QUECTEL WIRELESS(603236)：REVENUE CONTINUES TO GROW RAPIDLY;SCALE EFFECT INCREASES PROFITABILITY

　　2021 results in line with our expectation
Quectel Wireless announced its 2021 results: Revenue grew 84.45% YoY to Rmb11.26bn, and attributable net profit rose 89.43% YoY to Rmb358mn, largely in line with our expectation. In 4Q21, revenue increased 99% YoY to Rmb3.79bn and attributable net profit rose 89% YoY to Rmb121mn.
　　Trends to watch
　　Revenue grows rapidly thanks to boom in IoT. ABI Research estimates that global connections of Internet of Things (IoT) will reach 23.1bn by 2026, implying a CAGR of 23% over 2021-2026. In addition, demand for cellular communication modules from smart terminals will also keep rising. Quectel Wireless is a global leader in cellular communication modules with channel, product, and cost advantages. We expect it to be the first to benefit from the development of IoT. Meanwhile, we note that the firm is diversifying its products. It takes the lead in launching second generation 5G New Radio modules that comply with 3GPP Release 16 Standard. The product supports around 1,000 corporate clients in the development and commercial application of 5G terminals. In addition, the firm has rolled out LTE, 5G, Wi-Fi, Global Navigation Satellite System (GNSS), and smart modules for automobiles. According to its announcement, the firm’s revenue in 2021 increased 84.45% YoY, mainly thanks to the sales ramp-up of LTE, LPWA, in-vehicle, and 5G modules. Quectel Wireless is proactively developing integrated and digitalized businesses, including antenna, QuecCloud IoT cloud platform, original design manufacturer (ODM), and smart city digital integration. It has released over 300 antennae and provides Printed Circuit Board Assembly (PCBA) solutions for leading firms in fields of Personal Digital Assistance (PDA), Point of Sale (POS) payment, shared mobility, Battery Management System (BMS), and Artificial Intelligence of Things (AIoT). In addition, it provides integrated solutions for smart two-wheel mobility based on its cloud platform and antennae. In our opinion, the firm is diversifying and improving communication module products, which will likely drive its revenue growth and improve customer stickiness.
　　Tight raw material supply weighs on cost; proprietary production lines bolster capacity expansion. The firm’s gross margin fell 2.7ppt YoY to 17.6% in 2021, due to the tight raw material supply and the delayed pass-through of cost pressure. We expect its gross margin to improve as the supply pressure eases and the firm’s product portfolio is optimized. Quectel Wireless has 10 production lines and two R&D lines in Hefei, with an annual capacity of 45mn. In addition, it has completed the construction of 15 production lines in the smart manufacturing center in Changzhou. It expects the total annual capacity at its base in Changzhou to reach 90mn after the other five lines are put into operation in 2022.
　　Sound expense control; exhibits economies of scale. In 2021, the firm’s selling, G&A and R&D expense ratios fell 0.04ppt, 0.65ppt, and 2.50ppt YoY to 3.2%, 2.4%, and 9.1%. Its net profit margin rose 0.08ppt YoY while gross margin dropped 2.7ppt in 2021. We expect its profitability to improve on the back of revenue growth, sound management, channel advantages, replication of R&D results, and economies of scale.
　　Financials and valuation
　　We keep our 2022 and 2023 net profit forecasts at Rmb604mn and Rmb901mn. The stock is trading at 34.9x 2022e and 23.4x 2023e P/E. We maintain an OUTPERFORM rating and our target price of Rmb216, implying 52.0x 2022e and 34.8x 2023e P/E with 49% upside.
　　Risks
　　Intensifying sector competition; tight supply of raw materials; disappointing development of Internet of Vehicles (IoV); lingering COVID-19.
【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。

   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。