Event:
Recently, Huawei released its annual report for 2021. In 2021, the company achieved a revenue of 636807 billion yuan, a year-on-year decrease of 28.6%, a net profit attributable to the parent company of 113718 billion yuan, a year-on-year increase of 75.9%, and a year-on-year increase of 11.6pct to 48.3%.
Comments:
1. Digital intelligence advances in low-carbon, and the R & D rate is at a ten-year high
Short term pressure on performance under multiple factors. In 2021, the company achieved a revenue of 636807 billion yuan, a year-on-year decrease of 28.6%, and a net profit attributable to the parent company of 113718 billion yuan, an increase of 75.9%. There are three main reasons for the decline in revenue: 1) under the continuous pressure of the supply chain under the Sino US trade friction, several rounds of sanctions in the United States have had a great impact on Huawei’s mobile phone, PC and other businesses, and the consumer business decreased by 49.6% year-on-year; 2) 5g construction was steadily promoted, the number of new base stations in the year was relatively stable, and the business growth of the company’s operators slowed down, slightly down by 7% year-on-year; 3) Epidemic impact. Under the pressure of revenue, the net profit of the company increased significantly by 75.9%, mainly due to 1) the optimization of product structure and the expansion of the proportion of high gross profit business, which boosted the gross profit margin by 11.6pct to 48.3%; 2) The profit from the sale of glory and hyperfusion was 57.4 billion yuan. If the profit from the sale of business was deducted, the net profit decreased by 12.88% year-on-year.
In terms of operator business, in 2021, the company’s operator business achieved a revenue of 281469 billion, a slight decrease of 7% year-on-year, maintaining steady development, and the proportion of revenue expanded by 10.25 PCT to 44.2%. By 2021, the company has contracted to build 5g networks in 13 countries such as Switzerland, Germany and the Netherlands, and has signed more than 3000 commercial contracts for 5g industry applications. Huawei has launched a new generation of 5g active antenna processing unit AAU and blade AAU to help operators deploy 5g in a minimalist manner in terms of performance, energy consumption and engineering, so as to enable the company to win the absolute leading advantage in 5g commercial deployment.
In terms of the government enterprise market, in 2021, the revenue reached RMB 10.444 billion, an increase of 2.1% at the same time, and the proportion of revenue expanded by 4.83pct to 16.09%. Huawei’s enterprise business adheres to the strategy of “platform + AI + ecology”. By the end of 2021, more than 700 cities and 267 world top 500 enterprises had become Huawei’s digital transformation partners. In 2021, the company created more than 100 scenario solutions for more than 10 key industries such as government, transportation, finance, energy and manufacturing.
In terms of consumer business, in 2021, the revenue reached 243431 billion yuan, a year-on-year decrease of 49.6%, and the proportion of revenue decreased by 15.95 PCT to 38.23%, which is mainly due to the great impact of multiple rounds of US sanctions on mobile phone, PC and other businesses. On the issue of core shortage, Huawei will make the original less advanced technology support the competitiveness of Huawei’s future products through theoretical reconstruction, system architecture reconstruction and other methods, which is expected to weaken the impact of US sanctions. In addition, the company will increase consumer business revenue by expanding new fields such as wearable, sports health and whole house intelligence. Among them, sound products and wearable products have achieved rapid development. By 2021, Huawei’s cumulative global shipments of intelligent wearable devices have exceeded 100 million, and 2021q3 watches and bracelets have ranked first in the world. At the system level, in 2021, more Huawei products will be combined with harmonyos, with more than 220 million Huawei devices equipped with harmonyos and more than 730 million monthly active users of Huawei terminals worldwide. Harmonyos has become the fastest-growing mobile terminal operating system in the world.
Huawei cloud, digital new energy, smart car parts and other new businesses are expected to become new growth points of the company. Huawei cloud, one of the company’s new businesses, had a sales revenue of 20.1 billion yuan in 2021, an increase of 34%, ranking second in China and fifth in the world in the IAAs market. It is expected to become a new growth point of future performance. Digital new energy business is committed to combining power electronic technology with digital technology to provide green and low-carbon power electronic products. In 2021, the company helped customers realize 482.9 billion kwh of green power generation, save about 14.2 billion kwh of electricity and reduce nearly 230 million tons of carbon dioxide emissions. Under the background of medium carbon and large carbon, the demand of digital new energy business is strong and the prospect is promising. The smart car parts business extends Huawei’s ICT technology advantages to the smart car industry, provides incremental parts for smart connected vehicles, has listed more than 30 smart car parts, and has established cooperative relations with more than 300 partners. In 2021, the investment in intelligent vehicle solutions will reach US $1 billion, and the R & D team will reach 5000 people.
