1. Holding the core technology, R & D drives performance take-off
Cultivate communication chips, and technology helps take off. Since its inception, the company has been deeply engaged in the field of wireless communication chips. Within a few years, it has built a technology base by acquiring companies in the industry and completed the technology accumulation from 2G to 4G. The company attaches importance to R & D investment. From 2018 to 2020, the cumulative R & D investment accounted for 117.17% of the cumulative operating revenue. Technology driven products iterated rapidly and launched a variety of chip products to catch up with leading manufacturers.
In 2020, the company achieved an overall operating revenue of RMB 1.081 billion, with a year-on-year increase of 171.64%. From 2017 to 2020, the compound growth rate of the company’s operating revenue was as high as 134%. In the first three quarters of 2021, the company’s operating revenue reached 1.433 billion, a year-on-year increase of 102.70%. The rapid growth of the company’s operating revenue is due to the continuous and rapid promotion and application of the company’s chip products. In terms of net profit, the company achieved a profit of -2.327 billion yuan in 2020, a year-on-year decrease of 298.69%, mainly due to the implementation of the equity incentive plan in September 2020 and the provision of large share payment expenses of 1750594800 yuan in that month. In the first three quarters of 2021, the company achieved a net profit of -484 million yuan, a year-on-year increase of 77.12%. With the gradual formation of the company’s scale effect and the improvement of the gross profit margin of new products, the company is expected to achieve breakeven in 2022
2. Demand side: there is a strong demand for domestic chips, and the downstream scenes continue to land to drive chip applications
With the prosperity and development of integrated circuits in China, China has become the main application market of baseband chips. China’s integrated circuit industry has maintained a growth rate of more than 15%, and the industry as a whole is booming, with the proportion of design industry increasing continuously. From the perspective of communication chip market, according to the data of strategy analytics, the scale of global cellular baseband chip market in 2019 was US $20.9 billion, with a compound growth rate of 5.42% from 2012 to 2019, maintaining steady growth. China is the main market for communication chip application, with broad space.
In the long run, the growth of China’s communication chip market will continue to maintain rapid growth, mainly driven by:
① Policy stimulus: the Chinese government continues to attach importance to the development of China’s integrated circuits and issues policies to promote development.
② 5g mobile phone shipments increased rapidly: after the official application of 5g in 2019, global 5g mobile phone shipments increased rapidly. As a leading country in 5g development, China’s 5g mobile phone shipments are expected to continue to grow rapidly. 5g mobile phone shipments from several major Chinese mobile phone manufacturers have increased rapidly, driving the demand for 5g baseband chips.
③ The Internet of things scenario is expected to be implemented: in the era of Internet of things, the number of Internet of things connections has increased significantly. The number of Internet of things connections in China will be 3.63 billion in 2019 and is expected to reach 8.01 billion in 2025. In terms of market size, China’s market size has exceeded RMB 2 trillion in 2020, with a year-on-year growth rate of more than 20%.
3. Technology + product + customer + cost four factors help the company ride the domestic Dongfeng
① Master core technology to enable product promotion. The company is one of the few enterprises in the world to master the design capability of 2G / 3G / 4G / 5G full standard cellular baseband chip, and a number of core technologies will enable the promotion of new products.
② Product performance advantages help replace overseas manufacturers. Comparing the performance of the company’s products with that of overseas competitors, there is no gap in the performance of the company’s products. The power consumption is lower than that of competitive products, and the competitive advantage helps to replace.
③ Break through key customers, improve influence, and benefit modules rise in the East and fall in the West. The company’s partners are well-known enterprises in the industry, which helps the company enhance its influence. At the same time, the continuous increase in the share of Chinese module manufacturers will provide new opportunities for domestic chip manufacturers and drive the shipment of chip products.
④ Scale effect appears, and profitability is expected to improve. The company’s raw material procurement cost continues to decline with the expansion of scale, which is conducive to the improvement of the company’s profitability. The company’s future performance growth can be expected
Risk tips: the risk that upstream raw materials continue to maintain high prices, the risk that 5g baseband product development is less than expected, the risk that new technology development is less than expected, the risk of triggering delisting risk warning and even delisting conditions, the risk of market competition and the risk of sustained losses in the future
