Skyworth Digital released its annual report: revenue increased by more than 27% year-on-year, and broadband connection business grew strongly

Economic Observation Network reporter Zou Yongqin March 22, Skyworth Digital (000810. SZ) disclosed its 2021 annual report. According to the annual report, in 2021, the company achieved operating income of 10.847 billion yuan, an increase of 27.49% year-on-year; and achieved a net profit attributable to shareholders of listed companies of 422 million yuan, an increase of 9.93% year-on-year.

Skyworth Digital's main business is committed to providing global users with a comprehensive system of ultra-high-definition terminal presentation, broadband network connection and ultra-high-definition industry application integrated solutions, currently mainly including intelligent terminals, broadband connections, professional display and operation services four core services.

During the reporting period, Skyworth Digital's broadband connection business achieved operating income of 1.706 billion yuan, an increase of 89.97% year-on-year, accounting for 15.73% of the company's operating income (10.55% last year); the intelligent terminal business achieved operating income of 5.961 billion yuan, an increase of 26.12% year-on-year, accounting for 54.95% (55.56% last year); professional display business achieved operating income of 2.841 billion yuan, an increase of 11.09% year-on-year, accounting for 26.20% (Last year: 30.06%); the operation service business achieved revenue of 254 million yuan, down 2.21% year-on-year, accounting for 2.34% (3.05% last year).

Overall, in addition to the decline in operational services, the other three core businesses have recorded certain growth rates, while the broadband connection part has shown a momentum of double growth in revenue and proportion, which has attracted attention.

In fact, the broadband connectivity business has been the focus of the company's attention in recent years. Connect data Datayes! Statistics show that in the nearly three months since 2022, Skyworth Has been surveyed by three rounds of surveys of 136 institutions (January 4, January 7 and January 17, respectively). In the survey of these institutions, broadband connectivity is the core focus.

According to public information, in March 2021, the Ministry of Industry and Information Technology issued the "Action Plan for the Coordinated Development of "Double Gigabit" Networks (2021-2023)," proposing that by the end of 2023, gigabit optical fiber networks will have the ability to cover 200 million households, with a port size of more than 10 million 10G-PON and above, and gigabit broadband users exceeding 30 million.

The introduction of this policy is unanimously agreed by the industry that it will effectively release the demand for gigabit network broadband and communication equipment. So, how is Skyworth Digital's layout on gigabit broadband?

In the annual report, Skyworth Digital pointed out that the company began to lay out the broadband network connection equipment business in 2015, and the current broadband network connection equipment products are mainly GPON + WiFi6 intelligent gateway, 10GPON + WiFi6 intelligent gateway, WiFi6 network router, 4G/5GCPE, CM3.0, WiFi5, etc., and has been pre-developed FTTR, XGS-PON and other products.

Skyworth Digital further introduced that with the market share and advantages of the previous set-top box products in the three major domestic communication operators, in the context of the domestic promotion of "double gigabit", its gateways, routes and other products have been mass supply and sales to the three major domestic communication operators, "The company is also doing the market for broadband access products of domestic radio and television network companies." In addition, based on the advantages of the company's set-top box product market share and scale, the company is also developing 'gateway + box + WiFi' integrated intelligent terminal products. Based on the accumulation of products, markets and industrialization capabilities, the company will further actively expand the market."

As for why the broadband connection business can show a double growth momentum in 2021, Skyworth Digital said, "During the reporting period, benefiting from the vigorous development of domestic gigabit broadband network upgrades, mainly the collection and bidding of the three major domestic communication operators, the company's products can fully meet the needs of operators, and in 2021, the company won the bid in China Mobile Group, China Unicom Group, and China Telecom Group and obtained different proportions of market share, and the PON gateway market share entered the first camp of operators." It was also emphasized that router products are in the following stage compared with ZTE, Huawei, TP-link, etc., which are leading the market, and have room for growth in the future.

Zhang Licong, an analyst at Essence Securities, is also optimistic about Skyworth Digital's broadband connection business. He stressed in his recent research report that "the 'double gigabit' policy puts forward higher requirements for the configuration of home intelligent gateways and networking, and promotes the comprehensive upgrading of domestic network communication and connection equipment." In 2021, the company gained considerable market share in the home gateway collection projects of the three major operators, and the PON gateway market share was the first camp. Epon, GPON, home intelligent gateway has won the bid for Fujian Radio and Television, Gehua Cable and other projects, leading the market share in the domestic radio and television market. Under the wave of global IP, optical fiber and digital economy, the company's domestic and overseas broadband network connection equipment business has broad prospects for development."

In addition to broadband connectivity, professional display services also have many highlights. Different from the simple description in last year's annual report, in this year's annual report, Skyworth Digital made a detailed introduction to the professional display business, and for the first time introduced the small and medium-sized mobile phone display module business separately, pointing out that it "cooperated with the world's leading mobile phone ODM solution company (Wingtech, Huaqin, Longqi, etc.) to enter terminal customers such as Samsung, OPPO, Xiaomi, and won more cooperation projects in ZTE, Transsion and other brand customers."

So, are end customers such as Samsung only opened up in 2021? In this regard, the relevant staff of the company's securities department told the Economic Observation Network reporter: "In fact, we have always had this business, but through wingtech, Huaqin and Longqi and other partners to supply customers such as Samsung."

Although the annual report handed over by Skyworth Digital has many highlights, hidden worries still exist.

According to the annual report, the net cash flow from operating activities during the reporting period of Skyworth Digital was 190 million yuan, down 92.23% from the previous year, mainly due to the increase in raw material prices during the reporting period and the shortage of raw materials in reserves.

Skyworth Digital's main raw materials for semiconductor chips, memory, etc., software, applications and systems outside the hardware raw material costs account for an important proportion of product costs, in the individual key components of the tight supply, price increases, etc., "due to the company's implementation of the order rolling inventory control policy and new orders may produce occasional case demand, will lead to the risk that sales orders can not be delivered on schedule, and if the purchase price rises will also adversely affect the gross margin."

Skyworth Digital also said, "Although the company's broadband connection equipment sales and operating income in the reporting period have achieved substantial growth year-on-year, and also signed strategic cooperation agreements with core chip suppliers, the global environment is seriously lacking in chips, and the company is in short supply of WiFi chips, which has also led to the sales of the company's XGPON and other supplies not reaching the planned market size." WiFi chips are also a key bottleneck that the company needs to solve in supply chain cooperation in 2022 and the future."

Judging from the annual report, raw material problems, including chip shortages, are still a problem that plagues its development, so how will the company solve this problem in 2022?

In this regard, the relevant staff of Skyworth Digital Securities Department pointed out to reporters: "In 2021, the company has stockpiled raw materials with rising prices, and this year will continue to dynamically track the market fluctuations of raw materials, based on flexible strategies, dynamically adjust procurement strategies according to actual prices and supply and demand."