Incident: On December 31, 2024, Zhenyou Technology announced that its wholly-owned subsidiary Shenzhen Zhenyou Software Technology Co., Ltd. (hereinafter referred to as “Zhenyou Software”) plans to introduce investors to Zhenqi Huizhi Investment Partnership (limited partnership) in Guangming District, Shenzhen (hereinafter referred to as “Zhenqi Huizhi”) through capital increase and share expansion.

The subsidiary Zhenyou Software increased its capital and shares, and the layout of the software field was strengthened. According to the company's announcement, Zhenqi Huizhi plans to use RMB 0.2 billion to purchase Zhenyou Software with an additional registered capital of 12.8125 million yuan. The remaining 0.187 billion yuan will be included in Zhenyou Software's capital reserve, and the company relinquishes the priority subscription rights for this capital increase (hereinafter referred to as “this transaction”).

After the capital increase is completed, the registered capital of Zhenyou Software will increase from 20.5 million yuan to 33.3125 million yuan, and the company's direct shareholding ratio of Zhenyou Software will be changed from 100% to 61.54%. Zhenyou Software is still a holding subsidiary within the scope of the company's consolidated statements. We believe that the company's important subsidiary Zhenyou Software has increased its capital and shares and introduced new investments, demonstrating the company's current determination to lay out the software field.

Under the interpretation of “5G+” technology, application scenarios continue to expand, and the company has a broad layout. 5G is gradually entering a period of large-scale development. New progress has been made in the construction of new information infrastructure such as 5G and F5G, and the popularity of various applications has accelerated across the board.

5G technology drives faster digital connections and has become the infrastructure for all upper level technologies. Combined with more extensive technologies such as artificial intelligence, mobile edge computing, and end-to-end network slicing, 5G has broad application prospects in VR/AR, ultra-high-definition video, vehicle networking, drones, intelligent manufacturing, electricity, medical care, and smart cities.

As the degree of integration of 5G with various industries continues to deepen, application scenarios continue to expand, spawning diverse and customized industry terminals to meet the individual needs of the industry and bring overall improvements to individual users and industry customer experiences. In terms of optical networks and access, the company is one of the few manufacturers that can provide a full range of 10G-PON products. In terms of digital intelligence networks and smart emergency response, the company's business has been widely deployed in various important fields such as government enterprises, energy, etc., and has been applied in related major activities.

The satellite business layout is gradually entering a harvest period to help the company grow. The company is one of the few companies that can provide 5G core networks for satellites, including high-orbit satellites and low-orbit satellite core networks. Satellite communication, especially low-orbit satellite communication, is cutting-edge technology. Currently, only a few companies in the industry can master this technology and successfully commercialize it. The company continues to improve technology and product capabilities related to the satellite Internet core network, and has completed the research and development of satellite satellite satellite core network UPF software and the development of satellite access network network management software. This year, the company has obtained an equipment and service project contract for a satellite communication project in a certain country, with a total contract amount of 0.112 billion US dollars (excluding tax); in addition, it has also won bids for several satellite Internet core network projects and projects related to the direct mobile phone connection satellite business; it continues to expand core network-related businesses around 5G+ satellites, such as the Beidou satellite image and voice multimedia communication project.

Investment suggestions: Considering the sharp increase in demand for core network and access network equipment from domestic and overseas operators, and the elasticity of the company's core network equipment demand under the low orbit satellite network construction requirements at home and abroad, we expect the company's net profit to mother for 2024-2026 to be 0.037 billion yuan, 0.18 billion yuan, and 0.233 billion yuan respectively. The PE corresponding to the current stock price is 151X, 31X, and 24X, respectively. It has strong growth potential in the future, is optimistic about the company's subsequent development, and maintains a “recommended” rating.

Risk warning: Downstream customer development progress falls short of expectations; new product development falls short of expectations.