Huachuang Securities' 2025 annual investment strategy for the communication industry: focusing on computing power, satellite communication/military communication, and telecommunications operator as three major investment directions.

released a research report stating that looking ahead to 2025, the market's investment logic will be further strengthened on top of emotional recovery and expectation improvement, overlaid with the recovery of fundamentals. The communication sector combines solid fundamental performance and macro narrative growth attributes. It is expected to still be a preferred configuration with excess returns in the future. The key recommendations are in the areas of computing power, satellite communication/military communication, and operators. In the direction of computing power, on one hand, the fundamentals benefit from equipment and infrastructure investment, on the other hand, the increasing demand for AI computing power with higher speed, longer distance, and higher density brings more evolution directions and investment opportunities. The near-term prospects for satellite communication/military communication are expected to see an upward turning point in fundamentals, with sufficient upward momentum expected. Operator high dividend investment logic is clear, or as a core position configuration to contribute stable returns. The main viewpoints of Huachuang Securities are as follows: Grasp the main line of AI computing power and explore investment opportunities in segmented sectors. As a high certainty growth investment direction in 2025, the firm's core recommendations for investment opportunities within the main line of computing power include four segmented sectors: 1) AI driving the demand for computing power, cloud service providers continue to increase their investment in AI computing power, with global clusters of tens of thousands, and hundreds of thousands of cards emerging continuously. The firm recommends focusing on Suzhou TFC Optical Communication, Zhongji Innolight, Eoptolink Technology Inc., and suggests paying attention to Accelink Technologies, Yuanjie Semiconductor Technology, among others. 2) The silicon photonics and CPO technology routes have higher certainty, with domestic companies currently leading in silicon photonics chips, while foreign companies dominate the CPO industry chain links. The firm believes that within the CPO industry, domestic manufacturers have the potential to break through in optical engines, laser light sources, optical routing, and final assembly links. The firm recommends focusing on Suzhou TFC Optical Communication, Zhongji Innolight, and suggests paying attention to Yuanjie Semiconductor Technology, T&S Communications, Unisplendour Corporation, Ruijie Networks. 3) The trend of the IDC industry's prosperity has improved, and the iteration of artificial intelligence technology has injected new momentum into the development of the IDC industry, contributing new incremental growth to the AIDC industry. The firm recommends focusing on Range Intelligent Computing Technology Group and suggests paying attention to Guangdong Aofei Data Technology, Beijing Sinnet Technology, Shanghai AtHub, Capitalonline Data Service. 4) The rapid expansion of global data center scale and the increasing demand for AI are leading to a rapid increase in DCI interconnect demand, and the firm predicts rapid market growth in the DCI market in the coming years. The emergence of DCI demand is expected to directly drive the growth of upstream subsystems and associated optical module optical devices. The firm recommends focusing on Wuxi Taclink Optoelectronics Technology, and Accelink Technologies. The satellite application field is approaching beta, and the construction of national defense informatization is accelerating. 1) In the low-orbit satellite sector: G60 has completed two launches and networked with "one arrow 18 stars", with the number of high-orbit satellites in orbit increasing to three. From the industry chain perspective, both satellite manufacturing capabilities and the progress of launch site construction have made rapid progress, with many new types of terminal products also emerging on the terminal side. From the participating parties' perspective, China Mobile Limited's research institute announced the establishment of the Starground Fusion Technology Research Institute, and China Mobile Limited also jointly established China Space-Time Information Group with China Star Net and China Ordnance, to consolidate its leading position in the field of satellite communication. China's low-orbit satellite is expected to enter a period of intensive launches, and the industry beta is nearing. The firm recommends investing in Jushri Technologies, Inc, Zhejiang Chengchang Technology, and suggests paying attention to Guangzhou Haige Communications Group Incorporated, CICT Mobile Communication Technology, Genew Technologies. 2) In the satellite navigation sector: The significance of the switch from Beidou multi-mode to single-mode to ensure communication signal security is further highlighted. In Beidou applications, short messages and high-precision positioning both have high expectations for implementation, with broad market prospects and industry chain companies expected to benefit significantly. The firm recommends focusing on Guangzhou Haige Communications Group Incorporated and Shanghai Huace Navigation Technology. 3) In the military communication sector: With the current international security situation gradually escalatingThe world political situation is becoming more turbulent, and our country's defense budget is steadily increasing. Military wireless communication and military radar are both in the stage of technological upgrading and market expansion, and the industrial chain may have more investment opportunities. We recommend focusing on Jushri Technologies, Inc, Zhejiang Chengchang Technology, Tianjin 712 Communication & Broadcasting (603712.SH), and suggest keeping an eye on Guangzhou Haige Communications Group Incorporated.The investment logic of high dividend payouts by telecommunications operators is clear, and they contribute stable income as a core portfolio allocation. On one hand, telecommunications operators have built up scale networks for 5G and gigabit broadband after years of investment and construction. With the increase in penetration rates for 5G and gigabit optical networks, as well as the development of cloud computing, computing power resources, data elements, AI, and other government and enterprise businesses, the overall revenue and profits of operators are expected to remain stable. On the other hand, the three major operators have maintained relatively high dividend payout levels over the years, with the dividend payout ratios for China Mobile Limited/China Telecom Corporation/China United Network Communications reaching 71%/70%/55% in 2023, respectively, and the promised dividend payout ratios expected to further increase. They are high-quality high-dividend dividend assets, recommended for core portfolio allocation. Key recommendations include China Mobile Limited (00941, 600941.SH), China Telecom Corporation (00728, 601728.SH), and China United Network Communications (00762, 600050.SH). Risk warning: Macroeconomic development is lower than expected, downstream demand recovery or growth is lower than expected, AI development and the improvement of computing power are lower than expected, DCI demand is lower than expected, satellite communication demand is lower than expected, the risk of declining ARPU for operators, and global systemic risks.