Core views
The company continues to strengthen R&D efforts. It has accumulated technology research and development strength, supply chain support capabilities, market resources and a strong pre-sales, in-sales and after-sales technical support team. It has 6 series of more than 300 core products. The company's series of chip products have entered the supply chain systems of many well-known customers and have become a core supplier in domestic chip fields such as satellite navigation, broadband communication, video image processing, and interface. Although the company's short-term performance is affected by industry factors, downstream demand falls short of expectations. However, in the long run, the company's downstream demand is relatively rigid, as demand releases performance It is expected that growth will resume at a relatively rapid pace.
occurrences
The company released the 2023 annual report and the 2024 quarterly report. In 2023, it achieved revenue of 852 million yuan, or -27.95%, and realized net profit of 73 million yuan, or -75.81% year on year; in the first quarter of 2024, revenue of 139 million yuan, or -27.62% year on year, realized net profit of 16 million yuan, or -68.87% year on year.
Brief review
1. Performance is under pressure in the short term, and gross margin remains at a high level.
The company released the 2023 annual report and the 2024 quarterly report. In 2023, it achieved revenue of 852 million yuan, -27.95% year-on-year, and realized net profit of 73 million yuan, or -75.81% year-on-year. 23Q4 achieved revenue of 237 million yuan, or -50.34% year-on-year, and realized net profit of -171 million yuan, or -181.37% year-on-year. In 2023, the company's integrated circuit business achieved revenue of 455 million yuan, -25.18% year-on-year. The design service business revenue declined year-on-year due to a decrease in the number of integrated circuit design service projects undertaken and inspection nodes. The revenue of the Beidou terminal and operating business was 207 million yuan, or -38.92%. The main reason was that the company's Beidou 2nd generation products were gradually being replaced with Beidou 3rd generation products, Beidou 2nd generation delivery declined year over year, Beidou 3rd generation marketing fell short of expectations, and some companies that signed provisional pricing contracts earlier to deliver products reduced annual revenue due to differences in provisional pricing and review pricing. The revenue of the security monitoring business was 189 million yuan, -18.37% year-on-year, mainly affected by the progress of construction and acceptance of video surveillance system projects, and the fact that related intelligent products have not yet formed large-scale sales. At the same time as revenue declined, the company maintained a high level of investment in R&D expenses, and government subsidies and investment income fell sharply, leading to a marked decline in the company's profit side.
In the first quarter of 2024, the company achieved revenue of 139 million yuan, or -27.62% year on year, and realized net profit of 16 million yuan, or -68.87% year over year. The large year-on-year decline in profit was mainly affected by declining revenue and maintaining stability on the expense side.
The company's gross margin in 2023 was 54.63% (-0.75pct), and the net margin was 6.59% (-19.49pcts). The cost rate for the period was 45.23% (+13.81pcts), of which the sales rate was 7.01% (+1.38pcts) and the management rate was 19.81% (+6.14pcts), mainly due to increases in depreciation and amortization expenses, travel expenses, rent and property management expenses; the R&D rate was 17.74% (+6.12pcts). The company's gross margin remained at a high level, but the net margin dropped a lot, mainly due to the decline in the company's revenue scale while continuing to vigorously invest in R&D to maintain its competitiveness. In 2023, the company's R&D expenses were 151 million yuan, +9.98% year-on-year, while sales expenses decreased 10.4% year on year. In the future, as downstream market demand recovers, the company's profitability is expected to recover rapidly.
The 24Q1 company's gross margin was 58.86% (-9.67pcts), and the net profit margin was 8.67% (-17.9pcts). Although the company's gross margin declined significantly year-on-year, it was still at a high level. The cost ratio for the period was 59.85% (+16.3pcts), mainly due to an increase in R&D investment. R&D expenses were 43.16 million yuan, +30.81% year-on-year.
The company maintains a high pace of R&D, and its profitability is greatly affected by the industry in the short term, but in the long run, the company's products still maintain a high gross profit margin. The company's increased R&D indicates that the company has some confidence in its future layout, and its performance is expected to resume growth as the industry recovers.
2. Strong R&D strength. The RF chip product matrix continues to be rich, which is expected to open up a broad market space.
The company's RF chips are mainly converters, clocks, software radios, and silicon-based multi-function MMICs. The product layout is a complete RF transceiver link “signal reception → RF front end → analog-to-digital conversion → signal processing”.
High-speed high-precision converters can be fully localized and are at the advanced level in China. The product can achieve direct C-band RF acquisition and transmission, expanding the number of channels to meet the differentiated needs of core users, reducing cost and area, and greatly simplifying users' system solutions. The company has long focused on developing high-precision, high-speed converters, continuously consolidating its position in the industry and expanding the large-scale application of converter products in the satellite Internet, NEV, instrumentation and other markets.
Continuously improve the performance indicators of clock products, expand data throughput, provide low jitter clock synchronization solutions for various applications such as converter sampling and FPGAs, and actively expand the market for various applications such as computers, vehicle regulations, and servers. In 2023, the company launched a variety of high-performance clock products. With 14 3.2GHz clock chips, the core performance indicators have been greatly improved, which can meet the needs of various complex applications such as communications and instruments. Software radio products can be widely used in communications, public safety, drones, satellite Internet and other fields. In 2023, the company launched third-generation SDR products, breaking through key technologies of large bandwidth, high integration and low power consumption, and reaching the advanced level in China. The company's silicon-based multi-function MMIC uses silicon-based chips to replace compound semiconductor materials, effectively reducing costs and achieving lightweight, compact, low power consumption, and high integration.
