Company Overview: The world's leading provider of industrial Internet solutions

Sanwang Communications is a pioneer and leader in the industrial Internet field. The company was founded in 2001 and has been deeply involved in the industrial communication market for 20 years. The company has a relatively complete industrial communication product system. Its leading products include industrial Ethernet switches, embedded industrial Ethernet modules, device networking products, industrial wireless products, etc.

Application scenarios cover smart cities, integrated pipe galleries, intelligent manufacturing, rail transit, smart electricity, coal and petrochemical industries. Major downstream customers include central state-owned enterprises and listed companies such as CRRC, China Coal, and State Grid. The company's revenue has grown rapidly and profitability is relatively good. The compound revenue growth rate in the past five years is 26.34%, and the comprehensive gross margin has remained around 60% for a long time.

Industry Overview: TSN, 5G, AI, and edge computing bring incremental space to the industry. From a macro perspective, China's industrial communications market is close to 200 billion; from an industry perspective, downstream industrial communication fields such as wind power, photovoltaics, new energy storage, smart mining, intelligent manufacturing, smart transportation, smart cities, etc. are booming; from a product perspective, the industrial Ethernet switch market size is 20-30 billion, and demand mainly comes from the energy and transportation sector.

In terms of the competitive landscape, in the industrial communication equipment industry, especially in the field of industrial Ethernet switches, American, European, and **** manufacturers have long been in a leading position. Established manufacturers such as Hersman, Moser, Roger Kang, Cisco, and Advantech have accumulated deep technology and long brand history, and account for a relatively large share of the global industrial communication equipment market. Domestic manufacturers mainly include Sanwang Communications, Dongtu Technology, Yinghantong, and Maiwei Communications to compete on the same platform. As the stability of domestic equipment continues to be recognized by the market, the focus of current market competition has slowly shifted to product quality, cost performance, and after-sales response speed, and domestic communication equipment manufacturers are expected to break through the global market rapidly.

Recommended logic:

1) Industries or fields such as downstream wind storage, smart mining, intelligent manufacturing, and smart cities (vehicle road cloud integration) are booming;

2) After more than 20 years of intensive cultivation, the reliability of the company's products has been recognized. It has strong competitive advantages in quality, cost performance and after-sales, and faces domestic substitution and overseas opportunities; 3) Good quality, low valuation, and serious overfall. According to our profit forecast, the current stock price corresponds to about 10 times PE in 2025.

Investment advice

The company's net profit for 2024-2026 is expected to be 0.144, 0.209, and 0.315 billion yuan, respectively, and the corresponding EPS is 1.30, 1.89, and 2.85 yuan. The current stock price corresponding to 2024-2026 PE is 15.59X/10.73X/7.12X, respectively. First coverage, giving a “buy” rating.

Risk warning

1) Some downstream demand is insufficient. In particular, the vehicle road cloud project is progressing short of expectations; 2) HaaS projects continue to be weak, and the volume of individual projects causes short-term revenue fluctuations; 3) there is a risk of declining gross margin due to increased competition in the industry.