Sanwang Communications released three quarterly reports in 2023. The income was 310 million yuan, an increase of 40.9% over the same period last year, and the net profit returned to the mother was 76.28 million yuan, an increase of 24.6% over the same period last year. In a single quarter, 3Q23 achieved revenue of 110 million yuan, an increase of 24.2% over the same period last year, and net profit of 36.88 million yuan, an increase of 16.2% over the same period last year.

The gross profit margin increased and the quality of income continued to improve. 3Q23's gross profit margin is 62.6%, an increase of 0.7pct over the same period last year and 10.6pct compared with 2Q23. In terms of business, revenue from industrial switches increased by 26.1% compared with the same period last year. We believe that the realization of the new industrialization is inseparable from 5G+ industrial Internet enablement, the company has transformed into a full-stack industrial Internet solution provider, and the combination of soft and hard business is expected to open the second growth line.

The application scene continues to expand, high-specification certification and authoritative organization testing. Industrial Internet communication products play a key role in the information system of various industries. The company has accumulated profound technical strength and rich industry experience in the fields of traditional electric power, new energy, oil and coal mine, rail transit, comprehensive pipe corridor and so on. The communication equipment industry has a high qualification entry threshold, which needs to be examined by the competent department of the industry, as well as to meet the industry standards in the field of application. The company not only has relatively perfect qualifications, such as obtaining IS09001 quality management system certification certificate, IS014001 environmental management system certification certificate and so on, but also obtains high-standard certification and authoritative testing of representative products in many fields downstream.

Continuous development of technology input, AI empowering industrial Internet. Company side: the core technology investment, the first three quarters of the company's R & D expenditure of 42.66 million yuan, R & D expenditure rate of 13.8%. Research and development achievements include cloud edge collaborative AI middle platform, edge AI application development tools, edge AI intelligent gateway, new generation switch software platform SWOSA9, high-end rack 10 Gigabit core switch, industrial Internet TSN switch and so on. At the same time, the company continues to strengthen the construction of HaaS platform, through AI, TSN and other new technologies and platform capabilities to tamp the core competitiveness. Industry side: RedCap commercial module launch, reduce terminal costs and power consumption, accelerate the landing of 5G industrial Internet, the company's wireless gateway products are expected to benefit.

High-quality and stable customer resources, fast response service ability. By virtue of high-quality service and excellent technical strength, the company has won a good market reputation, accumulated a number of high-quality customers and partners at home and abroad, and formed a strong customer stickiness in many years of cooperation. With the steady improvement of the company's R & D level and the optimization and improvement of product series and industry solutions, the company's customer structure is also constantly being optimized and adjusted. The company has always paid attention to the ability of rapid response, feedback and solution to customers' needs and demands, and thus build a sound marketing network and scientific marketing system to provide customers with peer-to-peer, high-quality and timely customized technical services.

Investment suggestion: be optimistic about the upward demand for industrial Internet, the company continues to dig deep into the stock market, strive to expand the incremental market, AI products to consolidate competitiveness, HaaS platform and TSN related product order scale landed; the company's 23-25 year net profit is expected to be 128 million yuan / 168 million yuan / 209 million yuan, the current market value corresponds to PE multiple 40x/31x/25x. Maintain the recommended rating.

Risk hint: industrial Internet demand is lower than expected; RedCap scale commercial is not as expected.