Incident: On April 17, 2024, Yiyuan Communications announced that it had received a fixed project letter, and received a fixed project letter of about US$742 million to US$1,309 million.
The company's automotive business has received large orders from overseas, which is expected to have a positive impact in the long term. Yiyuan Communications recently received a fixed letter from a world-renowned auto parts supplier (name cannot be disclosed based on a confidentiality agreement) to select the company as its automotive module supplier. According to the customer's plan, the targeted project is expected to gradually begin mass production and delivery in 2026, with a delivery period of 8 years from 2026 to 2033. Total project lifecycle sales are estimated to be approximately $742 million — $1,309 million. The above project fixed-point notice does not reflect the customer's final actual purchase quantity. Currently, it is only the customer's estimated amount. This matter is not expected to have an impact on the business results of 2024 and 2025. This matter will have a positive impact on the company's future business performance. The specific amount and time of impact will be determined depending on the implementation situation.
The company's share of the global market reached 34% in 2023, and its leading position in the industry is stable. According to Counterpoint's latest global cellular IoT module and chip tracking report by application, global cellular IoT module shipments in 2023 experienced an annual decline for the first time, a 2% year-on-year decline. Inventory adjustments following supply chain disruptions and reduced demand in key market verticals such as industry and enterprise were some of the main factors contributing to the decline. 4G Cat.1 bis grew the fastest in 2023, accounting for over 22% of shipments.
Thanks to cost performance and energy efficiency, 4G Cat.1 bis has become the main cellular standard in the Chinese POS, smart meter, connected car, and location tracker markets. The market is slowly transitioning from 4G Cat.1 and NB-IoT to more efficient 4G Cat.1 bis. According to Counterpoint data, Yiyuan Communications's global market share reached 34.0% in 2023, far ahead of Guanghetong (7.8%) and China Mobile (6.7%), which ranked second, and has a stable leading position in the industry.
Equity incentives are tied to the core team, and the company's subsequent development can be expected under high standards. On July 25, 2023, the company announced an equity incentive plan. Based on the 2022 net profit base, the 2024/2025/2026 net profit growth rates will not be less than 10%, 30%, and 60%, respectively. The company's net profit for 2022 was 623 million yuan. According to the equity incentive target guidelines, the company's net profit targets for 2024/2025/2026 are not less than 685 million yuan, 810 million yuan, and 997 million yuan respectively, and the company's subsequent rapid growth in performance may be expected.
Investment advice: We are optimistic about the future development of the IoT industry. At the same time, we believe that Yiyuan Communications, as a global leader in the field of IoT modules, is expected to rely on its advantages to continue to expand upstream and downstream. Overseas markets are expected to continue to bring considerable performance increases to the company, and the company's leading position in the market may be further consolidated. We adjusted the company's profit forecast based on the company's 2023 complex external environmental factors. We expect the company's revenue to reach 13.940 billion yuan, 16.520 billion yuan, and 19.439 billion yuan respectively in 2023-2025, and net profit to mother is expected to reach 84 million yuan, 675 million yuan, and 845 million yuan respectively, corresponding to PE multiples of 122x/15x/12x.
We expect the company's performance to continue to increase under subsequent equity incentives. Maintain a “Recommended” rating.
Risk warning: the risk of increased competition in the industry; the risk of market demand falling short of expectations; the risk of developing overseas customers falling short of expectations.