Matters:
On March 28, Huawei released its 2021 annual report. According to the report, the company achieved a global sales revenue of 636.8 billion yuan, a year-on-year decrease of 28.56%, and a net profit of 113.7 billion yuan, a year-on-year increase of 75.9%.
Ping An View:
The decline of consumer business income has dragged down the company’s revenue performance, and the investment in R & D is still increasing: the consumer business income is 243431 billion yuan, accounting for 38.2%, down 49.6% year-on-year; The business income of operators was 281469 billion yuan, accounting for 44.2%, down 7.0% year-on-year; The business income of the enterprise was RMB 10.444 billion, accounting for 16.1%, with a year-on-year increase of 2.1%. The decline in sales revenue was mainly due to the impact of the decline in consumer business income, and the increase in net profit was mainly due to the income from the sale of some businesses (including the net income from the disposal of subsidiaries and businesses of 57.341 billion yuan (592 million yuan in 2020) and government subsidies of 2.571 billion yuan (2.785 billion yuan in 2020)). In different regions, the sales revenue in the Chinese market reached 413299 billion yuan, a year-on-year decrease of 30.9%; The Asia Pacific market achieved revenue of 53.675 billion yuan, a year-on-year decrease of 16.7%; Europe, Middle East and Africa achieved revenue of 131467 billion yuan, a year-on-year decrease of 27.3%; The revenue of the American market reached 29.225 billion yuan, a year-on-year decrease of 26.3%. Even under great external pressure, Huawei has not slowed down its investment in R & D and adheres to the strategic directions of cloud, artificial intelligence, intelligent auto parts, software root technology and business continuity. The annual report shows that its R & D investment reached a new high in 2021, reaching 142.7 billion yuan, accounting for 22.4% of the annual revenue, and the R & D expense rate increased by 6.5 percentage points.
The expansion of Hongmeng OS is in line with expectations, and the construction of the main scenes is progressing smoothly: according to the company’s plan, the consumer business will implement the “1 + 8 + n” (1 for mobile phones; 8 for tablet computers, PCs, VR devices, wearable devices, smart screens, smart audio, smart speakers and car machines; n for Pan IOT devices) whole scene Smart Life strategy, with harmonyos and HMS (Huawei mobile services) as the core to build smart home Smart office, smart travel and other whole scene ecology. 1) According to the annual report data, the expansion of Huawei Hongmeng operating system is in line with expectations, which has laid a foundation for the subsequent construction of operating system and software ecology. By the end of 2021, more than 220 million Huawei devices were equipped with harmonyos, and the shipment volume of Huawei’s third-party ecological devices reached 115 million, totaling more than 330 million, slightly exceeding the target plan given by the company in 2021. We expect that Hongmeng OS is expected to cross the “life and death line” (about 560 million units) of 16% of global active devices from 2022 to 2023. Hongmeng OS has little problem to survive in the short term, and its long-term development still needs to rely on the expansion of scene and market. 2) Smart phones, the main product of consumer business, although affected by chip constraints, are also bright spots in 2021. The company has released two folding screen mobile phone products, Huawei matex2 and Huawei P50 pocket. Matex2 uses an innovative double rotating water drop hinge to give consideration to seamless folding and flatness after unfolding. 3) The construction of smart scenes has also been promoted rapidly. Among them, in the smart home track, Huawei has launched a new generation of smart screen V series products such as v75super and v98. Huawei smart screen v75super adopts self-developed superminiled backlight technology for the first time. 46080 miniled beads bring display technology revolution, with high contrast and brightness.
The development effect of strategic driving points such as smart car and huaweiyun is obvious, and the industry digitization brings opportunities: 1) smart auto parts business is one of the company’s strategic opportunity points, and will continue to invest. In 2021, the company invested US $1 billion in this field, with a research and development team of 5000 people. It has listed more than 30 intelligent auto parts, and released five innovative solutions: harmonyos intelligent cockpit, 4D imaging radar, mdc810, “Huawei Octopus” automatic driving open platform and intelligent thermal management system. Huawei inside (HI) and intelligent selection mode have been recognized by the car factory. Through in-depth cooperation with BAIC, Chang’an, GAC and Thalis, relevant products such as BAIC Jihu alpha s new hi version, Chang’an avita 11 (HI version) and AITO query M5 (intelligent selection) will be delivered in 2022. 2) Huaweiyun is also the company’s key business direction, and its growth potential is emerging. Huawei cloud achieved a sales revenue of 20.1 billion yuan in 2021, a year-on-year increase of 37%. In 2022, focusing on the construction and optimization of China’s computing power network, Huawei cloud’s advantages in infrastructure layout, services and experience will be reflected, and the sector is expected to continue high growth. 3) The digitalization and intelligence of the industry will create new development space for Huawei. Huawei is adapting to the development of digital economy, launching digital solutions around government, finance, energy, transportation and other scenarios, and has established legions of coal mines, smart roads, customs and ports. Through the mode of short management chain + specialization, Huawei is expected to gain more space in government, enterprise and other markets.
Investment suggestion: in the field of consumer terminals, on the one hand, with the extension of the replacement cycle of consumers and the slowdown of the sales margin of TWS headphones, it is difficult for industrial chain companies to increase their performance through volume; On the other hand, in the industrial chain companies, brand enterprises have room for further improvement through the strategy of “channel construction + IOT product layout”. At the same time, investors are advised to actively pay attention to new products and applications such as folding mobile phones, miniled and VR / ar. it is suggested to pay attention to folding mobile phone hinge suppliers Jiangsu Gian Technology Co.Ltd(300709) and Shenzhen Everwin Precision Technology Co.Ltd(300115) , miniled equipment leader Shenzhen Xinyichang Technology Co.Ltd(688383) , miniled module supplier Hongli Zhihui Group Co.Ltd(300219) , VR / AR industry leader Goertek Inc(002241) , etc. In the field of intelligent vehicles, Huawei will continue to increase investment and recommend key partners in this field Thunder Software Technology Co.Ltd(300496) ; In terms of software ecological construction, Hongmeng recommends Beijing Supermap Software Co.Ltd(300036) , Business-Intelligence Of Oriental Nations Corporation Ltd(300166) and Yonyou Network Technology Co.Ltd(600588) and other partners.
Risk tips: 1) the development of strategic new businesses such as automobile and cloud is not as expected. 2) The construction of software ecology is less than expected. 3) Business and service sustainability risks.
