Incident Overview
On April 23, Holevo released its annual report for 2023 and the first quarter of 2024. In 2023, the company achieved operating income of 394 million yuan, a year-on-year increase of 17.26%; realized net profit of 27.11 million yuan to mother, a year-on-year decrease of 46.22%. With 2024Q1, the company achieved operating income of 59.3 million yuan, a year-on-year decrease of 22.16%, and realized a net profit of 1.72 million yuan to mother, a year-on-year decrease of 58.98%.
Revenue achieved relatively rapid growth in '23. The profit side was affected by the cost settlement cycle. The company grew 17.26% year-on-year in '23. According to the annual report, the increase was mainly due to:
1) Satellite testing: The company's Hongjie Electronics, which focuses on satellite payload measurement, had revenue of 128 million yuan in 2023; 2) Electromagnetic measurement: As the external environment stabilized, the company's delivery and implementation work progressed smoothly, and the major contracts bid in 2022 totaled about 148 million yuan in 2023. On the profit side, the company's gross margin in 2023 was 31.85%, down 7.99 pcts from 2022. The main reason was that hardware costs settled during the project period were higher, which in turn led to a year-on-year decline in net profit to mother. In 24Q1, the company's revenue and profit declined to a certain extent. We believe that the absolute value of the company's revenue for the first quarter was small, compounded by the rhythmic factors of project delivery confirmation, which led to fluctuations in performance, and it is expected that growth will return in the future.
Revenue from the satellite+ stealth measurement direction has increased dramatically, and the high boom is expected to continue. According to the annual report, the company's revenue from products such as radar scattering cross-section measurement systems for stealth equipment and phased array calibration measurement systems for satellites has increased dramatically. We expect this trend to continue in the future. 1) Radar scattering cross-section measurement: With the adversarial development of stealth and anti-stealth equipment, radar detection and anti-detection technology, stealth measurement has become a technical hot topic in the current industry, and continues to evolve in line with the technical development needs of downstream equipment, and the market space is broad. 2) Low-orbit satellite payload and antenna testing: With the successive launches of satellite Internet technology test stars, China's satellite Internet has entered the actual construction stage, and the measurement market demand for low-orbit satellites has shown and is expected to maintain a rapid growth trend. Considering that Hongjie Electronics acquired by the company mainly provides RF measurement systems to manufacturers related to satellite payloads, and phased array calibration measurement systems are also in demand for satellites, we expect the company to take the lead in benefiting from the increase in industry prosperity.
The number of CAE customers and prospects continues to rise and is progressing smoothly
According to the annual report, the number of customers and potential customer groups for the company's CAE products continued to expand in 2023, and successfully developed many new customers. The new customers are mainly distributed in the fields of ships, satellites, automobiles, etc. Furthermore, at the beginning of 2023, the Ministry of Industry and Information Technology announced the 2022 Industrial Software Outstanding Product List, and the company's “RDSim 3D Electromagnetic Simulation Software” was successfully selected, demonstrating strong recognition of the software product capabilities. We believe that as national strategic industries such as special fields continue to increase their own requirements, the company is expected to continue to benefit.
Investment advice:
The company uses a measurement system and CAE two-wheel drive. On the one hand, it benefits from domestic replacement dividends, and at the same time targets various high-demand downstream industries such as satellites and stealth testing. It is expected to achieve growth through its advantages in vertical integration of simulation/measurement/design. We expect the company's revenue for 2024-2026 to be $511/6.32/774 million yuan, and net profit to mother of 0.88/1.23/159 million yuan, maintaining a “buy-A” rating. We gave 2024 net profit 30 times PE, corresponding to a 6-month target price of 36.3 yuan/share.
Risk warning: 1) R&D of key core technologies and business model development of industrial software falls short of expectations; 2) there is uncertainty about the continuity and support of related software policies; 3) Product application promotion and industrial ecosystem construction fall short of expectations; 4) The supply of professionals is insufficient.