Everbright Securities: Give Hengxuan Technology a buy rating

2022-04-20Liu Kai of Everbright Securities Co., Ltd. conducted research on Hengxuan Technology and released a research report "Tracking Report No. 2: Bluetooth SoC Market Remains Leading, Smart Watches and Home Furnishing Progress Rapidly", this report gives a buy rating to Hengxuan Technology, and the current stock price is 150.79 yuan.

Hengxuan Technology(688608)

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The company released its 2021 annual report, achieving operating income of 1.765 billion yuan, an increase of 66.36% year-on-year; net profit attributable to the mother of 408 million yuan, an increase of 105.51% year-on-year; deduction of non-attributable net profit of 294 million yuan, an increase of 71.93% year-on-year. Affected by the price increase of the upstream supply chain, the company's operating cost in 2021 was 1.107 billion yuan, an increase of 74.02% year-on-year, and the comprehensive gross profit margin in 2021 was 37.29%, down 2.76 percentage points from 2020.

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The annual performance grew rapidly, and the new business line grew rapidly: the company's performance in 2021 was excellent, with substantial year-on-year growth. In terms of business, the revenue of the company's traditional advantage products ordinary Bluetooth chips and smart Bluetooth chips increased by 40.72% and 72.05% year-on-year, respectively; other chips increased by 96.65% year-on-year, which mainly includes smart home WiFiSoC chips, smart watch chips and Type-C chips and other products, accounting for about 20% of revenue. As the sales scale of Type-C chips has continued to decline in recent years, accounting for a small proportion of revenue, WiFiSoC and smart watch chips in the business have contributed to a faster year-on-year growth rate, and the company's new business line has accelerated.

Smart Bluetooth SoC remains ahead of the curve and launches highly integrated new products: The company maintains rapid iteration capabilities on Bluetooth audio chips, and BES2500 series main control chips have been widely used in mobile phone manufacturers, professional audio manufacturers, and terminal headset products of e-commerce brands. With the TWS headset application requirements for the degree of integration is getting higher and higher, the embedded requirements for various sensors are also gradually improved, the company in the second half of 2021 in the industry took the lead in the launch of "Bluetooth + noise reduction + in-ear detection" three-in-one smart Bluetooth audio chip BES2600 series, the first to achieve human detection, audio and RF fully integrated single-chip solution, further enhance the company's technical barriers in the process of high integration of TWS headphone miniaturization, the chip has also been successfully mass production in brand customers.

Smart home and watch market progress rapidly, successfully expand brand customers: the company in the field of smart home successfully expanded Millet, Huawei and other brand customers, the second generation wiFi / Bluetooth dual-mode AIoTSoC chip BES2600WM has been mass-produced and listed, using a more advanced 22nm process, in the lower power consumption while supporting stronger AI computing power, and the first to support Hongmeng operating system smart home, can be widely used in smart speakers, smart home appliances and other fields.

In the field of smart watches, the company's first generation of smart watch chips in 2021 successfully introduced into customers and mass production, the chip set display, storage, audio, connection as one, support BT5.2 dual-mode Bluetooth, can support BLE data transmission, Bluetooth calls and music playback. The company's second-generation smart hand form chip solution 12nm BES2700BP has also entered the sample delivery stage and is expected to be introduced to the market in 2022.

Increase R&D efforts, master a number of core technologies in the field of wireless SoC: the company continues to attach importance to R & D investment, core technology capabilities continue to improve, and maintain a high level of R & D investment for a long time, in 2021, the company's R & D expenses of 289 million yuan (YoY + 67.51%), accounting for 16.38% of revenue. At the end of 2021, the company's R & D personnel reached 338, an increase of 140 over the end of the previous period.

The company's research and development achievements during the reporting period are rich. In addition to the highly integrated BES2600 series TWS headset chips, the company's BES2700 series integrates multiple ArmCPUs, audio and image codec DSPs, 2.5DGPUs for image and graphics conversion acceleration, wearable low-power display system controllers and neural network-accelerated coprocessors, and took the lead in adopting Arm's latest embedded CPU core M55, which greatly improves the capabilities of digital signal processing and machine learning. The second generation of dual-mode SoC chips for the AIoT market integrate multi-core MCUs and AP subsystems, embedded speech recognition systems, WiFi/Bluetooth subsystems, etc., using more advanced processes that can support stronger AI computing power, while lower power consumption Companies continue to invest in the WiFi track, developing WiFi connection chips that support the latest WiFi6 protocol 802.11ax. The chip supports WiFi6 maximum rate MCS11, supports 1024QAM modulation and demodulation, and 2.4GHz and 5.8GHz dual-band transceiver, and can support the maximum bandwidth to 80MHz, which can not only meet the WiFi6 upgrade of Internet of Things devices, but also can be applied to all kinds of audio and video terminals with greater demand for data traffic, such as TVs, tablets, notebooks, etc.

Profit forecast, valuation and rating: The company is a global leader in the field of smart Bluetooth audio, with deep accumulation in audio and wireless SoC chip design, and we are optimistic about the long-term development advantages brought by the company's leading technical strength. At the same time, taking into account the slowdown in the growth of the TWS headset market, we lowered the company's net profit attributable to the mother in 2022 and 2023 to 622 million yuan (-19%) and 899 million yuan (-19%), the original forecast was 766 million yuan and 1.110 billion yuan, while adding a new 2024 performance forecast. We expect the company's operating income from 2022 to 2024 to be 26.89/38.62/4.887 billion yuan, net profit attributable to the mother to be 6.22/8.99/1.152 billion yuan, and the current market value corresponding to PE of 30/21/16 times, maintaining the "buy" rating.

Risk warning: TWS headset demand is less than expected, smart watch demand is less than expected, industry competition intensified.

According to the research report data released by Securities Star Data Center in the past three years, the team of Xu Tao researchers of CITIC Securities has studied the stock more deeply, with an average forecast accuracy of 79.04% in the past three years, and its forecast for the net profit attributable to 2022 is 592 million yuan, and the forecast PE is 30.52% according to the current price conversion.

The latest profit forecast breakdown is as follows:

A total of 15 institutions have given ratings, 13 buy ratings and 2 overweight ratings in the last 90 days; the average target price of institutions in the past 90 days has been 264.87. The Securities Star Valuation Analysis Tool shows that Hengxuan Technology (688608) has a good company rating of 4 stars, a good price rating of 1.5 stars, and a comprehensive valuation rating of 2.5 stars. (Rating Range: 1 ~ 5 stars, maximum 5 stars)

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