1. The company benefits from accelerated penetration by overseas satellites

The company's main business includes antennas and modules, wireless charging and modules, EMI\ EMC devices, high-precision connectors, automotive interconnection products, passive components, etc. The main business industries are computer, communications and other electronic equipment manufacturing. The company's customers are mainly world-renowned technology companies, including consumer electronics, Internet of Things/smart homes, commercial satellite communications, smart cars and other application fields. Consumer electronics is the company's main downstream application market. The Internet of Things/smart homes, commercial satellite communications, and smart cars are the company's emerging downstream application markets. They all have broad application markets, which can provide a large development space for the company's growth. In the first three quarters of 2024, the company achieved revenue of 6.394 billion yuan (YoY +14.31%), net profit attributable to mother of 0.533 billion yuan (YoY +3.08%), and net profit not attributable to mother of 0.41 billion yuan (-16.91% YoY).

New consumer electronics products are gradually breaking through, and the second growth curve business continues to be introduced. The development of AI technology is driving the accelerated innovation of smart terminal devices, and the market environment is gradually improving. According to IDC statistics, global smartphone market shipments reached 0.316 billion units in the third quarter of 2024, or +4.0% year-on-year, and has been growing for five consecutive quarters.

(1) In the field of consumer electronics smart terminals, the company continues to maintain active cooperation with major domestic and foreign customers, continuously developing product types and improving product technical capabilities. Currently, a number of new RF and precision structural products have been verified on clients, striving to obtain more new product cooperation opportunities with customers.

(2) The company continues to promote the development of the second growth curve business, further expand related product capabilities and business scale, and continue to deepen cooperative relationships with important customers such as major North American customers. While the original business is being carried out, it will further explore different types of product opportunities. In the future, it will introduce more new products and new customers, and strive to make the second growth curve business an important engine driving the company's performance growth.

Commercial satellite communication uses satellites as relays to achieve communication between radio communication stations on Earth. Satellite internet is a form of Internet communication that has developed rapidly in recent years. More and more countries have begun construction of commercial satellite communication projects, especially in remote countries with large connectivity requirements. Commercial satellite communication has become an important means of connection. Among them, low-orbit satellites are considered one of the most promising satellite mobile communication technologies. At present, the company has successfully supplied large customers in North America. It plans to enter more large manufacturers in the future, and the revenue scale in the corresponding fields is expected to expand further.

In terms of LCP and millimeter-wave antenna modules, the company has continuously strengthened the one-stop capabilities of “LCP materials - LCP parts - LCP modules”. The self-developed LCP film and LCP high-frequency FCCL have passed the US UL (Underwriter LaboratoriesInc.) certification. The high-frequency transmission performance and reliability are at the leading level in China, and have served major customers in North America. At the same time, it targets customer applications in mobile communications, intelligent connected vehicles, satellite communications, etc., and is based on joint development with customers in related fields Research on high-performance millimeter-wave antenna solutions in various forms of advanced polymer materials represented by LCP.

Employee shareholding and equity incentives are progressing steadily. The company held a board meeting on August 21, 2024 to review and pass the repurchase proposal. As of September 30, 2024, the company had repurchased 15.1 million shares, accounting for 1.56% of the company's total share capital, and the total transaction amount was 0.268 billion yuan. On August 21, 2024, the company simultaneously announced employee shareholding and equity incentive plans. Among them, the total number of employees holding shares did not exceed 150 at the time of initial establishment; the total amount of capital to be raised was no more than 0.1 billion yuan. The total amount of restricted shares to be granted to incentive recipients under the equity incentive plan is 4.1 million shares, accounting for about 0.42% of the company's share capital, and the grant price is 9.15 yuan/share. No more than 11 people are eligible for this incentive plan.

2. Starlink users exceeded 4 million

1. The number of users has broken through rapidly, and a break-even balance has been achieved

In September 2024, SpaceX's Starlink (Starlink) division announced that the number of global users had surpassed 4 million. The official account stated, “Starlink provides high-speed internet connections to more than 4 million people in more than 100 countries, regions, and many other markets, thanks to all of our customers around the world.”

Launched in 2015, Starlink has the characteristics of large scale, low latency, global coverage, etc., and began providing product beta services in October 2020; in December 2022, the number of Starlink users reached 1 million, reached 2.3 million in September 2023, and 3 million in May 2024.

