Incident Overview
On April 22, Kun Heng Shunwei released the 2023 annual report and the first quarter report of 2024.
In 2023, the company achieved revenue of 255 million yuan, an increase of 15.08% over the previous year, and realized net profit of 87.1 million yuan to mother, an increase of 7.2% over the previous year. With 2024Q1, the company achieved operating income of 24.81 million yuan, an increase of 28.74% over the previous year, and achieved net profit of 3.0351 million yuan to mother.
The gross margin level remained high, and revenue growth picked up in 24Q1
On the revenue side, in the face of certain downstream pressures and disturbances, the company grew 15.08% year-on-year in 2023. We think it is mainly due to: 1) The gradual improvement of the core product matrix, such as the major wireless channel simulator, which made important breakthroughs in the satellite communications and semiconductor testing markets, and the number of orders for vector signal sources increased rapidly after continuous refinement. 2) Industry solutions continue to be rich. With the improvement of the product matrix, the advantages of the company's system-level solutions have become more obvious. They have continuously expanded from radio testing and simulation to solutions such as analog training and digital twins in the electromagnetic environment. With 2024Q1, the company's growth rate picked up, achieving revenue of 24.81 million yuan, an increase of 28.74% over the previous year.
On the profit side, benefiting from the high-end nature of the product, the company maintained a high level of gross margin in 2023 (68.01%) and increased by 1.54 pcts compared to 2022. On the other hand, since the company is still in the process of improving its product matrix and sales channels, various cost rates have risen. Among them, R&D investment increased significantly. In 2023, the company's R&D expenses were 567.566 million yuan, an increase of 62.73% over the previous year, and the R&D expenses rate was 22.38%, an increase of 6.55 pcts over 2022.
As 5G-A commercialization progresses, demand for integrated low-orbit satellites and sensing is expected to appear. As domestic 5G-A commercialization progresses and 6G technology pre-research is being developed, we expect that two new applications in 5G-A, the upgrade demand for low-orbit satellites and synergy will gradually emerge. 1) In terms of low-orbit satellites: In 2023, the company's channel simulator received orders from several domestic satellite internet-related system and equipment manufacturers. At the same time, the company and industry partners helped the China Mobile Industry Research Institute complete ground communication tests and space environment adaptability tests for space-borne base stations based on the 3GPP R17 NR NTN standard, and worked together to build analog terminals and channels. The development of a comprehensive tester with independent dual channels has been carried out. The product is mainly used for conformance testing of satellite terrestrial communication terminals. 2) In terms of integrated sensing: The company will launch a new generation of wireless channel simulators to conduct research on relevant test and simulation technology around technical directions such as the integration of heaven and earth and the integration of synesthesia, and provide a laboratory simulation and verification environment.
Equity incentives released, demonstrating confidence in rapid development
On February 26, the company completed the awarding of equity incentives for 2024. Judging from the conditions for lifting the sales restriction, the current equity incentive will lift the sales restriction in three stages in 2024/2025/2026. The target value is based on the 2023 revenue. The company's 2024-2026 revenue growth rate will not be less than 30%/69%/119.7%, respectively, that is, the compound growth rate will reach 30%, and the compound growth rate corresponding to the trigger value will be about 22%. We believe that while ensuring the stability of the company's core talent team, this equity incentive also shows the company's confidence in its current self-worth and maintaining rapid development over the next three years.
Investment advice:
Kun Heng Shunwei is a pioneer in the field of high-end radio testing and measurement in China. Currently, it is undergoing a comprehensive upgrade of the customer system+product matrix+business model. The company's products focus on the high-end market, maintain high R&D investment, continue to launch new products, open up market space, and drive medium- to long-term performance growth. Taking into account the additional costs brought about by equity incentives, we lowered our previous profit forecast. We expect the company's revenue for 2024-2026 to be $334/44/589 million yuan, respectively, and net profit to mother of $117/1.53/201 million yuan, respectively. Maintaining the buy-A investment rating, the 6-month target price is 41.7 yuan, which is equivalent to a dynamic price-earnings ratio of 30 times in 2024.
Risk warning: 1) Risk of new product development falling short of expectations; 2) risk of limited supply of upstream raw materials and devices; 3) risk of market and channel development falling short of expectations; 4) risk of downstream market demand falling short of expectations.