Core views

For the full year of 2023, the company achieved operating income of 3.268 billion yuan, a year-on-year decrease of 19.11%; net profit to mother of 440 million yuan, a year-on-year decrease of 43.25%; 2024Q1 achieved operating income of 490 million yuan, an increase of 3.68%; and net profit to mother of 158.774 million yuan, a year-on-year decrease of 36.43%. The company's operating performance declined due to short-term demand fluctuations, such as mid-term adjustments to the industry's “14th Five-Year Plan” and scientific research results not yet fully transformed. The company has a leading position in the field of military wireless communication and civilian wireless communication, and has always been committed to independent research and development and innovation of wireless communication technology, participating in the formulation of many wireless communication systems, winning bids for many new military communication project products. Emerging fields are rapidly expanding, and future growth space can be expected.

occurrences

The company released a report for the first quarter of 2024, achieving operating income of 490 million yuan, an increase of 3.68%; net profit to mother was 158.774 million yuan, a year-on-year decrease of 36.43%; net profit after deducting non-return to mother was 8.2642 million yuan, a year-on-year decrease of 47.28%.

The company released its 2023 annual report, achieving operating income of 3.268 billion yuan, a year-on-year decrease of 19.11%; net profit to mother was 440 million yuan, a year-on-year decrease of 43.25%. Net profit after deducting non-return to mother was 390 million yuan, a year-on-year decrease of 47.28%

Brief review

1. The company's short-term performance fluctuates, and future growth momentum is sufficient

The company's operating performance declined due to short-term demand fluctuations, such as mid-term adjustments to the industry's “14th Five-Year Plan” and scientific research results not yet fully transformed. In 2023, the company achieved operating income of 3.268 billion yuan, a year-on-year decrease of 19.11%; realized net profit of 440 million yuan, a year-on-year decrease of 43.25%; realized net profit without deduction of 390 million yuan, a year-on-year decrease of 47.28%. With 2024Q1, the company achieved operating income of 490 million yuan, a year-on-year increase of 3.68%; realized net profit of 15.8.774 million yuan, a year-on-year decrease of 36.43%; realized net profit without deduction of 8.2642 million yuan, a year-on-year decrease of 60.21%.

2. Profitability declined in the short term, and cost reduction and efficiency continued to ferment

In 2024Q1 and 2023, the company's gross margin was 35.50%/41.85% (-7.75pcts/-4.74pcts), and net margin was 4.63%/14.15% (-1.41pcts/-5.07pcts), respectively, and profitability continued to decline. Mainly due to factors such as cyclical fluctuations in the industry and delays in customer bidding projects, the company's orders showed a short-term downward trend. At the same time, due to the structure of delivered products, revenue, gross profit, and net profit all declined. In 2024Q1 and 2023, the company's total expenses for the period were 169 million yuan/977 million yuan, respectively. The cost rate for the period was 34.49%/29.90% (-12.00%/+9.24% year-on-year). In 2024Q1, the company's internal cost reduction and efficiency were significant, and the cost side was optimized, mainly due to the year-on-year reduction in financial expenses and R&D expenses, while other expenses remained relatively stable.

3. Remarkable results in market expansion, two-wheel drive for military and civilian business

The company is a leader in wireless communications in China. Its main business includes two major fields of military communications and civil communications. 1) The military sector continues to expand and break through market segments: the company won bids for many new military communications projects with excellent results; expanded the product application range to Beidou-3 satellite navigation and other fields to achieve platform breakthroughs; in the field of aviation communications, integrated radio frequency systems achieved order breakthroughs; in the field of terrestrial communications, shortwave and scattering products achieved breakthroughs in the field of oversight. 2) Use technology to guide demand in the civil sector and maintain close communication with major railway administrations: The company completed the “Research and Application of Key Technologies for Heavy-Duty Railway Public Private Network Integrated Broadband Dispatch Communication” project. The research results have been applied in batches on heavy-duty railways such as China National Energy Group Shuohuang Railway, Baoshen Railway, and Shaanxi Coal Chemical Group Jingshen Railway to promote innovation and high-quality industrial development in the field of civil wireless communication. Benefiting from the construction of defense informatization, it is expected that in the field of terrestrial communications, individual military terminals, vehicle terminals, and scattering products will continue to be ordered.

