Tianfeng Securities: The communication industry's new and old kinetic energy engines have completed the switch, and the industry's profit trend is expected to continue

The Zhitong Finance App learned that Tianfeng Securities released a special research report on the communications industry, saying that in terms of operating income, overall 24Q4 and 25Q1 revenue increased 2.9% and 12.9% year-on-year. Growth resumed in 23Q4, and the growth rate of the 23Q4-24Q3 industry continued to increase, reflecting the completion of the switching between old and new kinetic energy in the industry, and AI computing power has become a new engine driving the growth of the industry. In terms of net profit, overall 24Q4 and 251Q1 net profit of communication equipment fell 141% year on year and increased by 24% year on year, respectively. After the 24Q4 decline, 25Q1 achieved good year-on-year growth, reflecting the switching between old and new kinetic energy, the industry as a whole achieved good profits, and the industry trend is expected to continue.

Industry segments are worth focusing on:

1) The 24Q4 and 25Q1 revenue of optical devices increased 52.6% and 67.5% year on year. The net profit growth rate for 24Q4 and 25Q1 was 124.4% and 114.3% year on year. The past five quarters have all accelerated growth at a rate of more than double, or reflect the full rise in global AI-driven optical module demand, benefiting from the growth in overseas and domestic computing power demand. Looking forward to the future, the boom is expected to continue.

2) The Internet of Things achieved good year-on-year growth in 25Q1 revenue and profit, and the industry's recovery trend continues to be verified & continued. Relevant IoT industry companies have shown rapid growth for several consecutive quarters, confirming that the recovery of the industry continues; looking at the long-term trend of the Internet of Everything, IoT sector companies are expected to benefit. It is recommended to actively monitor industry dynamics and order execution progress for related targets, and expect the overall Internet of Things to bring about a recovery in demand after economic recovery and business opportunities brought by edge computing/end-side AI under the AI wave.

3) Submarine Cable & Optical Cable 25Q1 revenue and net profit to mother increased 12% and 46.3% year-on-year respectively, mainly driven by UHV and grid intelligence and marine business sectors. Looking ahead to the next few quarters, domestic demand is expected to recover and accelerate, overseas demand continues to be strong, the industry is expected to continue to recover, and offshore wind power installations will grow steadily over the next few quarters and years.

4) Looking at the overall situation of IDC & CDN, the traditional IDC industry is facing pressure from “stagnant recovery in demand and structural imbalance in supply”, while the AIDC field accelerates the implementation of applications such as generative AI and large models, and the demand for computing power in the AIDC market is increasing. In the medium to long term, with the orderly and healthy development of the industry and the accelerated implementation of applications such as AI and large models, the AIDC industry is expected to maintain a continuous growth trend.

5) The operator's 24Q4 and 25Q1 revenue increased 6.4% and 0.8%, respectively. Recent quarters have shown a steady growth trend. Looking forward to a steady increase in the next few years, the performance is expected to maintain steady growth.

6) Main equipment 24Q4 revenue and net profit attributable to mother were under year-on-year pressure, falling 9.5% and 66.0% respectively. 25Q1 revenue resumed growth, and net profit continued to be under pressure. The industry is in a period of transition between old and new momentum, and AI is not enough. Looking ahead to the next few quarters, I am optimistic that as the AI-driven share increases, revenue and profit will return to growth after AI drives ICT demand to continue to grow;

7) The net profit of the satellite industry has continued to decline year-on-year in recent quarters; the main reason is that most of the downstream customers targeted by satellite Internet are military units, which are greatly affected by military adjustments and personnel changes, but there is now a year-on-year recovery trend. The profit decline has narrowed year on year. It is estimated that it is expected to enter normalized launch after entering the formal networking stage in '24. Looking at the medium to long term, China's commercial space industry has entered the fast track of large-scale development. Many local governments have introduced policies to support the satellite industry, and there is plenty of room for growth in the satellite industry.

Investment advice

The medium- to long-term proposal continues to pay attention to the investment opportunities of the core target of “AI+ going overseas+ satellite”: the core direction of overseas AI, such as optical modules & optical devices, liquid cooling, etc., is worthy of attention, and the core recommendation continues; active attention is being paid to the core target proposals for foreign-produced computing power lines such as domestic servers, switches, AIDC, liquid cooling, etc. The seabreeze industry is recovering at an accelerated pace at home, and overseas has good opportunities to actively grasp changes in the industry. The core recommendation is leading submarine cable manufacturers. Recently, I have seen domestic developments in the satellite internet industry, and I am optimistic that the subsequent industry will be driven by catalysis.

Risk Alerts

The decline in operators' capital expenditure exceeded expectations, the impact of global trade frictions exceeded expectations, increased industry competition, the impact of raw material shortages and price increases exceeding expectations, the risk of exchange rate fluctuations, and the risk that a small number of samples selected may cause deviations in statistical results.