fee rate was 7.15% (+1.51pct), and management expenses increased 65.80% over the same period last year. Based on the company's business development needs, the increase in management personnel, and the impact of factors such as the company's implementation of the 2022 restricted stock incentive plan. The R&D rate is 13.99% (-3.19pct), and the financial rate is 0.3% (+0.02pct). Taken together, the company's management efficiency is gradually improving, and the reduction in the cost rate is mainly due to the decline in R&D rates.
2. Continue to innovate and maintain independent core technology, and continue to expand advantages in multiple industry layouts and application scenarios.
The company has been deeply involved in the industrial Internet field for more than 20 years, always adhering to the concept of independent innovation, R&D driven development, and has built a R&D team with a deep professional background, strong innovation ability and understanding of industry applications, and excellent technical skills. It continues to invest a lot of resources in research and development of new technologies and products to enhance the extension performance and value space of existing technologies and products, and maintain the competitive advantage of core technologies. In order to further adapt to the development trend of the industry, the company has a product marketing department, operation management department, technology platform department, inspection department, and comprehensive development resources department for product lines such as industrial switching products, industrial gateway products, industrial wireless products, industrial software products, etc., to strictly implement R&D IPD process management, and focus on market demand as the driving force and guiding force for product development to meet customer needs in segmented markets. We believe that in the development of the industrial Internet industry, the demand for “connectivity” may be released first, and the company is expected to fully benefit from the accumulation of good technology and a perfect product system.
Industrial Internet communication products play a key role in information systems in various industries, and the company has a certain first-mover advantage in many industries. The company is one of the earliest companies involved in industrial Internet communication products in China. It has accumulated deep technical strength and rich industry experience in the fields of traditional electricity, new energy, petroleum and coal mines, rail transit, integrated pipe galleries, etc. In the field of electricity, it is committed to forming an integrated communication network system for power generation, transmission, distribution and electricity use to provide a safe, stable and reliable communication network for smart grids. In the field of new energy, an intelligent monitoring system is built for renewable energy sources such as wind power generation and solar power generation, so that monitoring centers can remotely control power plant equipment and pursue maximum power conversion. In the field of smart mining, in line with the needs of intelligent mine construction, the stability and security of the network is improved, network guarantees for safe mine production, and the steady progress of intelligent mine construction.
In the field of intelligent manufacturing, it covers various fields such as intelligent equipment, intelligent production line visual inspection, intelligent warehousing, intelligent factories, etc., and has advantages such as strong data confidentiality and intelligent linkage of production processes, and is committed to promoting the digital transformation and upgrading of the manufacturing industry.
3. Significant R&D results have been achieved in the field of AI.
In 2023, the company further improved its AI business center capabilities. First, the current management center can manage edge AI computing devices more comprehensively.
Second, the functionality of the edge AI application configuration development tool already integrated on the middle side has been further expanded and optimized. Through this application preview tool, edge AI vision application developers can fully adjust and optimize applications before application deployment to ensure application effectiveness. Sanwang AIKit is a configurable edge AI application development tool. The tool currently covers two edge-side AI hardware platforms.
4. Profit prediction and investment advice.
The company has been deeply involved in the industrial communications industry for 20 years. The products are mainly used in downstream fields with significant demand release in the industrial Internet industry such as intelligent manufacturing, smart mining, electricity and new energy, and smart cities. The scale of related business continues to grow steadily, and the first-mover advantage is obvious. At the same time, the company has a forward-looking layout in emerging technology fields such as 5G edge computing and TSN, continuously increasing investment in product technology, market channels and building industrial ecological advantages, enhance core competitiveness, and increase investment in the AI field. The Songjiang Industrial Internet R&D base will also further promote the company's industry With collaborative development within the chain, future performance can be expected to continue to grow. We expect the company's 2024-2026 revenue to be 590 million yuan, 764 million yuan and 990 million yuan, respectively, and net profit to mother of 149 million yuan, 207 million yuan and 273 million yuan respectively. The PE corresponding to the current stock price is 24X, 17X, and 13X, respectively, maintaining an “incremental” rating.
5. Risk warning.
The development progress of the industrial Internet falls short of expectations, causing downstream demand to slow down, and sales of the company's related products are affected; if there is a shortage of chips or other raw materials required for the company's products, the company's product shipments may fall short of expectations, which may affect performance growth; if the price of raw materials rises sharply and the price cannot be transmitted downstream in a timely manner, it may lead to a decline in product gross margin and a decrease in the company's profitability; if competition in the industrial communications market intensifies, product prices may drop to a certain extent; the company's new product development progress falls short of expectations; new technology products such as HaaS platforms and TSN Market acceptance falls short of expectations, product promotion is not progressing smoothly, company performance growth is affected, etc.