4. Military R&D is expanding and building barriers. As technology-driven and technology-innovative enterprises, companies with advanced technology innovation platforms have always attached importance to independent technological research and development and innovation. In recent years, they have insisted on a high proportion of R&D investment of more than 20% to continuously empower the company's technological leadership and R&D innovation. R&D expenses in 2023 were 673 million yuan, a year-on-year decrease of 16.83%. R&D expenses accounted for 21.52% of revenue, and the number of R&D personnel accounted for 50.62% of the total number of people in the company. The proportion of researchers with a bachelor's degree or above increased significantly. By the end of 2023, the company had obtained a number of patented technologies and formed a large number of independent research and development results. The company and its holding subsidiaries have a total of 201 invention patents, 190 utility model patents, and 117 design patents. The company is deeply involved in the field of wireless communication, terminals and systems have been fully expanded, and the advantages of science and technology innovation platforms have been highlighted. The company is one of the earliest military wireless communication equipment R&D and manufacturing enterprises in China. It has complete scientific research and production qualifications. It is the main supplier of wireless communication equipment in this field. It participated in the bidding process for scientific research projects and was shortlisted for several projects. While guaranteeing the supply of military communications products, the company is focusing on leveraging its core technical advantages to expand horizontally into the civilian field, making significant use of its advantages as a science and technology innovation platform.

5. The reform of the incentive mechanism continues to be deepened, and the company's potential is expected to accelerate the release of a follow-up investment mechanism to bind key employees to ensure the long-term stable development of the enterprise. The company announced and implemented a stock option incentive plan to establish a sound, continuous and stable long-term incentive mechanism to attract, retain and motivate outstanding managers and core technical employees to ensure the continuous improvement of management capacity and operating efficiency; issued a project follow-up incentive implementation plan, and invested in the establishment of Guiyang Xinluo Electronics Co., Ltd., a shareholding subsidiary. The project company was established by the follow-up investment target through a joint investment platform with the company. Through the establishment of an incentive and restraint mechanism of “risk sharing and benefit sharing”, the project company is deeply tied to the company and the backbone, enhancing the team's enthusiasm and sense of responsibility in management, and enhancing the company's competitiveness.

6. Profit prediction and investment rating: A leading military communications company, which can be expected to win bids and incentives, and can be expected to be implemented. The purchase rating company has a leading position in the field of military wireless communication and civil wireless communication, and has always been committed to independent research and development and innovation of military wireless communication technology, and participated in the formulation of various wireless communication systems. Benefiting from the construction of national defense informatization, the share of the traditional equipment sector has been rising steadily. At the same time, fields such as scattering communication, individual communications, unmanned communication, and big data applications have been expanded through bidding. System-level carrying capacity has been steadily improved. The civilian sector relies on technological advantages to advance rapidly, and there is broad room for future growth. We are optimistic about the company's future prospects. The company's net profit from 2024 to 2026 is estimated to be $570, 6.88, and 808 million yuan, respectively, with year-on-year increases of 29.51%, 20.88%, and 17.38%, respectively. Corresponding PE from 24 to 26 was 31.66, 26.19, and 22.32 times, respectively, maintaining the buying rating.

Risk analysis

1. R&D results fall short of expectations: The company always insists on high R&D investment. R&D investment accounts for more than 20% of revenue all year round. If R&D results fall short of expectations, it will significantly affect future market expansion and product upgrading, thereby affecting performance release.

2. Market competition intensifies: With the further advancement of military and civilian integration, the threshold for the military industry is gradually lowered, the company's traditional areas of advantage may be penetrated, and competition in emerging fields will become more intense, thus affecting the company's revenue and profitability.

3. The incentive effect falls short of expectations: The company has implemented a series of incentives to increase employee enthusiasm and enhance the company's vitality. If the incentive effect falls short of expectations, it may affect the company's long-term performance.