The Zhitong Finance App learned that Guojin Securities released a research report saying that the situation in the communications industry in the third quarter of '23 was steady, moderate and positive. Looking ahead to the whole year, AIGC's massive data computation and transmission demand brought about iterative upgrades of computing power+networks and domestic production substitution opportunities, which are expected to boost the prosperity of new digital infrastructure sectors such as 5G, cloud, and optical networks. Currently, the bank is optimistic about the strategic allocation value of operators, the direction of Huawei's domestic intelligent computing ecosystem and new technology, and AI+ cooling and edge computing power investment opportunities under the trend of integrated communication and computing. Leading companies with a good market pattern and scale effects in the high-growth circuit will focus on benefiting.

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Guojin Securities's views are as follows:

The overall performance of the communications industry has been steady, moderate and positive, and profitability has continued to rise.

The total revenue of the communications sector in the first three quarters of 2023 was 2358.6 billion yuan, up 3.0% year on year; net profit was 189.6 billion yuan, up 6.1% year on year, and the positive scissor gap between profit growth and revenue growth continued to widen. The overall prosperity of all sectors is improving. The cloud computing, network optimization, and satellite communication and navigation sectors ranked in the top three revenue growth rates, with 15.3%, 14.3%, and 11.3% respectively; the satellite communication and navigation, cloud computing, and fiber-optic cable sectors ranked in the top three net profit growth rates, with 46.7%, 23.5%, and 12.4%, respectively.

5G investment is becoming demand-driven, focusing on investment opportunities in segments such as operators, main equipment vendors, and optical communications.

By the end of September '23, China had built and opened a total of 3.189,000 5G base stations, accounting for nearly 30% of the total number of mobile base stations. Operator ARPU bottomed out and rebounded, digital transformation opened up room for market capitalization growth, and China Mobile's profit indicators continued to maintain the leading global level. The gradual evolution of new technologies such as 5G-A and satellite communications is expected to drive a new growth cycle for antenna and radio frequency manufacturers. The optical communication market is recovering from bottom to bottom, and the optical network upgrade and digital communication business are booming. The 800G optical module upgrade brings structural opportunities. Continuing to pay attention to the pace of order acquisition, digital communication optical module leaders are expected to continue to benefit.

AIGC brings new opportunities to the industry, and computing power demand drives investment opportunities for domestic manufacturers.

The cloud business revenue of the three major operators has continued to grow rapidly. As domestic Internet companies go overseas, there is still room for domestic cloud service providers to increase their global market share. Demand for AI computing power has brought about a new round of data center construction cycles such as supercomputing, intelligent computing, and edge computing, etc., which is expected to drive the IDC market to the bottom up, and there are opportunities to repair undervaluations in the sector as a whole. As the core link of computing power hardware, servers have a trend of high-end evolution and are rapidly spreading to the edge. The Kunpeng+ Shengteng ecosystem is expected to rise in the AI era, focusing on investment opportunities for servers, switches, and software suppliers. The liquid cooling trend is determined by a 0-1 incremental market. Increased chip power consumption and cabinet power density, combined with energy consumption requirements, will inevitably lead to an upgrade of cooling technology from air cooling to liquid cooling. Industry penetration is in a period of rapid growth of 10%, focusing on manufacturers with leading technology+productivity+ecosystem layout.

The IoT sector is still at the bottom of the stage, and it is optimistic that AI applications will land on the edge to bring about a recovery in industry demand.

The Internet of Things is currently in a transition period from connectivity monetization to traffic monetization. The main benefit link is still the perceptual connectivity layer. The industry's revenue growth rate in the first three quarters reached 4.3% year-on-year, and profitability declined. Due to factors such as the slowdown in downstream demand and high inventories, the revenue of leading module companies has slowed, but the industry is still in a period of rapid growth, and it is optimistic that it will show a quarterly growth trend starting in the fourth quarter. Based on effective price transmission and supply chain shortage mitigation, the profitability of the intelligent controller circuit continues to recover, and the inflection point of gross margin repair has arrived. Intelligent controller and module manufacturers are expected to benefit from the weakening impact of supply and increased demand from downstream scenarios, further enhancing profitability.

Risk warning:Operators' capital expenditure fell short of expectations; the progress of the 5G industry chain and 5G commercialization fell short of expectations; the growth in the number of IoT connections fell short of expectations; the implementation of AI applications fell short of expectations; and the shortage of upstream raw materials continued.