From HP to Shide technology, new products emerge one after another to maintain a leading position. Shide technology was originally the electronic measurement department of HP company. It was divided into Agilent technology with the split of HP in 1999, and finally became independent in 2014. After nearly a century of development, Shide technology has launched a variety of products such as sampling oscilloscope, spectrum analyzer and vector network analyzer, and the product performance is in a leading position in the industry. At present, Shide technology has transformed from multi products to hardware and software solutions. Pathwave launched in 2018 is the industry’s first design and test software platform, which can be applied to multiple scenarios. As of fiscal year 2021, Shide technology has 18000 direct customers in the solution business, covering 5g communication, automotive electronics, electronic semiconductors, national defense and military industry, including major customers such as Qualcomm, NVIDIA, Texas Instruments and Tesla.
The operating capacity was improved, and the revenue + net profit increased steadily. Shide technology continued to transform into a solution with high gross profit. Fy21 gross profit margin increased by 2.1 PCT to 62% year-on-year, and fy14-fy21 revenue CAGR was 7.7%. Shide technology’s ability to control fees has been strengthened, the rate of sales and management expenses has continued to decline, and the net profit and free cash flow have continued to improve. It is less impacted by covid-19 epidemic. The company’s fy21 net profit was USD 1.16 billion, with a year-on-year increase of 27% and fy16-fy21 CAGR of 13%, realizing five-year continuous growth.
The industry is “rolled in”, and high-end products + universal use is a feasible solution. In the field of network infrastructure and interconnection, according to Moore’s law, the electrical signal rate of high-speed digital bus standard has developed to about 50Gbps in the foreseeable three years, and NRZ has peaked. Back to the electronic measurement industry, especially in the field of digital testing, “Involution” is also more obvious. According to the statistical prediction of frost Sullivan, the global oscilloscope market will be about US $1.3 billion in 2020, with a CAGR of 3.0% in the past five years, lower than the growth rate of global R & D expenditure (CAGR of 3.5% from 2015 to 2020). By adopting self-developed chips, Shide technology has continuously improved product performance indicators, combined with its own software capabilities, established two business divisions eisg and CSG, focusing on communication solutions and electronic industry solutions, and gradually covered the application fields to the research, development and test cycle of the whole industry chain of the above industries.
The strategic focus is on the R & D link of customers, and the downstream demand is still booming. About 60% of Shide technology’s revenue comes from customers’ demand for R & D and testing. We believe that the R & D demand of downstream application industry will continue to grow. On the one hand, the demand for R & D is strong. According to the scoreboard of EU Industrial R & D investment in 2021 issued by the European Commission, the global R & D investment increased by about 6% in 2020 (18.1% in China and 9.1% in the United States). The R & D demand of high-tech industry is still relatively strong. Global R & D growth was mainly driven by ICT services (15.5%), followed by health (12.8%) and ICT production (5.7%). Affected by the epidemic, R & D investment in some industries has declined: aerospace and national defense (- 17.0%), automobile (- 4.3%), and chemical (- 3.4%). On the other hand, the gross profit margin of R & D business is often higher than that of manufacturing.
We believe that the P / E of electronic measurement industry can be calculated by “two-stage model”. In the first stage, we believe that the company’s product form is mainly hardware, and the overall strategy is to expand the product matrix + expand the application scenarios. At this stage, the company is still in the growth stage. With the launch of high-end products, the average product ARPU of the company continues to improve, driving the large-scale performance. We refer to the valuation of Shide technology and think that the reasonable P / E is about 90x. In the second stage, the company will gradually switch the overall product form to software and provide secondary development ports for downstream users by subscribing to value-added services in order to adapt to the changing downstream application scenarios and considering financial indicators such as gross profit margin. We believe that P / E = 1 / (Treasury bond interest rate) in this stage. The long-term average real interest rate of US Treasury bonds is about 1.54%, so generally, P / E = 1 / 1.54% = 65x in the mature stage of electronic measurement industry.
Investment suggestion: thanks to the rising prosperity of downstream industries such as 5g and new energy vehicles, we believe that electronic measurement is about to usher in a new round of development. It is suggested to pay attention to German technology, American national instrument, Puyuan Jingdian, dingyang technology, Kun hengshunwei, Chuangyuan instrument, silinjie, Uni-Trend Technology (China) Co.Ltd(688628) , Beijing Oriental Jicheng Co.Ltd(002819) .
Risk tip: the R & D expenditure is less than expected, the supply of raw materials is in short supply and the price fluctuates, and the import of electronic components such as chips is dependent.
