Core views

The company is currently a leading domestic enterprise that can supply active phased array T/R components and serialized RF integrated circuit products in batches. The core technology has reached leading domestic and international advanced levels. In terms of chips and modules, the company has strong R&D strength, rich product industry experience, and a perfect product matrix. It is a core supplier of RF devices for mobile communication base stations in China, and is also actively exploring the terminal field. In terms of components, the company has developed hundreds of active phased array T/R components, leading in China. In addition to internal support for machine users, it is the most sold active phased array T/R module platform in China for all machine units.

occurrences

The company released the 2023 annual report and the 2024 quarterly report. The revenue for 2023 was 3,567 billion yuan, +3.08% year on year, net profit to mother was 606 million yuan, +16.47% year on year; revenue for the first quarter of 2024 was 693 million yuan, -0.62% year on year, and net profit to mother was 121 million yuan, +4.22% year on year.

Brief review

1. Steady growth in performance and steady increase in profitability.

Revenue in 2023 was $3,567 billion, +3.08% year on year, net profit to mother was 606 million yuan, +16.47% year over year, net profit after deduction was 571 million yuan, +13.94% year on year. 23Q4 revenue was 741 million yuan, -7.29% YoY, and net profit to mother was 156 million yuan, +31.45% YoY.

By product, in 2023, the company's T/R module revenue was 3.379 billion yuan, +7.64% year over year, RF chip revenue was 128 million yuan, or -52.98% year on year, and revenue from other chips was 406.5 million yuan, -7.07% year on year. In 2023, the company actively carried out technology research and development and market development, steadily guaranteed product production and supply chain safety, and maintained steady growth in performance.

Revenue for the first quarter of 2024 was 693 million yuan, -0.62% year on year, net profit to mother was 121 million yuan, +4.22% year on year, and net profit to mother after deduction was 118 million yuan, +14.32% year on year. The growth rate declined due to inventory removal by the industry.

2023 gross margin was 32.28% (+1.67pcts) and net profit margin 17% (+1.96pcts).

The cost rate for the period was 13.11% (+0.55pct), of which the sales rate was 0.27% (-0.02pct); the management rate was 3.60% (+1.22pcts), mainly due to increased depreciation and amortization expenses; the R&D rate was 9.86% (-0.11pct); and the financial rate was -0.62% (-0.53 pct). The company's expenses are well controlled, sales rates and management rates are kept low, profitability is steadily improving, and it continues to invest heavily in research and development to ensure the continuous improvement of the company's core competitiveness and profitability.

2. Continued vigorous investment in R&D has achieved remarkable results, and self-developed chips have improved the company's product lineage.

The company's RF chips mainly include RF amplification chips and RF control chips, which are widely used in communication systems such as mobile communication base stations. The company has a T/R component product design platform, a high-density high-precision 3D integrated process platform, and a fully automated general testing platform. It has accumulated key core technologies and developed hundreds of active phased array T/R components, including dozens of products with a fixed or technical level. GaN RF chips independently developed by the company have been widely used in T/R components. The company actively promotes the digital transformation of RF component design, focusing on new fields, continuing to carry out relevant key technical research, actively promoting commercialization of heterogeneous integrated technology, and laying the foundation for the development of next-generation products. At the same time, it is actively expanding the application field of T/R components. Technology research and product development work has been carried out in both low-orbit satellites and commercial aerospace, and various products have already begun to be delivered to customers.

3. Leading in the field of RF modules in China, the continuous expansion of downstream applications is expected to contribute to new volume.

The company's complete product line of GaN RF modules covers DC-10GHz, is mainly used in 4G and 5G base station equipment, and actively lays out 6G mobile communication applications. It is one of the few companies in the world with the ability to supply GaN RF modules in batches. The main product performance of next-generation metal-ceramic packaged GaN radio frequency modules and plastic PAM products, such as linearity, efficiency, and reliability, is comparable to the level of mainstream international products, and the product coverage, variety and technology have reached the level of advanced international manufacturers. In the field of mobile communication base stations, the company's product coverage, variety and technology have reached the level of advanced international manufacturers. In the field of mobile communication terminals, the company has developed and completed RF amplification chip products such as WiFi and mobile phone PA, and is also developing new products; in terms of RF control chips, the company mass-produces RF switches and antenna tuner products used in terminals. Multiple RF switches were introduced by customers and delivered in batches. DiFEM-related chips began mass production and delivery, and product performance reached the advanced level in China.

The company has carried out technical research and product development work for various RF integrated circuits in the field of satellite communications, and various products have been introduced by customers. A variety of RF integrated circuits have been used in 5.5G integrated sensing base stations. The business demand for high-linear control devices used in next-generation smart antennas at base stations is strong, and product iterative development and new product development continues to be carried out in response to the development needs of 5.5G communication. RF front-end modules for drones were shipped in batches, and the next generation of high-performance RF front-end modules have completed sample development. The company will continue to increase investment in R&D to continuously improve the performance and quality of products to meet market demand. In the future, the fields of satellite communications and drones are expected to be a potential increase in the company's performance.

4. Investment advice and profit forecast.

The company is currently a leading domestic enterprise that can supply active phased array T/R components and serialized RF integrated circuit products in batches. The core technology has reached leading domestic and international advanced levels. In terms of chips and modules, the company has strong R&D strength, rich product industry experience, and a perfect product matrix. It is a core supplier of RF devices for mobile communication base stations in China, and is also actively exploring the terminal field. In terms of components, the company has developed hundreds of active phased array T/R components, leading in China. In addition to internal support for machine users, it is the most sold active phased array T/R module platform in China for all machine units. We estimate that the company's net profit for 2024-2026 will be 679 million yuan, 836 million yuan, and 1,029 million yuan, respectively. The PE corresponding to the current market value is 43 times, 35 times, and 29 times, respectively, to maintain a “buy” rating.

Risk analysis

Risk of fluctuations in raw material prices and delivery. The company's production relies on various raw materials, including various wafers, chips, electronic components, etc., and the cost of raw materials is a major component of the company's operating costs. If raw material prices fluctuate greatly in the future, it may cause the company's operating performance to fluctuate accordingly.

At the same time, due to international politics and other factors such as force majeure, the supply of raw materials may be limited, delivery delayed, or prices raised.

Risk of inventory depreciation. The company has the characteristic of operating with a high inventory balance. If the company's products experience slow sales, slow acceptance, or drastic price cuts in the future, it may lead to a backlog of the company's inventory, put greater financial pressure on the company, and face the risk of falling inventory prices, which will adversely affect the company's business performance.

The risk of changing the T/R component procurement model for the whole machine unit from external procurement to internal support. Currently, some machine manufacturers have built their own T/R component production and development platforms to achieve internal support for T/R components. If the complete machine unit purchased from abroad is changed to an internal supporting model in the future, it will affect the operation of the company's T/R component business, which in turn affects the company's overall operating performance.