Key points of investment

On Friday (November 3), a company listed on the Science and Technology Innovation Board “Kangxi Communications” asked for a quote.

Kangxi Communications (688653.SH): The company is an RF front-end chip design enterprise with a Fabless business model. It is mainly engaged in R&D, design and sales of Wi-Fi RF front-end chips and modules. The company achieved revenue of 81 million yuan/342 million yuan/420 million yuan respectively in 2020-2022; YOY was 183.88%/321.07%/22.90%, and the three-year compound annual growth rate of revenue was 144.92%; realized net profit to mother - 55 million yuan/014 million yuan/0.2 billion yuan, YOY was 23.97%/125.07%/49.62% in that order. In the latest reporting period, 2023H1 achieved operating income of 170 million yuan, a year-on-year decrease of 16.15%, and net profit to mother of 03 billion yuan, a year-on-year decrease of 74.77%. According to preliminary forecasts, the company expects net profit attributable to shareholders of the parent company from January to September 2023 to be 1.266,600 yuan to 1,688,700 yuan, a change of -92.77% to -90.36% over the same period last year.

Investment highlights: 1. The company is an important participant in the domestic Wi-Fi FEM field. The product has received some recognition in the international market, and is expected to benefit from the increase in the scale of wireless connection devices driven by the development of the Internet of Things and a relatively large localization space. At the same time, the company is one of the earliest domestic enterprises to achieve mass production of Wi-Fi 6 FEM, and is expected to benefit from an increase in the share of Wi-Fi 6 with significantly better connection performance than the previous generation. 1) The company was founded in 2014 and is one of the earliest domestic enterprises engaged in Wi-Fi RF front-end chip design. According to the company's prospectus, public data shows that the company's Wi-Fi FEM sales scale is leading among domestic manufacturers; in addition, many of the company's Wi-Fi FEM products have passed technical certifications from many internationally renowned Wi-Fi main chip (SoC) manufacturers such as Qualcomm and Realtek and are incorporated into the reference designs of wireless router product configuration solutions issued by them. As one of the important wireless connection technologies, the development of the Internet of Things is expected to drive an increase in the number of Wi-Fi connected devices; however, the company's Wi-Fi FEM field is still dominated by overseas manufacturers, and there is plenty of room for localization. 2) Compared with previous standards, Wi-Fi 6 is expected to see a significant increase in transmission rate, transmission capacity, latency, etc., so its market share is expected to rise rapidly. According to TSR forecasts, Wi-Fi 6's share of Wi-Fi terminal shipments is expected to rise from 14% in 2021 to 47% in 2026, and the corresponding shipment volume may rise from about 600 million units to 2.4 billion units. As a domestic manufacturer that achieved mass production and large-scale application of Wi-Fi 6 FEM earlier, and the main performance indicators of related products such as linearity and work efficiency are basically comparable to similar products from leading overseas manufacturers, Kangxi Communications is expected to benefit better from the continuous promotion of Wi-Fi 6 standards. 2. The main co-founder of the company is an expatriate expert with extensive experience in the industry; in addition, the company has received good support from industrial capital.

1) The co-founders of the company are Mr. PING PENG, the current chairman of the company, Mr. Zhao Huan, the current director and deputy general manager, and Ms. Peng Yuhong. Among them, Mr. PING PENG was a microwave device R&D engineer for AMP and TycoElectronics, R&D director of Foxconn Technology Group's North American Wireless Division, and Mr. Zhao Huan was an RF integrated circuit engineer for Anadigics, VT-Silicon, RF Micro Devices, RFaxis, etc., and has rich experience in RF chip business management and R&D. 2) The company received good support from industrial capital. Judging from the share capital situation before issuance, Intel (Chengdu), a wholly-owned subsidiary of Intel in China, held 3.52% of the company's shares, while China Net Investment and China Investment Fund each held 2.27% of the company's shares. 3. The company plans to further expand the application of Wi-Fi FEM in smartphones, and is expected to complete the development and commercialization of Wi-Fi FEM for mobile phones next year. As one of the main application scenarios of Wi-Fi, mobile devices account for more than 35% of the market share of Wi-Fi devices (TSR 2021 data). While consolidating the main application areas of the product (network communication equipment and IoT terminal devices), the company is actively expanding product applications in the smartphone field. According to the research project information in the company's prospectus, the company is promoting the “R&D and commercialization of mobile Wi-Fi FEM” project, which aims to develop Wi-Fi 6/7 FEM. The project is expected to take three years. It will be completed in 2024; in addition, one of the company's fund-raising projects, the “Next-Generation Wi-Fi RF Front-end Chip R&D and Industrialization Project”, will also clearly expand in the field of smartphone Wi-Fi applications, which is expected to contribute new business growth points.

Comparison of listed companies in the same industry: Considering the dimensions of industry classification, product functions and application fields, Zhuo Shengwei, Huizhiwei, Weijie Chuangxin, and Aiwei Electronics were selected as comparable companies of Kangxi Communications; judging from the comparable companies mentioned above, the average industry revenue (TTM) scale was 1,793 billion yuan, comparable PS-TTM (arithmetic average) was 15.31X, and gross sales margin was 31.89%; in comparison, the company's revenue scale and gross sales margin were all lower than the industry average.

Risk warning: Companies that have already begun the inquiry process may still not be able to go public due to special reasons; the company content is mainly based on prospectus and other public information; there is a risk that the selection of listed companies in the same industry is not accurate; there may be interpretation biases in the selection of content data. The specific risks of listed companies are shown in the text.