Event: The company released its annual report for 2023 and the report for the first quarter of '24. For the full year of '23, the company achieved revenue of 890 million yuan, an increase of 66.1% over the previous year; net profit to mother was -90 million yuan. In Q1 '24, the company achieved operating income of 180 million yuan, an increase of 32.6% year on year; net profit to mother was 69.93 million yuan, an increase of 46.8% year on year.

Overseas+satellite have taken a two-pronged approach, and performance has achieved high growth. In '23, the company's overseas business gradually resumed. It successively won multiple local operators' ICT projects in India, Bangladesh, Malaysia, the Middle East and Africa, and accelerated the launch of equipment overseas in the field of 5G and optical networks. In 2023, the company's overseas revenue was 320 million yuan, a year-on-year increase of 117.3%. At the same time, global satellite internet construction is advancing at an accelerated pace, and the company's forward-looking layout investment is gradually being converted into profit. The company is one of the few domestic enterprises with satellite Internet core network technology. In 23 years, it has bid for several domestic satellite Internet core network projects, continued to track and develop the mobile phone direct satellite service, and won an order of 800 million yuan for satellite communications from an overseas country. Regarding 5G+ satellites, the company and China Unicom have also cooperated on projects such as satellite access configuration modules in the modern cybersecurity industry chain. 2024 is the first year of construction of China's low-orbit satellite internet. With the completion of the Hainan Commercial Launch Center and the beginning of batch launches, performance in the satellite field is expected to be released at an accelerated pace.

Gross profit margins have rebounded, and cost control results have been excellent. The company's product iteration accelerated, and product added value increased, which in turn led to a rebound in gross margin. In 2023, the company's gross margin increased by 1.4pp year-on-year to 40.5%. In terms of expenses, the company's four comprehensive expenses rate in '23 was 43.9%, a year-on-year decrease of 23.5pp. Among them, the sales expense ratio decreased by 8.1 pp year on year, the management expense ratio decreased by 6.5 pp year on year, and the R&D expense ratio decreased by 10.4 pp year on year. The company's fee control results were remarkable. Against the backdrop of a 66.1% increase in revenue, the absolute amount of all expenses remained stable, resulting in a sharp drop in various expense ratios. We expect the company to reverse losses in 24 against the backdrop of revenue growth, a recovery in gross margin, and cost control.

Lay out the fields of quantum cryptography, AI, integrated scheduling, etc., or benefit from future transformation. The company invested 200 million yuan in R&D in '23, an increase of 5.9% over the previous year, and R&D investment accounted for 22.8% of total revenue. The company is based on the cutting edge of the industry. Research projects include 5G access gateway projects integrating 5G and satellites, machine vision AI service platform projects, integrated combat guidance systems integrating sensing technologies such as drones and satellites, and quantum cryptographic gateways, covering 5G, 6G, satellites, AI, quantum cryptography, and integrated scheduling. Based on the advantages of existing ICT equipment and satellite equipment, the company is expected to achieve rapid transformation of R&D investment into revenue in the context of China's accelerated deployment of new types of productivity such as commercial aerospace, low-altitude economy, and quantum technology.

Profit forecasting and investment advice. EPS is expected to be 0.53 yuan, 0.83 yuan, and 1.06 yuan respectively in 2024-2026, and the corresponding PE is 35 times, 22 times, and 18 times, respectively. The company is an important supplier of China's satellite Internet core network system. It is expected to benefit from the explosion of related orders and maintain a “holding” rating.

Risk warning: Risks such as satellite internet construction falling short of expectations, new product development falling short of expectations, and exchange rate fluctuations.