Suzhou Centec (SH:688702)2024-07-01 00:01Investment Rating - The report initiates coverage on the company with a "Buy" rating, projecting revenue growth from 1.32 billion yuan in 2024 to 2.29 billion yuan in 2026, with net profits expected to turn positive by 2024 [19][24][47]. Core Insights - The company is positioned as a leading domestic manufacturer of Ethernet switching chips, benefiting from the domestic substitution process in computing networks due to integrated circuit technology restrictions and supportive policies [1][49]. - The company has a strong market presence, holding an 8.8% share in China's commercial switching chip market, with expectations of revenue reaching 1.5 billion yuan by 2025 [15][28]. - The company has a robust product lineup, with significant revenue contributions from Ethernet switching chips, which accounted for over 76% of total revenue in 2023 [73][45]. Summary by Sections 1. Company Overview - The company has nearly 20 years of experience in Ethernet switching chip development, being one of the earliest entrants in the market [38][66]. - It operates under a fabless model, focusing on chip design and R&D while outsourcing manufacturing [40][66]. 2. Financial Performance - In 2023, the company reported revenue of 1.037 billion yuan, a year-on-year increase of 35.17%, with a compound annual growth rate (CAGR) of 52.53% from 2019 to 2023 [45][73]. - The company’s net profit is expected to improve significantly, with projections of 0.03 billion yuan in 2024 and 0.73 billion yuan in 2026 [19][24]. 3. Research and Development - The company invests heavily in R&D, with a 2023 expenditure of 314 million yuan, representing a 30.28% R&D expense ratio, significantly higher than competitors [108][19]. - The focus of R&D includes next-generation network switching chips and integrated routing solutions, aimed at enhancing performance and expanding product boundaries [82][19]. 4. Market Position and Competitive Advantage - The company benefits from a unique position in the domestic market, with limited competition and a strong focus on commercial applications [23][49]. - It has established a comprehensive product series that meets various application scenarios, from access to core layers in network architecture [66][96]. 5. Future Outlook - The company is expected to capitalize on the growing demand for Ethernet devices, with the market projected to reach 57.42 billion yuan by 2025, growing at a CAGR of 10.8% from 2020 to 2025 [15][28]. - The anticipated growth in AI-driven computing needs and domestic substitution trends are expected to further enhance the company's market position [57][49].