Incident: In May, Guanghetong's REDCap module FG132-GL successfully completed FCC testing and obtained a certificate. It is the first REDCap module in the industry to obtain FCC certification, which means that end customers using the company's FG132-GL can quickly deploy a wide range of RedCap devices and applications in the American region.

REDCap is a “lightweight version” of 5G technology dedicated to the Internet of Things, which is expected to accelerate the deployment of IOT applications. REDCap (Reduced Capability) is a branch of 5G technology specially customized for the IOT field. By reducing some functions of 5G NR, it effectively reduces the complexity, power consumption and volume of the module, thereby reducing overall costs and accelerating the intelligent networking process of various hardware devices. At the same time, REDCap still maintains the key advantages of 5G technology, such as low latency and high reliability. We believe that with the continuous advancement of 5G technology and the gradual improvement of REDCap standards, the penetration of new low-cost and high-reliability solutions will accelerate, the number of networked hardware terminals will increase, and the prosperity of the IoT industry is expected to increase.

Domestic: Policy support+industry promotion, REDCap penetration rate increased rapidly. Currently, REDCap is in a stage of rapid development, and policy support is strong. For example, the Ministry of Industry and Information Technology's “Notice on Promoting the Evolution of 5G Lightweight (REDCap) Technology and Application Innovation” indicates that by 2025, the scale of 5G REDCap applications will continue to grow, cities above the county level will achieve 5G REDCap scale coverage, and the number of 5G RedCap connections will grow by 10 million levels, creating more than 5 5G REDCap application fields with millions of connections. At the industrial level, all three operators are actively deploying 5G REDCap. China Telecom released the world's first 5G REDCap low-power positioning module, China Mobile also completed the end-to-end internal field testing and verification of REDCap for 5G core networks with ZTE and Huawei; China Unicom released the world's first general-purpose 5G REDCap commercial module during the 2023 MWC Mobile World Conference, etc.

Overseas: Guanghetong's share is growing by double digits, and 5G REDCap technology is expected to grow significantly in 2025.

According to Counterpoint Research data, shipments in the global cellular IoT module market fell 2% year on year in 2023, showing the first annual decline, mainly affected by inventory adjustments after supply chain disruptions and reduced demand in key market vertices such as industry and enterprises. Among them, Guanghetong's global share reached 7.8%, with year-on-year growth reaching double digits, mainly due to POS and Internet of Vehicles applications. In addition, Counterpoint also expects the IoT module market to resume growth in the second half of 2024 as inventory levels normalize and demand increases in smart meters, POS, and automotive sectors, while 5G and 5G REDCap technology are expected to grow significantly in 2025, mainly due to widespread adoption in video surveillance, router/CPE, and vehicle networking related applications.

AIPC superimposes a wave of switching, boosting the demand for networked modules. According to Counterpoint Research data, the global PC market continued to recover after the inventory adjustment cycle, growing 3% year-on-year in 24Q1, and is expected to maintain a 3% growth rate throughout the year 24. The main driving force is AIPC and the new switching cycle. We believe that the company, as the leading company in the PC networking module market, is expected to take the lead in seizing the overall recovery trend of laptop computers. Combined with AIPC, the demand for networked laptop modules is also expected to increase. The base (overall PC sales) * ratio (PC networking penetration rate) will both increase, and there is plenty of room for improvement in the company's PC module performance.

Investment advice: AIoT market prospects are improving, REDCap and AIPC are driving industry prosperity, and demand in the cellular module industry is soaring. As a leading manufacturer in the industry, the company has steady operation, continuous revenue growth, high internal management efficiency, and the development situation is expected to gradually improve. We expect the company's 2024-2026 net profit of 7.4/9.2/1.11 billion yuan, corresponding to PE of 17/14/12 times, respectively, to maintain a “buy” rating.

Risk warning: The development of the PC module market falls short of expectations, and the penetration rate of the Internet of Vehicles falls short of expectations.