Suzhou Centec (688702) 开源证券·2024-07-15 09:00Investment Rating - The investment rating for the company is "Buy" (first coverage) [3]. Core Insights - The company is a domestic leader in self-developed Ethernet switch chips, with significant potential for domestic substitution. It has been deeply engaged in the Ethernet switch chip industry for nearly twenty years and ranks fourth in the domestic commercial Ethernet switch chip market as of 2020, following global leaders Broadcom, Marvell, and Realtek. The company has developed Ethernet switch chips with switching capacities ranging from 100Gbps to 2.4Tbps and port rates from 100M to 400G, covering products from access to core layers. The self-developed Ethernet switch chips have entered the supply chains of several major domestic network equipment manufacturers, and the company is expected to benefit significantly from the domesticization trend [4][15][104]. Financial Performance - The company's revenue has shown steady growth, with projected revenues of 1.362 billion, 1.737 billion, and 2.205 billion yuan for 2024, 2025, and 2026, respectively. The company is expected to gradually recover from previous losses as self-developed chips enter mass production [5][15][91]. - The company reported a total revenue of 2.54 billion yuan in Q1 2024, a year-on-year decrease of 13.61% but a quarter-on-quarter increase of 58.80%. The net profit attributable to shareholders was -6.0688 million yuan, a year-on-year decrease of 138.73% but a quarter-on-quarter increase of 90.37% [115]. Market Position and Strategy - The company has a well-established product chain and focuses on high-end markets, with a strong emphasis on R&D. The R&D expenses have increased from 0.95 billion yuan in 2019 to 3.14 billion yuan in 2023, with a compound annual growth rate of 34.69%. The company aims to enhance product richness and performance to capture the domestic market's growth [93][104]. - The company operates under a Fabless model, focusing on R&D, design, and sales while outsourcing manufacturing processes to third-party partners [108]. Customer Base and Product Development - The company has gained recognition from major clients such as H3C, Ruijie Networks, ZTE, and Maipu Technology. The products have a long application lifecycle of 8-10 years, leading to high customer stickiness and significant barriers to entry for new competitors [4][15]. - The company has successfully sent samples of its 25.6T high-speed switch chips to customers, indicating progress in product development and market readiness [19][16]. Revenue Composition - In 2023, the company's Ethernet switch chip business generated 7.92 billion yuan in revenue, accounting for 76.30% of total revenue, with a year-on-year growth of 60.58%. The Ethernet switch chip module and customized solutions also contributed to the revenue, indicating a diversified product offering [116].