QUECTEL WIRELESS(603236)：RAPID REVENUE GROWTH SUSTAINS;ECONOMIES OF SCALE BOLSTER EARNINGS IMPROVEMENT

　　1Q22 results in line with our expectations
Quectel Wireless announced its 1Q22 results: Revenue rose 64.74% YoY to Rmb3.06bn, and attributable net profit increased 104.25% YoY to Rmb124mn, in line with our expectations. In our opinion, the firm’s profit grew faster than revenue, as its G&A and R&D expense ratios dropped YoY and the economies of scale emerged.
　　Trends to watch
　　Enriching product portfolio and expanding into innovative businesses; revenue grew rapidly. Data from Ministry of Industry and Information Technology (MIIT) shows that three operators witnessed their terminals user base for cellular internet of things (IoT) increase by 119mn (from end-2021) to 1.52bn at end-March 2022. 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. Its revenue in 1Q22 increased 64.74% YoY to Rmb3.06bn. The firm takes the lead in launching second generation 5G New Radio modules that comply with 3GPP Release 16 Standard. In addition, it has rolled out LTE, 5G, Wi-Fi, Global Navigation Satellite System (GNSS), and smart modules for automobiles. It is also proactively developing integrated and digitalized businesses, including antenna, QuecCloud IoT cloud platform, original design manufacturing (ODM), and smart city digital integration. The combination of its antennae and modules can help clients simplify terminal product R&D procedures and shorten the commercialization period of products. In our opinion, the firm is diversifying and improving communication module products, which will likely drive its revenue growth and improve customer stickiness.
　　GM to improve; sound expense control boosts earnings. In 1Q22, the firm’s GM fell 1.2ppt YoY but rose 2.4ppt QoQ to 18.2%, due to the tight raw material supply and the time lag between the cost increase and the decision to raise prices. We expect its GM to ramp up as the firm’s raw material supply and product structure improve, and it continues to expand into overseas markets. In 1Q22, the firm maintained sound expense control and realized high-quality growth. Its selling, G&A, and R&D expense ratios were 3.6% (+0.6ppt YoY), 2.0% (-0.4ppt YoY), and 9.0% (-1.7ppt YoY). The firm’s R&D expenses continued to grow rapidly, up 38.2% YoY. Its net profit margin in 1Q22 reached a new high (4.0%) since 2020, despite the decline of 1.2ppt YoY in GM. 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 expect Quectel Wireless to increase revenue by enriching product portfolio and seizing opportunities posed by the rapid development of IoT. We keep our 2022 and 2023 net profit forecasts at Rmb604mn and Rmb901mn. The stock is trading at 34.3x 2022e and 23.0x 2023e P/E. We maintain OUTPERFORM and our TP of Rmb216, implying 52.0x 2022e and 34.8x 2023e P/E with 52% upside.
　　Risks
　　Intensifying sector competition; tight supply of raw materials; disappointing development of Internet of Vehicles (IoV).
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   【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。