every AI newsletter, on January 11, 2024, Debang securities issued a research report to comment on hengxuan technology (688608).

intelligent audio and video SoC leading design manufacturers, product strength and customer base domestic leading.

The company's main products are smart audio and video SoC chips, which are widely used in smart Bluetooth headsets, Wi-Fi smart speakers, smart watches and other smart audio and video terminal products. The company's leading product performance for the company to build technical barriers, the company's new generation of BES2700 products have been imported into Huawei FreeBuds 5 and FreeBuds Pro 2 and other high-end product lines. The depth and breadth of the company's brand customer base have built commercial barriers for the company. At present, the company's products have entered Samsung, OPPO, Xiaomi, Glory, Huawei, vivo and other global mainstream Android mobile phone brands, as well as professional audio manufacturers including Anker Innovation, Harman, Wanderer and Wanmo, and have been applied in intelligent audio products of Internet companies such as Ali, Baidu and Google.

TWS headset master basic disk solid, market share is expected to continue to increase.

the company has taken advantage of the Android TWS headset industry to grow rapidly, according to Canalys data, in 2021, TWS headset shipments reached the peak in recent years, the annual shipment of 0.29 billion units, 2018-2021 the company's common and smart Bluetooth chip revenue combined CAGR of 81.4 percent. We believe that the high performance of the company's TWS headset chip and deep cooperation brand customers have created a solid basic disk for it, helping the company to fully benefit from the industry's initial explosive growth. At present, the overall growth rate of TWS earphone industry is slowing down. In 2022, due to the weakening demand for consumer electronics, the penetration rate of superimposed TWS earphone has reached a relatively high level, and the annual shipment volume has slightly decreased year on year. We believe that the market share of Android TWS earphone is expected to further expand. At the same time, we believe that the market space of white brand TWS earphone will be further squeezed and the market will continue to concentrate to the brand end. We are optimistic that the company will continue to increase its market share under this trend by virtue of its product performance advantages and customer advantages.

The downstream field continues to expand, and the AIoT chip opens the second growth curve.

As the growth rate of the TWS headset industry slows, the company gradually expands AIoT chips such as smart watches and smart speakers, and the second growth curve is clear. In terms of smart watches, the company's smart watch chip revenue accounted for 19% in 2022. At present, the company is gradually advancing from sports watches to advanced operating system smart watches. We are optimistic that the company is expected to enter the field of advanced operating system smart watch master chips in the future to further enhance the company's profitability. Smart speakers and smart home, the company's Wi-Fi6 connection chip has successfully completed the certification into the mass production import stage, while the company developed a new generation of low-power Wi-Fi6 MCU platform chip, can be applied to a wider range of scenarios. We are optimistic that the company with excellent research and development strength from the TWS headset track to a broader AIoT chip track, and gradually build a platform AIoT company.

earnings forecast and investment advice: we forecast the company's 2023-2025 net profit of 1.84/3.05/0.43 billion yuan, January 10, 2024 share price and market value corresponding to 91/55/39 times P/E. We believe that as a leading company in smart audio and video SoC, the company has significant advantages in technology and customers, can enjoy a certain valuation premium, the first coverage to give a "buy" rating.

Risk Warning: TWS headset shipments fell short of expectations, consumer electronics market recovery fell short of expectations, market competition intensified, new product expansion fell short of expectations

(Source: Huibo Investment Research)

Disclaimer: The content and data in this article are for reference only and do not constitute investment advice. Please verify before use. Operate accordingly at your own risk.

(edit Zhao Qiao)