Key points of investment
The 24Q1 company's revenue increased 26.06% year on year, achieving net profit of 55 million yuan to mother, turning a year-on-year loss into a profit.
The company continues to enrich products such as 5G modules, intelligent modules and satellite communication modules. Recently, the company received a fixed-term letter for an automotive module project with a life cycle of 8 years and a total value of US$742 million to US$1,309 million.
Under overall pressure in '23, 24Q1 turned a year-on-year loss into a profit
For the full year of 2023, the company achieved operating income of 13.861 billion yuan, a year-on-year decrease of 2.59%, and realized a net profit of 91 million yuan to mother, a year-on-year decrease of 85.43%. The decline in revenue in 2023 was mainly affected by the complex market environment. Demand in the IoT industry has slowed to a certain extent. Counterpoint data shows that global cellular IoT module shipments in 2023 fell 2% year on year. At the same time, the company laid out businesses such as antennas, ODM, industrial intelligence, and intelligent solutions, which generated certain upfront costs. In 2023, the company's operating activities generated a net cash flow of 1,037 billion yuan, an increase of 106.66% over the previous year. In 2023, the company achieved a gross sales margin of 18.94%, a year-on-year decline of 0.84pct, and achieved a net sales margin of 0.61%.
In the first quarter of 2024, the company achieved operating income of 3,954 billion yuan, a year-on-year increase of 26.06%, and achieved net profit of 55 million yuan, turning a year-on-year loss into a profit. Net profit to mother for the 23Q1 quarter was -135 million yuan. The 24Q1 sales gross margin was 16.93%, down 0.66 pct year on year, and the net sales margin was 1.33%, up 5.69 pct year on year. We judge that the year-on-year improvement in 24Q1 performance was mainly due to the company's timely adjustment of business strategies, improving the input-output ratio of the project, and improving the company's profitability.
Expand the module product matrix and enrich customer choices
In 2023, the company made breakthroughs in 5G modules, intelligent modules and satellite communication modules. The company continued to expand its module product matrix to enrich customer choices:
5G module: The company has successfully developed a variety of competitive 5G communication modules and solutions, including the RG650x series/RG255x series. The globally certified 5G module RG620T has been commercialized on a large scale in Australia. It is the first large-scale commercial case in the world to implement 5G CPE equipped with Wi-Fi 7, and will bring high-quality 5G fixed wireless access (FWA) services to Australian users.
Smart module: The company launched the SG885G-WF, a next-generation flagship Android smart module. The smart module has a comprehensive computing power of up to 48 TOPS and can be used in video conferencing systems, live streaming terminals, game equipment, computing terminals, robots, drones, AR/VR, smart retail, and security. With its comprehensive advantages such as localization, high performance, multi-function, multi-interface, industrial-grade characteristics, competitive price advantages, and complete after-sales technical support, the SG368Z module has shown strong market competitiveness in various industries such as industry, medical care, electricity, vehicle transportation, environmental monitoring, safety, new energy, and communications.
Satellite communication modules: The company provides a variety of satellite module products based on proprietary protocols and 3GPP technology, covering multi-platform multi-technology formats, including CC200A-LB based on ORBCOMM satellite IoT connection platform and CC660D-LS and CC950U-LS based on 3GPP NTN. The relevant module products have all passed the certification of satellite operators and related mandatory certifications, laying the foundation for customer terminals to be introduced to the market.
Automobile module: The company recently announced that it has received a fixed letter from a world-renowned auto parts supplier to select the company as its automotive module supplier. The total sales volume of the project is estimated to be approximately US$742 million to US$1,309 million. Mass production and delivery is expected to gradually begin in 2026, with a delivery period of 8 years from 2026 to 2033. Although this matter is not expected to have an impact on the company's business performance in 2024 and 2025, it shows that the technical level and product quality of Yiyuan Communications have been highly recognized by customers, which will have an important positive impact on the company's future expansion of the automotive business.
Strengthen the accumulation of edge computing and AI technology
The deep integration of edge computing, big models, and the Internet of Things is gradually becoming a prominent trend in the development of the digital economy.
Yiyuan Communications has accumulated rich experience in 5G and edge computing applications. By exploring various fields such as image recognition, natural language processing, and speech recognition, the company conducts algorithm optimization and model training to fully connect artificial intelligence technology with customer needs. In the future, along with the deep integration of edge computing and AI, the company's development prospects will be even broader.
Strengthen cost control and improve profitability
The company strengthens cost control and focuses on the input-output ratio. The company's 24Q1 sales, management, and R&D expenses rates were 2.8%, 2.4%, and 9.6%, respectively, with year-on-year decreases of 0.9 pct, 0.7 pct and 4.4 pct, respectively. We expect the company to further improve operating expenses and increase profitability in the future.
Profit forecasting and valuation
The company's net profit for 24-26 is estimated to be 4.9 billion yuan, 7.0 million yuan, and 860 million yuan, respectively. The corresponding PE multiples for 24-26 are 22, 15, and 12 times, respectively, maintaining the “increase in wealth” rating.
Risk warning
Demand for IoT modules falls short of expectations, and targeted implementation of in-vehicle projects falls short of expectations, etc.