[key investment points]
The market of the plate is depressed, and there is more room for repair in the future. Since the second half of last year, the market confidence of the communication sector has been insufficient due to multiple adverse factors, and the market of the sector has always been in a downturn. As of December 28, 2021, the communication (Shenwan) index has increased by 1.75% during the year, ranking 18th among the 28 first-class industries of Shenwan. The P / E ratio of the sector and the proportion of fund holdings are at a historical low. We believe that the current market is pessimistic about the overall performance of the communication industry. Many subdivided fields in the industry, such as operators, optical communication, Internet of things and military industry, are in the recovery or high growth trend. There is a deviation between the fundamentals and the valuation level, and there is more room for valuation and position proportion repair in the future.
5g and the Internet of vehicles push the animal networking module and terminal industry into the cycle of simultaneous increase in volume and price. The Internet of things is an industry we focus on. In the middle and lower reaches of the Internet of things industrial chain, Chinese companies have global comparative advantages. In recent years, their market share in the field of cellular modules and terminals has been increasing, squeezing overseas manufacturers to gradually withdraw from the hardware market, and the pattern of “rising in the East and falling in the west” has been established. 5g and the Internet of vehicles are important growth sources of the IOT module and terminal industry in 2022. The Internet of vehicles is in the stage of accelerated penetration in the world, especially in China. The resulting demand continues to be strong, bringing significant growth in the number of industries. 4G modules and terminal products have been launched for a long time, and the product unit price has decreased significantly. The promotion of 5g commerce will promote the upgrading of modules and terminal products, which will significantly improve the product unit price. With the increase of the penetration of the Internet of vehicles, the Internet of things module and terminal industry will enter a cycle of simultaneous increase in volume and price.
The revenue side and cost side of China Telecom Corporation Limited(601728) operators have improved, and the company’s valuation deviates from the fundamental trend. With the continuous promotion of 5g business of operators, the haze of “increasing speed and reducing fees” gradually dissipated, and the mobile service ARPU entered a warming trend, driving the operators’ personal business income to return to a better growth. In terms of government and enterprise business, IDC and cloud computing businesses of operators have scale and channel advantages, and will fully benefit from the acceleration of China’s industrial digital transformation. On the cost side, the sharing and co construction mode in the 5g era has greatly reduced the capital expenditure and operation and maintenance cost of operators. The competition pattern has also changed into cooperative competition, stopped the irrational price war, well controlled the sales expenses, significantly reduced the operating cost pressure of major operators and promoted the improvement of profitability. Overall, the change trend of income and cost of Chinese operators will show a scissors gap, but the current valuation is still at a low level compared with the leading operators in major overseas regions, which deviates from the improvement trend of fundamentals and is expected to usher in valuation repair.
The structure of national defense expenditure has been continuously optimized, and the informatization level of military equipment urgently needs to be improved. Although China’s national defense expenditure ranks second in the world, its share in GDP and per capita national defense expenditure are at a low level among the world’s military powers, and the mechanization and informatization level of national defense equipment are also relatively backward. We believe that on the basis of the steady growth of national defense expenditure, China’s expenditure structure is expected to continue to optimize and invest more in the increment and upgrading of equipment, The market of military equipment, especially information equipment, has ushered in opportunities.
[configuration recommendations]
We are optimistic about Fibocom Wireless Inc(300638) (300638. SZ) and cautious about Quectel Wireless Solutions Co.Ltd(603236) (603236. SH) in the Internet of things module industry. According to the statistical data of counterpoint, in the third quarter of this year, Quectel Wireless Solutions Co.Ltd(603236) and Fibocom Wireless Inc(300638) ranked first and second in the market share of the global Internet of things cellular module industry respectively. With the establishment of the market pattern of “rising in the East and falling in the west”, it is expected that the global market share of the two companies will still have great room for improvement. From the perspective of branches, Fibocom Wireless Inc(300638) focused on the layout of high value vertical industries. In the past, it continued to cultivate deeply in the field of PC and POS and obtained the industry-leading gross profit margin and net profit margin. Since last year, Fibocom Wireless Inc(300638) began to make efforts in the vehicle module industry, acquired the vehicle front equipment assets of Sierra wireless, ranked among the forefront of the vehicle module industry and became a new performance growth point. Quectel Wireless Solutions Co.Ltd(603236) has excellent business expansion ability. Although it has become the first market share, it still achieved a year-on-year growth rate of 77.7% in the first three quarters of this year, much higher than its counterparts at home and abroad. It has made great progress in many Internet of things application fields. In the future, with the continuous enhancement of the company’s scale effect and the optimization of cost rate, the net interest rate is expected to increase and complete the release of profits.
