Investment summary

Incident Overview

On October 29, Xinwei Communications released its quarterly report for the year 24. According to the quarterly report data, the company achieved operating income of 6.394 billion yuan, an increase of 14.31% year on year, and realized net profit of 0.533 billion yuan to mother, an increase of 3.08% year on year. Looking at the Q3 quarter alone, the company achieved revenue of 2.648 billion yuan, a year-on-year increase of 17.78%; achieved net profit to mother of 0.33 billion yuan, an increase of 2.06% year-on-year, and achieved a significant increase on the revenue side.

Core views

Consumer electronics recovery is imminent, and multiple businesses are benefiting widely. We believe that the significant improvement in Xinwei Communications's Q3 performance is mainly due to the recovery in the consumer electronics market. On the supply side, the value added of China's electronic information manufacturing industry above the scale of January to September '24 increased by 12.8% year on year, 7 percentage points higher than the industry during the same period, showing signs of an increase in the industry. On the demand side, according to Canalys forecast, global smartphone shipments are expected to reach 1.2 billion units (yoy +5%) in '24, which is significantly better than the growth level of the past two years. We believe the core components of mobile phones will benefit indirectly. At the same time, emerging businesses such as satellite communications and automotive electronics may boost the company's overall revenue to a certain extent.

Expense control performance was excellent, and gross profit levels fluctuated temporarily. In terms of expenses, disrupted by factors such as labor costs and the increase in overseas base costs, the absolute value levels of quarterly sales/management/research expenses rose 25.94%, 23.06%, and 32.62% year-on-year respectively, while the higher cost levels of management and R&D expenses were only 4.28% and 7.19%, down 1.15 and 1.68 percentage points from Q2, respectively, and cost control improved markedly; in terms of profit margin, Q3's gross sales margin and net margin reached 23.76%, 12.45% compared with the same period in '23, -4.81 and -1.91 One percentage point.

In terms of cash flow, the company's net operating cash flow reached 0.145 billion yuan in the Q3 quarter, an increase of 141.90% over the Q2 period, and cash flow certainty gradually improved.

Emerging businesses are rising rapidly, and the prospects for business growth are improving. Looking ahead, we believe that the company's growth logic will focus on the following three aspects: 1) In the field of consumer electronics, Apple Intelligence has been updated and released on the iPhone 16 and iPhone 15 pro. As an important supplier of Apple in mainland China, Xinwei Communications is expected to benefit deeply from the long-term deployment of AI phones. 2) In the field of automotive electronics, the company has increased customer and product expansion in the smart car business and obtained Tier 1 supplier qualifications from some domestic and foreign OEMs; 3) In the field of satellite internet, the company has now successfully supplied major customers in North America. It plans to enter more large manufacturers in the future. The revenue scale in the corresponding field is expected to expand further, and the second growth curve is expected to begin.

Investment advice

The company is a leading enterprise in the domestic pan-radio frequency field, and is expected to benefit deeply from the expansion of satellite Internet and the recovery of the terminal equipment market. We expect the company's revenue in 2024-2026 to be 85.43, 97.09, 10.784 billion yuan, up 13.19%, 13.65%, and 11.07% year on year; net profit to mother of 0.732, 1.068, and 1.163 billion yuan, up 40.46%, 45.78%, and 8.92% year over year, corresponding PE is 33/22/21 times, maintaining a “buy” rating.

Risk warning

The risk of insufficient commercialization of satellite communications; increased risk of competition in the satellite communications market; the expected risk of insufficient upgrading of traditional business products.