The Zhitong Finance App learned that Western Securities released a research report saying that looking ahead to 2024, the 24Q1 communications industry's boom will have a good influence on the development of the whole year. Among them, North American AI computing power and domestic intelligent computing construction are strong, and the prosperity is expected to continue throughout the year. It is a medium- to long-term deductive logic for high-quality companies to increase their share overseas. With their competitiveness in the global market, it is expected to open up new growth space. The steady recovery of the domestic economy is reflected simultaneously in multiple sectors, and market expectations are low. Continued follow-up and verification. The valuations of related companies are at historically low levels, and high-quality individual stocks are expected to show a double hit in performance and valuation.

The main views of Western Securities are as follows:

Communications Industry 2023 Report: Revenue Growth Slows Down, Profit Side Under Pressure

According to the Western Communications stock pool, after excluding the three major operators and IFF, the total revenue for 2023 was 958.77 billion yuan, an increase of 1.4% over the previous year. Net profit attributable to mother totaled $51.7 billion, a year-on-year decrease of 8.3%. The overall gross margin of the communications industry in 2023 was 25.9% (up 0.5 pct year on year), and the net profit margin to mother was 5.4% (down 0.6 pct year over year). With revenue growth slowing, the communication industry's expense ratio has increased, with a focus on increasing investment in R&D. By sector, the main sectors where gross margin and net profit margin increased by 1 pct over the same period last year include network information security, IDC, and optical devices.

Communications industry 24Q1 performance: revenue and net profit to mother grew at the same time, faster than the full year of 2023

According to the Western Communications stock pool, after excluding the three major operators and IFF, the total revenue for 24Q1 was 218.02 billion yuan, an increase of 9% over the previous year. Net profit attributable to mother totaled $13.66 billion, up 8.1% year over year. After excluding processing, the overall gross margin and net margin of the communications industry declined year-on-year, or were related to factors such as increased competition in the industry and price wars, showing an improvement trend from month to month. The industry's cost rate declined year on year and month on month, and the efficiency of cost control improved. By sector, the sectors with the highest year-on-year net profit growth rate in 24Q1 include the Internet of Things, optical devices, optical modules, temperature control equipment, communication components, and the industrial Internet, all of which increased by more than 30%.

Communications industry 24Q1 stock performance summary: Companies with 24Q1 revenue growth rate and net profit growth rate exceeding 20% are mainly distributed in the Internet of Things, optical devices, optical modules, connectors, and private network communication sectors.

Looking at the growth drivers of 24Q1 high-performing stocks, it mainly comes from several aspects

1. The high level of AI computing power in North America mainly benefits the PCB and AI server foundry processes for optical modules, AI servers and high-speed switches.

2. Accelerating the construction of intelligent computing in China, benefiting traditional communication network service enterprises, intelligent computing IDC providers, AI servers, switching equipment, data center computer room temperature control and other related enterprises.

3. High-quality enterprises go overseas to expand overseas product categories and market channels. Beneficial enterprises include brands going overseas and manufacturing overseas. Representative brand companies include Huazui Navigation and Yilian Network, and representative manufacturing enterprises include intelligent controllers and IoT module links.

4. The domestic economy has rebounded steadily, the pace of project delivery in some industries has returned to normal, and demand in the AIoT and consumer electronics markets has picked up. The beneficiaries include the Internet of Things, connectors, and private network communications.

Communications Industry 24Q1 Fund Position Analysis

According to the Western Communications Stock Pool, the 24Q1 Fund has a market capitalization of 107.86 billion yuan in the communications industry, accounting for 6.7% of the total market value of the fund's heavy A-share holdings. Overall, the share of heavy funds allocated to the communications industry increased month-on-month, which was higher than that of the standard industry.

The concentration of the top ten major telecommunications stocks in the 24Q1 public fund increased. The main preference is for high-quality individual stocks related to AI or with high dividends or fundamental reversals. Among them, the holdings of Zhongji Xuchuang, Shanghai Electric Power Co., Ltd., IFF, China Mobile, Xinyisheng, Tianfu Communications, Zhongtian Technology, Inspur Information, Shennan Circuit, and Wangsu Technology have increased significantly. Since the beginning of 2024, the market value of shares held by Land Stock Connect in the communications industry has increased markedly, mainly involving the AI computing power sector, operators, fiber optic cable, and ICT equipment vendors.

Investment advice

Continuing the good start of the 24Q1 communications industry segment, it is recommended to continue the layout in the direction of excellent performance, focusing on:

1) North American AI computing power beneficiaries, including optical modules: Zhongji Xuchuang (300308.SZ), Tianfu Communications (300394.SZ), Xinyisheng (300502.SZ), AI servers, PCBs, etc.

2) Beneficial stocks for the construction of domestic intelligent computing centers, including Intelligent Computing IDC: Runze Technology (300442.SZ), AI server: Inspur Information (000977.SZ), Ziguang Co., Ltd. (000938.SZ), switches: Ruijie Network (301165.SZ), Ziguang Co., Ltd. (000938.SZ), data center temperature control: Invec (002837.SZ), Shenling Environmental (301018.SZ).

3) High-quality beneficiary stocks for brands going overseas and manufacturing, including Huazue Navigation (300627.SZ), Yilian Network (300628.SZ), Heltai (002402.SZ), Topband (002139.SZ), Guanghetong (300638.SZ), and Yiyuan Communications (603236.SH).

Risk warning: macroeconomic recovery falls short of expectations; investment in AI computing power and capital expenditure falls short of expectations; market competition intensifies.