We are optimistic about Queclink Wireless Solutions Co.Ltd(300590) (300590. SZ) and Hangzhou Hopechart Iot Technology Co.Ltd(688288) (688288. SH) in the Internet of things terminal industry. Queclink Wireless Solutions Co.Ltd(300590) since its establishment, it has deeply cultivated the overseas market. Last year, due to the continuous impact of overseas epidemic, its performance declined. This year, with the strong recovery of overseas resumption of work and production, the company’s business has increased by 98.8% year-on-year in the first three quarters of this year. The company’s traditional business covers fleet management, UBI, asset management and other fields, with steady income growth. In recent years, it has expanded emerging fields such as animal traceability and shared travel, forming the second growth curve. With the continuous expansion of the downstream market and the gradual withdrawal of overseas competitors, we believe that the company has long-term high growth. Hangzhou Hopechart Iot Technology Co.Ltd(688288) focuses on the intelligent networking application of commercial vehicles. Its products include traveling data recorder, T-box, central control screen and auxiliary driving system. It is highly competitive in the front and rear loading market of commercial vehicles. It has rich resources for head customers. This year, it began to layout the automotive electronics industry. The automotive controller products are promoted smoothly, and the value of single vehicle is expected to be further improved in the future. Affected by the implementation of the national six year plan, the downstream market of the company was cold in the second half of this year, the sales volume of heavy trucks showed a steep decline, and the company’s performance received a great impact. However, from the marginal improvement of sales volume and the gradual implementation of industrial policies, the company’s performance is expected to rebound strongly next year.
For telecom operators, we suggest to pay attention to China Telecom Corporation Limited(601728) (601728. SH) already listed in A-Shares and China Mobile, which will soon be listed in a shares, and be cautious about China United Network Communications Limited(600050) (600050. SH). China Telecom Corporation Limited(601728) the revenue side and cost side of operators have improved, the company’s valuation deviates from the fundamental trend, and the configuration cost performance is prominent. On the revenue side, with the continuous promotion of 5g business of operators, the haze of “increasing speed and reducing fees” has gradually dissipated, mobile service ARPU has entered a warming trend, driving operators’ personal business income to return to good growth, and the high outlook of the Internet of things industry continues. 5g will provide a technical basis for the large-scale expansion of the Internet of things, and 5g private network will also become a new battlefield of ICT industry, Will bring incremental revenue; In terms of government and enterprise business, IDC and cloud computing businesses of operators have scale and channel advantages, and will fully benefit from the acceleration of China’s industrial digital transformation. In terms of cost, the sharing and co construction mode in the 5g era has greatly reduced the capital expenditure and operation and maintenance cost of operators. The competition pattern has also changed into cooperative competition, stopped the irrational price war, well controlled the sales expenses, significantly reduced the operating cost pressure of major operators, and promoted the improvement of profitability. Overall, the change trend of revenue and cost of Chinese operators will show a scissors gap. From the performance in the first three quarters of this year, the revenue of China Mobile, telecom and China Unicom increased by 12.9%, 12.3% and 8.5% year-on-year, and the net profit attributable to the parent increased by 6.9%, 24.7% and 18.6% year-on-year, which confirms that the performance of Chinese operators has returned to growth. From the perspective of the development prospect of various businesses and the improvement expectation of the company’s cost side, the revenue and profit of Chinese operators are expected to continue to grow at a high rate in the next three years, showing good growth.
We are cautiously optimistic about Tianjin 712 Communication & Broadcasting Co.Ltd(603712) (603712. SH) in the military communication industry. Although China’s national defense expenditure ranks second in the world, its share in GDP and per capita national defense expenditure are at a low level among the world’s military powers, and the mechanization and informatization level of national defense equipment are also relatively backward. We believe that on the basis of the steady growth of national defense expenditure, China’s expenditure structure is expected to continue to optimize and invest more in equipment increment and upgrading, The market of military equipment, especially information equipment, has ushered in opportunities. Tianjin 712 Communication & Broadcasting Co.Ltd(603712) products cover three major fields: military, civil and environmental protection monitoring. China’s enterprises that have earlier laid out ultrashort wave military communication are also very few military communication equipment suppliers that can achieve full band and full military coverage. They are expected to benefit from the improvement of the prosperity of the military equipment industry and take off their performance.
[risk tips]
The epidemic situation has repeatedly affected the recovery of overseas production and operation activities;
5g commercial promotion is less than expected;
Intensified price competition in the Internet of things industry;
The penetration rate of the Internet of vehicles is lower than expected;
The ARPU value of mobile services of operators rebounded less than expected;
The promotion of China’s digital economy is less than expected;
Defense spending grew less than expected.
