Report summary

The company announced on October 30 that 2024Q1-Q3 achieved revenue (1.814 billion yuan, -35.83%), net profit to mother (0.306 billion yuan, -31.93%), gross profit margin (36.39%, +4.14pcts), and net profit margin (16.90%, +0.97pcts). 24Q3 achieved revenue (0.511 billion yuan, -43.51% YoY, -16.15%), net profit to mother (0.062 billion yuan, -56.28% YoY, -50.03% month-on-month), gross profit margin (39.58%, +5.88pcts YoY, +5.01pcts month-on-month), net profit margin (12.10%, -3.54 pcts YoY, -8.21pcts month-on-month).

Backed by 55 China Telecom Corporation, a leading supplier of T/R components in batches. The company is backed by 55 Telecom Group and Guoji Southern Subgroup, which is its only listing platform. It is mainly engaged in active phased array T/R components and RF integrated circuit related products. Among them, T/R components are mainly used in the fields of accurate guidance and radar detection. The company's products cover the fields of missile loading, airborne, etc., and have long been supporting a large number of key products for various types of equipment such as land, sea, air, sky, etc., and it is the most sold active phased array T/R module R&D and production platform for various military groups in China.

Due to fluctuations in demand or product structure optimization, gross margin reached a record high in a single quarter. The company's 2024Q1-Q3 revenue (1.814 billion yuan, -35.83%) and net profit to mother (0.306 billion yuan, 31.93%) declined significantly year-on-year, mainly due to a decrease in T/R module and RF module business revenue, and achieved a slight increase in gross profit margin (36.39%, +4.14pcts) and net profit margin (16.90%, +0.97pcts). 24Q3 achieved record highs in revenue (0.511 billion yuan, -43.51% YoY, -16.15% month-on-month), net profit to mother (0.062 billion yuan, -56.28% YoY, -50.03% month-on-month), and gross profit margin (39.58%, +5.88pcts YoY, +5.01pcts month-on-month), which we believe is due to changes in the delivery product structure, net profit margin (12.10%, -3.54 pcts YoY, -8.21pcts month-on-month). Overall, 24Q3 The single quarter was greatly affected by fluctuations in downstream demand, but the product structure may have been optimized. We believe that as industry fundamentals gradually bottom out and the economy recovers, the company's main business will usher in a sharp rise in volume and price.

3. The rate increased slightly, and the increase in repayments improved operating cash flow. In 2024Q1-Q3, the company's sales expenses (0.007 billion yuan, -1.30%) decreased slightly, management expenses (0.097 billion yuan, +4.27%) increased year-on-year, financial expenses (-0.019 billion yuan, -11.85%) decreased slightly, and R&D expenses (0.257 billion yuan, -2.34%) decreased slightly. Taken together, the company's three rates (4.68%, +1.74pcts) increased slightly year-on-year. The 2024Q1-Q3 net operating cash flow ($0.147 billion) changed from negative to positive, mainly due to an increase in cash received from maturing notes receivable in the first three quarters. Net investment cash flow (0.02 billion yuan, -86.73%) declined sharply, and net financing cash flow (-0.023 billion yuan) increased slightly.

Low-altitude sensing and end-side products were shipped, and the digital transformation of SATCOM's supporting and T/R components was promoted. In the low-altitude field, the company's various RF integrated circuits have been applied to 5.5G integrated base stations, and next-generation smart antenna high-linear controllers and RF front-end modules for drones are shipped in batches; in the field of T/R component applications, the company has carried out technology research and product development work in low-orbit satellites and commercial aerospace, and various products have begun to be delivered to customers; the company is actively promoting the digital transformation of RF component design, focusing on W-band active phase control microsystems, millimeter wave digital arrays and heterogeneous integrated products.

Increased shareholders' holdings help the company develop in the long term. On October 18, the company announced that Guoji Southern and CLP Investment plan to increase their holdings of the company by 0.4-0.7 billion yuan within 12 months, with China Telecom Investment increasing their holdings in the range of 0.2-0.3 billion yuan, and CLP Investment's holdings between RMB 0.2-0.4 billion.

This increase in holdings is based on firm confidence in the company's future development prospects and recognition of medium- to long-term investment value to promote the company's sustainable, stable and healthy development.

Investment advice: The company is currently a leading domestic enterprise that can supply active phased array T/R components and serialized RF integrated circuit products in batches. The core technology has reached leading domestic and international advanced levels.

Specific investment suggestions are as follows:

1. The company has achieved batch supply of RF modules and chips for the low-altitude sector, which is expected to become an important new growth pole for the company; 2. The delivery of low-orbit satellites and commercial space products will further clarify the pace of growth as constellation construction accelerates; 3. The company relies on 55 Guoji Southern sub-groups as the only listing platform, and is expected to fully enjoy the benefits brought by shareholders' technology and industrial strength; we expect the company's revenue for 2024-2026 to be 2.827 billion yuan, 3.316 billion yuan and 3,958 billion yuan respectively Net profit attributable to mother was 0.498 billion yuan, 0.655 billion yuan, and 0.857 billion yuan, respectively, and EPS was 0.84 yuan, 1.10 yuan, and 1.44 yuan, respectively. We maintained a “buy” rating. The target price was 70.00 yuan, and the corresponding PE was 84 times, 64 times, and 49 times, respectively.

Risk warning: Production capacity construction falls short of expectations, product price fluctuations, downstream demand fluctuations, etc.