Main points of investment

Jia iFLYTEK Hong: the leader of domestic intelligent dispatching system, the company is one of the pioneers of domestic command and dispatching, and now it has become a comprehensive solution provider of intelligent command and dispatching industry chain, focusing on the new ICT, helping customers in rail transit, national defense, customs and other industries to achieve intelligence. As the macroeconomic recovery, the company's performance upward inflection point is emerging. The operating income of 2023H1 Company is 417 million yuan, the net profit of YOY+3.27%; is 26 million yuan, and the net profit of YOY+ is 32.82%. As of the mid-23 report, the company has nearly 700 million orders on hand, and the business recovery momentum is good.

In the field of transportation: the fixed investment in railway has improved steadily, and the proportion of investment in informatization has increased. Under the guidance of the development program of a new flexible transportation power brought by Railway 5G, the fixed investment in the field of transportation is expected to remain high and make progress steadily. According to data from the China Railway Group, from January to July 2023, the national railway fixed asset investment was 371.3 billion yuan, + 7.1% compared with the same period last year, and the railway fixed asset investment is expected to exceed 760 billion yuan for the whole of 2023.

With the continuous progress of railway digital, intelligent and intelligent construction, the proportion of railway informatization is expected to be further improved. According to Shangpu Consulting, the proportion of railway informatization investment has increased from about 2 per cent during the Eleventh five-year Plan period to about 6 per cent during the 13th five-year Plan period. We expect the proportion of railway informatization investment to further increase to 8 per cent in 2023, corresponding to a market size of about 61 billion yuan. The company is the leader in the field of railway intelligent dispatching system and benefits from railway information investment.

Railway 5G promotion is expected to bring new performance flexibility. According to the forecast of China Trunking Communications, the GSM-R equipment widely used in the railway field will gradually stop production around 2025, and 5G-R is expected to become a new generation of railway mobile communication standard, which will lead to the upgrading and iteration of the company's related modules, products and solutions, and bring new performance flexibility.

The company has developed its own railway AI products for commercial use, and is expected to take the lead in benefiting from the opportunity of railway intelligent development. The company established the Intelligent Research Institute in 2017, and prospectively laid out the research and application of AI technology in railway, customs, national defense and other vertical industries, such as the independently developed intelligent vision PaaS platform for railway safety, Feihong Anshi platform, and intelligent inspection robot based on intelligent vision, multi-sensor fusion, Internet of things and big data technology.

Join hands with Huawei to actively participate in the "Belt and Road Initiative" railway going to sea

The company actively participates in "Belt and Road Initiative" going out to sea, and its products and solutions occupy a dominant share, which is expected to further expand the growth space. Railway infrastructure is a key project of "Belt and Road Initiative". The company and Huawei have signed a number of "Belt and Road Initiative" projects in Egypt, Mozambique and other regions, bringing more increments to the railway information market.

Profit forecast and valuation

The company is the leading solution provider of intelligent command and dispatching whole industry chain in China, railway information construction lays a solid foundation for performance, railway 5G is expected to drive a new round of product iteration, AI+ products are applied in transportation, national defense, customs and other industries, and the construction of "Belt and Road Initiative" will broaden the market space. It is estimated that the 23-25 return net profit is 0.90,1.42 and 181 million yuan, and the current market value (closing price on September 14, 2023) is 44, 28, 22 times PE for 23-25, maintaining the "buy" rating.

Risk hint

The investment in railway informatization is not as expected; the construction of the "Belt and Road Initiative" project is not as expected; and the competition in the industry is intensified.