The launch and operation of Starlink satellites is one of SpaceX's key businesses. Starlink not only provides internet services in remote areas, but also supports commercial and military applications. As of September 2024, Starlink operates the largest low-orbit broadband satellite network.

Starlink has achieved break-even. The billing method for Starlink terminals is the terminal+data package. The basic terminal is 599 US dollars/device, and the basic data plan is 120 US dollars/month. For more demanding Starlink customers (such as mobile, marine, or aviation users), SpaceX antennas and their services cost between $2,500 and $0.015 million each. In September 2023, SpaceX's VP of Starlink and Commercial Sales Jonathan? Jonathan Hofeller (Jonathan Hofeller) revealed that Starlink terminals are no longer being sold at a loss. In November 2023, Starlink announced that it had achieved break-even.

According to a recent report by space research and consulting agency Quilty Space, user growth drove Starlink from huge losses to profits from 2023 to 2024. In May 2024, Quilty Space released a report stating that 95% of Starlink users are individual consumers. The agency predicts that Starlink is expected to achieve revenue of 6.6 billion US dollars in 2024; Starlink's profit before interest, tax, depreciation and amortization (EBITDA) in 2024 is 3.8 billion US dollars, which will achieve positive free cash flow for the first time.

2. Starlink has significant advantages

Satellite operators around the world are actively deploying low-orbit communication constellations. Among them, commercial prospects and scarce orbital resources are the core driving forces for satellite operators to accelerate their deployment. Currently, the global low-orbit satellite internet constellations mainly include Starlink, Amazon Kuiper, Eutelsat OneWeb, and Telesat Lightspeed. In addition, traditional leading constellations such as Intelesat, SES, and Viasat are also planning to enter low orbit. Among them, Starlink has a far-reaching layout and significant advantages.

(1) Technological innovation and huge scale

Technological innovation: The Starlink project uses advanced satellite communication technology, such as Ku/Ka band high-throughput satellite communication technology, to achieve high-speed data transmission and low latency. In addition, SpaceX has also developed autonomous management and maintenance technology, using technologies such as robots, AI, and blockchain to efficiently manage satellites, reducing operation and maintenance costs and risks.

Massive: The initial target of the launch plan was 0.012 million satellites, but then increased to around 0.042 million satellites. These satellites will be distributed in different orbits to form a global communications network.

(2) Global coverage with high speed and low latency

Global coverage: Starlink plans to deploy a large number of low-orbit satellites to achieve global Internet coverage, including remote regions, oceans, and polar regions that are difficult to cover through traditional methods.

High speed and low latency: Compared with traditional satellite Internet services, the services provided by the Starlink Program have higher bandwidth and lower latency, and can support high-quality network applications such as high-definition video calls and online games.

(3) High economic efficiency and high commercial potential

High economic efficiency: The implementation of the Starlink program has reduced Internet access costs and provided more affordable Internet services for users around the world. At the same time, the plan promoted the development of the space industry, reduced space launch costs, and improved spacecraft manufacturing and launch efficiency.

Large commercial potential: The Starlink program has huge commercial potential, especially in remote areas, ocean, and air. Traditionally, it is difficult to obtain high-quality Internet services in these fields, and the Starlink Program can fill this gap and bring new development opportunities to related industries.

Xinwei Communications is an important supplier in the satellite field. It collaborates with customers to conduct research on various types of high-performance millimeter-wave antenna solutions based on advanced polymer materials represented by LCP. At present, the company has successfully supplied large customers in North America. It plans to enter more large manufacturers in the future, and the revenue scale in the corresponding fields is expected to expand further.

Profit forecast, valuation and rating: We maintain the 24-26 net profit forecast of 0.681/0.877/1.087 billion yuan, corresponding to the current PE valuation of 37X/29X/23X. We are optimistic about the company's competitiveness in mature businesses such as antennas, as well as the layout and growth of new businesses such as satellite communications, LCP, BTB, UWB, passive components, and automotive connectivity, and maintain a “buy” rating.

Risk warning: Downstream demand falls short of the expected risk, and the progress of new product development or customer introduction falls short of the expected risk.