R & D investment has reached a record high, and patents have a significant global leading advantage. Under the pressure of revenue, in 2021, the company’s R & D expenses still reached 142.7 billion yuan, and the R & D expense rate reached 22.4%. The R & D expense rate was the highest in recent ten years. Huawei’s R & D investment ranked second among global enterprises, with about 107000 R & D personnel, accounting for 54.8% of the total number of the company. By the end of 2021, Huawei had more than 90000 patents authorized by the U.S. intellectual property office, ranking first in the number of patents authorized by the U.S. intellectual property office, with a total of more than 2021 patents in the world. In 2021, the company’s cash flow from operating activities was 59.67 billion, with a significant year-on-year increase of 69.4%. High cash flow is expected to ensure continuous investment in R & D under revenue pressure in the future.
2. Investment suggestions
The US sanctions have increased the cost of the global science and technology industry, causing many failures and injuries. Huawei is facing the dark moment. The sanctions force the localization process to provide development opportunities for Chinese science and technology enterprises. Under the Sino US science and technology game, several rounds of sanctions imposed by the United States on Huawei put pressure on Huawei’s performance for a short time. The sanctions policy increased the cost of the science and technology industry, resulting in damage to the interests of Huawei, the semiconductor industry chain, the United States and the world. According to the U.S. BCG report, before the sanctions, China accounted for 23% of the global semiconductor demand in 2018. If the U.S. semiconductor enterprises could not successfully cooperate with Chinese enterprises, The United States will lose 18% of its global share and 37% of its revenue, and the decline in revenue will inevitably lead to significant cuts in R & D and capital expenditure. American enterprises may reduce R & D investment by US $12 billion to US $24 billion, affecting their long-term competitiveness in the future. Therefore, the sustainability of the sanctions policy is in doubt. At the same time, Huawei has taken active measures on the lack of core. Through theoretical reconstruction, system architecture reconstruction and other methods, the original less advanced technology can also support the competitiveness of Huawei’s future products, which is expected to weaken the impact of U.S. sanctions. On the other hand, the Sino US science and technology game will force the localization process and speed up the internal circulation of science and technology. After the United States included Huawei in the embargo list in 19 years, Huawei increased the De-a process, and China accelerated the domestic substitution. The results are beginning to show: among the core chips, AP, baseband chip, camera chip, touch chip and other core parts have completed the basic substitution of localization, In the future, the promotion of localization process will provide development opportunities for Chinese ICT and other science and technology enterprises. It is suggested to pay attention to investment opportunities in 5g construction, 5g application and other fields:
1. 5g Construction: traffic transmission expressway.
(1) it is recommended to pay attention to the wired side of the main equipment: Zte Corporation(000063) , Fiberhome Telecommunication Technologies Co.Ltd(600498) .
(2) the prosperity of optical fiber and optical cable is upward, and the traffic transmission highway. It is recommended to pay attention to: Yangtze Optical Fibre And Cable Joint Stock Limited Company(601869) , Hengtong Optic-Electric Co.Ltd(600487) , Jiangsu Zhongtian Technology Co.Ltd(600522) .
(3) as a traffic port, the optical module has benefited from the growth of port rate and number for a long time. It is recommended to pay attention to: Eoptolink Technology Inc.Ltd(300502) , Zhongji Innolight Co.Ltd(300308) , Accelink Technologies Co.Ltd(002281) , Suzhou Tfc Optical Communication Co.Ltd(300394) .
2. 5g application: the demand for traffic application increases.
As a traffic channel, operators benefit from the growth of traffic application, continuous improvement of performance and attractive valuation. It is recommended to pay attention to: China Mobile a, China Mobile h, China Telecom Corporation Limited(601728) h, China United Network Communications Limited(600050) h.
3. Theme Market: counting from the east to the West
China Unicom Telecom will focus on investing in the capex of East digital West computing. China Mobile disclosed that the capex will be 185.2 billion yuan in 2022. We judge that East digital West computing may become an important opportunity for China Mobile to overtake in the curve in the IDC field, and is expected to obtain the support of key capital expenditure. It is suggested to pay attention to: Beijing Sinnet Technology Co.Ltd(300383) , Guangdong Aofei Data Technology Co.Ltd(300738) , Mcc Meili Cloud Computing Industry Investment Co.Ltd(000815) , Kehua Data Co.Ltd(002335) , Shenzhen Kstar Science & Technology Co.Ltd(002518) , Shanghaichengdiconstructioncorporationltd(603887) , Shenzhen Envicool Technology Co.Ltd(002837) , Nanjing Canatal Data-Centre Environmental Tech Co.Ltd(603912) , etc.
Risk analysis
Lower than expected risk of capital expenditure of operators and cloud manufacturers
The lower than expected capital expenditure of operators or cloud manufacturers will affect the demand of the company’s operator business and government enterprise business.
Risk of repeated Sino US trade frictions
China has a large number of exports to the United States in the fields of computers, mobile phones and other electronic products. At the same time, China has frequent exchanges in upstream technology, materials, OEM, equipment and other fields. If the trade friction intensifies further, it may drag down the demand in these fields in the short term and affect the technological development in the long term.
Risk of recurrence and aggravation of the epidemic
5g products, consumer electronics and semiconductor supply chains outside China may be affected by the epidemic, which may affect the overall supply. In addition, the epidemic may reduce the corresponding downstream demand, resulting in the overall industry development less than expected.
