Key points of investment

Incident: On April 25, 2024, Putian Technology released its 2023 annual report. In 2023, the company achieved operating income of 5.463 billion yuan, a year-on-year decrease of 22.79%, and realized net profit of 36 million yuan, a year-on-year decrease of 83.32%.

The performance of the three major business segments is under pressure, and increased competition and weak demand are the main factors. In the public network communications sector, the company achieved revenue of 1,492 billion yuan in 2023. The revenue scale was basically the same as the same period last year. The gross profit margin was 9.76%, down 3.92 pct year on year, and net profit declined, mainly due to increased competition in the operator planning and design industry. Under pressure from falling service prices and rising operating costs, project gross profit showed a downward trend. At the same time, overseas subsidiaries were affected by local economic factors, leading to a decline in revenue scale and an increase in operating costs. The private network communication and smart application sector achieved revenue of 2,771 billion yuan in 2023, a year-on-year decrease of 33.36%, and a gross profit margin of 16.80%, which was basically the same as the previous year. Revenue and net profit declined sharply compared to the same period last year, mainly due to tight customer funds. Project tenders were postponed or cancelled, and delays in customer payments caused many project delays. The intelligent manufacturing sector achieved revenue of 1.2 billion yuan, a year-on-year decrease of 14.69%, gross profit margin of 27.70%, and a year-on-year decrease of 8.4 pct. Mainly affected by weak demand and fierce market competition, the scale of sales orders and average unit prices declined. At the same time, due to improved quality control standards, the company increased investment in technological innovation in order to scientifically prevent supply chain risks, leading to an increase in manufacturing costs.

Lay out satellite internet+low-altitude economy to accelerate research and development of key technologies and supporting products. Putian Technology relies on the Telecom Group, and China Power Grid Connect is its controlling shareholder, providing a platform for the development of its communications industry. The company actively plans and lays out the development of the satellite Internet industry. The China Communications Standardization Association (CCSA) participated in research and standard setting for collaborative networking under various air, sky, and terrestrial models, and actively promoted research and development of related technologies and products. At the same time, the company has further strengthened innovation investment and empowerment, and stepped up efforts to promote the iterative upgrading of products such as high-end PCB products, thermostatic crystal oscillators, and Beidou terminals. In addition, the company is also actively promoting the integration of space and ground private network communication applications for emergency and other industries. Based on the company's core advantages in terrestrial communication, it can provide customers with safer and more efficient private networks after achieving integrated space and earth communication in the future. In the low-altitude field, communication and navigation are all key supporting technologies for low-altitude intelligent connectivity networks. The company specializes in the planning, design, optimization and development of related products (including 5G and Beidou) of communication and information networks. The company will make full use of its technical and product advantages in the field of communication and navigation to actively participate in the construction of low-altitude intelligent connectivity networks.

Forward-looking reserves of 5G-A and 6G technology, and teamed up with the University of Electronic Science and Technology to accelerate the breakthrough of “space and space integration” technology. In recent years, the company has continued to increase investment in 5G, further develop communication network products and achieve new breakthroughs, localizing 5G small base stations, 5G repeaters, 5G micro distribution systems, and 5G industrial gateway core devices, and building autonomous and controllable product advantages. At the same time, the company continues to follow up key technology research such as 5G-A and actively follow up and participate in 6G-related standard research, and continues to promote large-scale development of 5G and other independent product businesses, and actively track and lay out next-generation communication fields such as 6G and satellite internet. According to the announcement issued by the company on April 12, the company signed a strategic cooperation agreement with the “National Key Laboratory of Space and Earth Integrated Business Network” (ISN National Key Laboratory) of Xi'an University of Electronic Science and Technology to form a deep and comprehensive long-term strategic partnership to meet the development needs of the satellite Internet and low-altitude economy industries, and jointly establish the “Xidian - Putian Technology (Tiandi Integrated Ubiquitous Information Network) Joint Laboratory”. The agreement is valid for three years. This cooperation is expected to accelerate the company's achievement of double breakthroughs in the technology industry and open up A new point of business growth.

Investment advice: Considering that part of the company's business was affected by weak demand, tight customer capital and fierce market competition, etc., we adjusted the profit forecast. We adjusted the profit forecast. The company's 2024-2026 revenue is expected to be 66.38/77.33/8.684 billion yuan (24-25 year forecast was 68.59/7.947 billion yuan), up 21.5%/16.5%/12.3% year on year, and net profit to mother was 2.00/249/303 million yuan, respectively (previous 24-25 forecast value was 2.01 billion yuan) /261 million yuan), with a year-on-year increase of 462.1%/24.3%/21.8%, EPS was 0.29/0.36/0.44 yuan, PE was 84.6/68.1/55.9, maintaining the “Increase in holdings - B” rating.

Risk warning: Satellite internet construction falls short of expectations, new product technology research and development progress falls short of expectations, market expansion falls short of expectations, and policy implementation falls short of expectations.