Incidents:

The company announced on December 10 that it has selected China Mobile's “2024-2025 Tongdao Integrated Terminal Chip R&D Service Procurement Project”, with an estimated contract amount of 31.06 million yuan.

1. China Mobile's strategic investment continues to increase, and strategic collaboration is expected to accelerate implementation. China Mobile's strategic investment will continue to increase, becoming the company's third largest shareholder. China Mobile made a fixed increase in shares in the company in November 2023. Since then, China Mobile Capital has continued to increase its shares. According to the company's three-quarter report, it has held 1.97% of the company's total share capital, making it the third largest shareholder of the company.

According to the company's semi-annual report, the company and China Mobile continue to deepen business cooperation in the fields of “Beidou+” industry applications, low-altitude infrastructure networks, and space-ground integration collaboration, and are gradually improving and forming a joint production and investment coordination mechanism between the two parties. Currently, the focus is on promoting in-depth cooperation on modules, chips and other projects.

The selection of the Beidou Communications Integrated Chip R&D and Procurement once again confirms that the company and China Mobile have carried out business cooperation and strategic collaboration in various fields including “Beidou+” industry application expansion, space-space integrated collaborative development, low-altitude infrastructure construction, integrated vehicle road cloud construction, and comprehensive operation and maintenance business development.

We believe that the operators' strategic cooperation continues to deepen, which is expected to help upgrade business in the Beidou and satellite Internet fields and enhance the company's related resource endowments.

At the same time, its long-term investment attributes help optimize the company's share capital structure.

2. The development of Beidou communication fusion chips to accelerate the promotion of Beidou civilian use is expected to help continue to expand the civilian market. China Mobile's current procurement project mainly develops Beidou communication integrated terminal chips, which can be widely used in mass consumption, the Internet of Things and industry applications in the future. The company's current selection fully demonstrated its deep strength in the field of Beidou and chip research and development. Through Beidou and 5G, the operator can implement many applications in the civil sector, including transportation, medical care, parks, supermarkets, etc., and accelerate large-scale promotion.

In the Beidou civil market, the company has implemented applications in various industries such as transportation, emergency response, electricity, energy, and marine, breaking through the first batch of applications in many industries and major national engineering projects.

In the civil market of satellite communications, the entire industrial chain layout of “chips, modules, antennas, and complete machines” has been achieved, and it has become a supplier for mainstream domestic mobile phone manufacturers to achieve large-scale applications of mobile phone direct-connected satellite chips. The “direct automobile satellite” business has been tested on passenger cars by many large domestic car companies, laying the foundation for the next step in mass production and launching of products, and has bid for multiple R&D projects in the satellite Internet field.

In the field of low-altitude economy, the company launched the “Tianteng” low-altitude flight management service platform for low-altitude activities, and built an ecosystem based on a series of communication and monitoring terminals, a low-altitude intelligent network, powerful platform services, and a complete network monitoring system. Through the low-altitude economy industrial layout of “Class 1 platform, N-type aircraft, and 3 networks”, the company provided comprehensive and multi-level support and guarantee for low-altitude flight.

We believe that on the basis of existing technology, the company will continue to lay out satellites and low-altitude fields, give full play to its leading advantages in traditional special industries, and at the same time deepen cooperation with China Mobile to broaden the scope of civilian applications, which is expected to help the company's business grow healthily.

3. Investment suggestions:

As one of the leading manufacturers in Beidou, the company is optimistic about the forward-looking layout of satellite internet and low-altitude economy, and considering the influence of downstream customers to adjust profit forecasts. It is estimated that 2024-2026 revenue will be adjusted from 6.902/8.009/9.281 billion yuan to 6.013/6.964/8.035 billion yuan, respectively, and earnings per share will be adjusted from 0.29/0.36/0.46 yuan to 0.22/0.28/0.37 yuan, respectively, corresponding to 12.73 yuan/share on December 10, 2024 The closing price PE was 50.64/39.17/30.24, respectively. Maintain a “buy” rating.

4. Risk warning:

Downstream orders fall short of expectations; risk of gross margin fluctuations due to increased competition; risk that the low-altitude economic development of Beidou applications falls short of expectations; systemic risk.