Tianfeng Communication's Third Quarter Report Interpretation: AI's New Momentum Drives Accelerated Growth, Continuing to Be Optimistic about the Industry's Sustained High Prosperity.

Tianfeng released a research report stating that, based on operating income, the overall revenue of communications equipment in 24Q3 increased by 11.1% year-on-year. After a slowdown in growth since Q1 of 21, the growth rate has been consistently declining for 10 consecutive quarters until it experienced negative growth in 23Q3. However, starting from 23Q4, there was a reversal and recovery of growth, with an accelerating growth trend from 24Q1 to 24Q3. This reflects the completion of the transition between old and new industry forces, with AI computing power becoming a new engine driving industry growth. In terms of net profit, the overall net profit of communications equipment in 24Q3 increased by 18% year-on-year, a significant turnaround from -16% in 23Q3, reflecting a rapid recovery in industry profitability. It is expected that this industry trend will continue. Tianfeng's main points are as follows: Special attention should be given to the following industries: 1) Optical components saw a 90% increase in revenue in 24Q3, showing high and accelerating growth from 24Q1 to 24Q3. The net profit attributable to shareholders in Q3 increased by +123%, showing a similar accelerating growth trend. This may reflect a comprehensive increase in global demand for AI-driven optical modules, currently mainly benefiting overseas markets, with potential future benefits from increased domestic demand for AI computing power. The bright future of AI is expected to continue to experience high growth trends for several quarters. 2) The steady recovery trend of the Internet of Things is continuing, with accelerated revenue and profit growth. In 24Q3, revenue increased by 27.2% year-on-year, marking three consecutive quarters of revenue growth of over 20%, indicating industry recovery and continued strong overseas demand. Benefiting from the recovery in market demand, companies in the IoT industry are showing strong growth in overseas markets, with effective cost control leading to rapid profit growth. Leading companies in the controller sector such as Shenzhen Topband/Shenzhen H&T Intelligent Control have demonstrated strong revenue and profit performance, a trend expected to continue for several quarters. 3) In the submarine cable and optical cable industry, revenue in 24Q3 increased by 13.9%, mainly driven by leading manufacturers in the areas of ultra-high voltage, smart grids, and marine businesses. The net profit attributable to shareholders increased by 18.7% year-on-year, reversing the downward trend. Looking ahead to the coming quarters, domestic demand is expected to recover and accelerate, while overseas demand remains strong. The industry is expected to continue to recover, with rapid growth expected in the installation of offshore wind power units over the next few quarters and years. 4) In the IDC & CDN sector, revenue in 24Q3 increased by 11.8%, with the leading intelligent computing technology group Range demonstrating impressive performance. With the continued high demand for AI-driven IDC, leading companies in the industry are expected to continue to benefit. As domestic demand for AI increases, the industry is expected to continue to benefit. 5) Telecommunications operators saw a 1.4% increase in revenue in 24Q3, showing steady growth over the past few quarters. Net profit attributable to shareholders increased by 5.3% year-on-year, marking three consecutive quarters of steady profit growth. The overall telecommunications industry operations are stable, and it is expected to see steady growth in the coming years. 6) Revenue in the main equipment sector saw a slight decline of 0.3% in 24Q3, as the industry is in a period of transition between old and new energy sources, with AI driving forces not yet sufficient. Looking ahead to the coming quarters, with an increase in the proportion of AI driving forces, revenue and profit are expected to return to growth under the continued growth of AI-driven ICT demand. 7) In the satellite industry, operating income and net profit attributable to shareholders in 24Q3 decreased by 9.2% and 73.4% year-on-year, respectively. The main reason for this can be attributed to the fact that downstream customers of satellite internet are mainly military units and are significantly affected by military adjustments and personnel changes. However, a trend of warming up compared to the previous year has appeared, with a narrowing of profit decline year-over-year. With the start of the satellite internet era in 24, combined with continued industry recovery, the industry is expected to drive significant growth in demand over the next few years. Investment Recommendations: 1) Growth-oriented: 1) Continuously optimistic about AI computing power supply chain (optical modules, PCB, GPU module manufacturing, switches, AIDC, etc.) and liquid cooling and new applications (AI Siasun Robot&Automation/AI PC/AI mobile phones, etc.); 2) Benefit from the trend of going global and undervalued submarine cables at the turning point of domestic sea wind, as well as the controller sector with a trend of going global and concentration of top companies; 3) Actively monitor satellite/low-altitude progress. 2) Stable: Telecommunications operators (steady growth combined with high dividends). 1) Artificial Intelligence and the Digital Economy: 1. Optical modules & optical components, key recommendations: Zhongji Innolight(300308.SZ), etc. 2. Switches, servers, PCB, key recommendations: Wus Printed Circuit(002463.SZ), etc. 3. Telecommunications operators: China Mobile Limited (600941.SH), etc. 4. AIDC & cooling: key recommendations: Range Intelligent Computing Technology Group(300442.SZ), etc. 5. AIGC applications, focus on: Richinfo Technology (300634.SZ), etc. 2) Communication going global & intelligent driving: 1. Submarine cables, optical cables: key recommendations - Hengtong Optic-Electric(600487.SH), etc. 2. Global recovery & concentration of top companies, key recommendations: Willfar Information Technology(688100.SH), etc. 3. Intelligent driving: Suggested to pay attention to: module & terminal Fibocom Wireless Inc. (300638.SZ), etc.; sensors Hanwei Electronics Group Corporation (300007.SZ), etc.; connectors Wenzhou Yihua Connector (002897.SZ), etc.Structural components & air suspension Suzhou Cheersson Precision Industry Group (002976.SZ)Three, Satellite Internet & Low Altitude Economy: The construction of national defense informationization is accelerating, with the rapid development of low-orbit satellites and the active promotion of low-altitude economy. Key recommendations: Shanghai Huace Navigation Technology (300627.SZ) and others. Risk Warning: The decline in operator capital spending exceeds expectations, the impact of global epidemics exceeds expectations, intensified industry competition, shortage of raw materials leading to price hikes exceeds expectations, exchange rate fluctuations, risks of statistical results deviation due to a small sample size, etc.