Investment summary
The product service industry is leading, and the goal of high-quality development is clear. Sanwang Communications is a solution service provider that first entered the industrial Internet communication field in China. It has been deeply involved in the industrial market for more than 20 years. Its products include industrial Ethernet switches, embedded industrial Ethernet modules, equipment networking products, industrial wireless products, etc., which are widely used in smart cities, smart mines, rail transit, electricity and new energy, and intelligent manufacturing. Sanwang Communications operates in more than 30 countries and regions at home and abroad, with a revenue growth rate of over 30% for two consecutive years; it continues to increase investment in R&D, focusing on the development of technologies and products such as time-sensitive networks, configurable edge AI, HaaS, and ultra-high power POE. The R&D cost rate has been higher than 15% for many years; it places great emphasis on investor returns. The dividend rates for 2020-2023 are 31.37%, 30.10%, 21.12%, and 35.40%, respectively.
Industry-side catalysis continues, and the industrial Internet has entered an upward cycle. On the stock side, driven by industrial Internet policies in multiple directions, the performance of domestic industrial communication equipment products has been iteratively improved. Supply chain system dividends have brought great advantages to Chinese enterprises in international competition, and there is broad scope for domestic alternatives.
On the incremental side, the AI+ industrial Internet model has become a new paradigm of industrial intelligence, reducing costs and increasing efficiency, and gradually increasing product penetration; industrial Internet data interaction has become the key to monetizing enterprise data assets, and intelligent products are expected to enter a period of explosion. According to statistics from IDC and China Business Industry Research Institute, China's industrial communications market size is 4.21 billion yuan in 2020, and is expected to reach 11.96 billion yuan in 2025, with a compound growth rate of 23.3%.
Make multi-faceted efforts to create a core competitive advantage. The company uses industrial exchange as the main channel, develops industrial gateway products, focuses on products in the field of wireless communication, and continues to expand in depth. On the technical side, in August 2022, Sanwang Communications first released the TSN deterministic network end-to-end solution to enable cyclic/non-periodic data transmission on the “same” network. On the platform side, in 2022, the company launched the HaaS industrial Internet heterogeneous system interconnection platform, using the Haas platform as a fulcrum to create a full-stack industrial Internet overall solution to effectively meet the low-cost digital needs of enterprises; in 2023, the company further improved AI business center capabilities, which can monitor and manage various parameters of AI computing equipment in real time, while expanding and optimizing edge AI application configuration development tool functions. On the market side, the company attaches importance to market development in Europe and America, and establishes overseas direct sales channels to tap international market potential with better comprehensive cost-effective products and faster response to customer needs. We believe that Sanwang Communications's continuous improvement of platform-based service capabilities and focus on refining industry segmentation solutions driven by data intelligence will enhance the company's voice and participation in the industrial chain and accelerate market share acquisition.
Investment advice
The company is a leading enterprise in the field of industrial communications. In the future, it will actively promote the innovation and development of the industrial Internet and provide new impetus for the deepening application of the industry. The company's revenue for 2024-2026 is estimated to be 584/756/964 million yuan, and net profit to mother is 1.42/1.83/234 million yuan, and the corresponding PE is 21.66/16.82/13.17 times, respectively. Covered for the first time, a “gain” rating was given.
Risk warning
Industry competition increases risks, risks of fluctuations in the supply of important raw materials such as chips, and risks to the international trade environment.