The video interface product category is the most complete, covering the entire video link (in addition to sensors, FPGA, and display chips) for airborne, shipboard, and vehicle display control platforms. 4K video codec interface chips (DP/HDMI/LVDS class), vehicle video and audio transmission chips are being planned to meet the localization needs of display control systems and Xinchuang computer display manufacturers, occupy the market share of high-definition 4K video interface products, and expand vehicle standard products to form a complete application chain solution for video transmission buses and audio transmission buses. The plan is expected to open up a broad market space in the future.
The company has a wide range of interface chips and a high level of development, which are widely used in aircrafts, ships, automobiles, industry, conferences, live TV broadcasts, etc. The company is currently accelerating the development of high-speed SerDes products, improving the product matrix, and laying out the computer, automotive electronics, and VR markets.
3. SOC continues to make efforts in Beidou's traditional areas of advantage to meet demand and actively expand the downstream market.
The company's SOC products are mainly divided into Beidou SOC, image SOC, and digital multi-beam synthesis SOC chips. The image SOC chip product integrates the main functions of image enhancement and video compression, and is mainly aimed at image transmission applications. The digital multi-beam synthesis SOC chip is a reconfigurable digital beam synthesis processing ASIC chip. It can replace FPGA in digital T/R links to achieve beam synthesis function. Currently, the company is vigorously developing and transforming to SIP or SOC architectures.
The company has been deeply involved in the Beidou industry for more than 20 years. It is one of the earliest enterprises to participate in the development of satellite navigation and positioning terminal products. It has participated in the development, application, production and operation services of satellite navigation and positioning terminal products. It has formed nine series of more than 100 products, including handheld, vehicle, ship, airborne, etc., with functions covering positioning, navigation, timing, speed measurement, command and short message communication. It is one of the domestic Beidou manufacturers with a wide range of applications. The company has R&D and service capabilities for the entire industry chain of “components-terminal-system applications” in the Beidou sector. Based on self-developed Beidou chips, the company provides customers with high-quality Beidou modules and terminal products. The products have high technical barriers in terms of high dynamics, anti-interference, security, compatibility and interoperability. During the Beidou second generation, the company was a leading enterprise in domestic Beidou satellite navigation and positioning terminals. Currently, it is gradually switching to Beidou third-generation products, gradually expanding the “Beidou+” integrated market, and actively laying out application fields such as energy, railways, water conservancy, and emergency management.
4. Investment advice and profit forecast.
The company continues to strengthen R&D efforts. It has technology research and development capabilities, supply chain and sales support teams accumulated over nearly 20 years, and has 6 series of more than 300 core products. The company's series of chip products have entered the supply chain system of many well-known customers and have become a core supplier in the domestic chip fields such as satellite navigation, broadband communication, video image processing, and interfaces. Although the company's short-term performance is affected by industry factors, the release of downstream demand falls short of expectations, but in the long run, the company's downstream demand is relatively rigid, and the performance is expected to return to relatively rapid growth as demand releases. We estimate that the company's net profit for 2024-2026 will be 136 million yuan, 211 million yuan, and 293 million yuan, respectively. The PE corresponding to the current market value is 64X, 41X, and 30X respectively, maintaining a “buy” rating.
Risk analysis
Market competition has intensified. Currently, the chip design and Beidou satellite navigation industry is developing rapidly, the number of new entrants continues to increase, and market competition is intensifying. Situations such as homogenized product competition, declining product market prices and shrinking industry profits due to demand from users to reduce prices occur from time to time. The company's main business industry is technology-intensive. The gross margin of the product has remained at a high level for a long time. The products are used in many industries, and the pace of upgrading is fast. If the company cannot continue to maintain its core competitiveness to cope with market changes, or if new competitors continue to break through technology, capital, scale, customer barriers in the future and enter the industry, it will also lead to a risk of increased competition in the industry.
The risk of performance fluctuations due to differences between the provisional price of the product and the final approved price. The end users of some of the company's products are special industry users. The settlement price agreed in some contracts is the provisional price, and the final price is based on the customer's approved price. Therefore, there may be differences between the provisional price and the final approved price of some of the company's products. If the difference between the provisional price and the approved price is large, there may be a risk that the company's revenue and performance will fluctuate.
Raw material prices and supply risks. As an integrated circuit design company, the company's production outsourcing faces certain pressure on preparation and raw materials, rising production costs, and production cycles. Long-term shortages of major raw materials or continuous large fluctuations in production prices may have a certain impact on the company's product gross profit margin, supply guarantee, and future profitability.
Risk of corporate shareholder litigation. Chengdu Guoteng Electronics Group Co., Ltd., the controlling shareholder of the company, has had many lawsuits due to shareholder differences. Currently, lawsuits are still pending. Guoteng Electronics Group's governance impasse due to sharp conflicts between shareholders will continue to exist for a long period of time.