Goldman Sachs initiates coverage on Tongyu Communication with a Buy rating and a Rmb79 target price

Overview

This is Goldman Sachs' initiation report on Tongyu Communication. The core view is that China's LEO satellite constellations are entering an expansion cycle, and Tongyu Communication, leveraging years of antenna design and manufacturing experience, its satellite antenna布局 since 2017, and its presence in the supply chains of major domestic constellations such as GW, G60, and Honghu, is well positioned to become a key beneficiary of satellite internet equipment buildout. Goldman Sachs assigns a Buy rating and a 12-month target price of Rmb79.

Core views

The report believes Tongyu Communication's growth comes from three main drivers: first, LEO satellites travel at high speed and require antennas to rapidly change direction, making phased-array antennas a critical component for both satellite payloads and ground terminals; second, the long-term planned scale of China's major constellations is in the tens of thousands of satellites, and future launch cadence and reusable rocket progress will determine the shipment slope for antennas; third, in addition to satellite and ground station antennas, the company is also expanding into user terminals, Macro WiFi, and WiFi-as-a-Service, and product mix upgrades will improve gross margin, ROE, and free cash flow.

Analysis framework

The report uses company fundamental forecasts, mapping of the satellite supply chain, analysis of constellation buildout pace, product gross margin comparisons, raw material cost scenario analysis, peer valuation comparisons, and a discounted P/E valuation framework. The earnings forecast focuses on satellite internet revenue, product mix upgrades, declining operating expense ratio, improved cash conversion cycle, and net profit growth.

Methodology notes

• Valuation methodDiscounted P/E valuation

  Discount the 2030E target P/E back to 2027E

  Goldman Sachs uses a 44.7x 2030E P/E as the target multiple and discounts it back to 2027E using a 10.8% cost of equity to derive the 12-month target price of Rmb79.0.

• Peer comparisonRelationship between P/E and forward net profit growth

  Derive the target multiple from the relationship between peer forward net profit growth and trading P/E

  The target P/E multiple is derived from the relationship between peer trading P/E and one-year forward net profit growth. The report notes that the implied 2030E PEG of the target price is about 0.4x, within the peer range of 0.3x to 1.6x.

• Scenario analysisRaw material cost sensitivity analysis

  Impact of higher copper prices on gross margin

  The report assumes copper costs rise by 30% and estimates that 2026E gross margin could fall from 20.4% to 16.0%, but believes purchasing scale, pricing experience, and product mix upgrades can cushion the long-term impact.

• Research frameworkGS Factor Profile

  Compare stock characteristics across growth, financial returns, valuation multiples, and composite metrics

  Goldman Sachs Factor Profile uses standardized rankings to compare a stock's growth, financial returns, valuation multiples, and composite score, helping supplement investment background judgment.

• M&A frameworkM&A Framework

  Assess the probability of the company being acquired

  The report gives Tongyu Communication an M&A Rank of 3, indicating a low probability of being acquired, because the founding family holds more than 45%, so the target price does not include any M&A premium.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Tongyu Communication

  The report's main company and buy recommendation target

  Strengths

  It has more than 30 years of antenna design and manufacturing experience, entered the satellite antenna market in 2017, and already serves China's three major LEO constellations; its products cover satellite payload antennas, ground station antennas, user terminals, and Macro WiFi; it has capabilities in QV-band, SAR antennas, T/R modules, and algorithm optimization.

  Weaknesses

  Traditional base station antennas still account for more than 30% of revenue in 2026-27E, so the company remains exposed to short-term base station demand volatility; valuation is high, and the market has strong expectations for satellite business delivery.

  Comparison

  The report compares Tongyu Communication with LEO satellite supply-chain peers on valuation and notes that its implied PEG is within the peer range; it also likens its valuation re-rating logic to the historical valuation uplift of UMT and other satellite supply-chain companies.

  Risks

  Slower-than-expected LEO satellite launches in China, intensifying competition, weaker-than-expected base station antenna demand, and higher raw material prices compressing gross margin.

• China's LEO satellite constellations

  Core demand driver

  Strengths

  GW, G60, and Honghu constellations are all planning large-scale satellite deployments, with long-term targets indicating room for tens of thousands of satellites.

  Weaknesses

  The actual buildout pace depends on rocket launch capacity, reusable rocket progress, funding, and policy execution.

  Comparison

  Compared with traditional telecom base station demand, LEO satellite buildout offers higher growth and demand for higher-specification equipment.

  Risks

  Launch delays would directly affect shipments of Tongyu Communication's phased-array antennas and related equipment.

• Macro WiFi

  Tongyu Communication's extension into satellite internet products

  Strengths

  It covers a radius of about 2 km, significantly larger than traditional WiFi routers, can support connections from more than 200 devices, and can generate higher margins through WiFi-as-a-Service.

  Weaknesses

  Commercial scaling depends on expansion of end-use scenarios after the satellite network buildout is completed.

  Comparison

  Compared with ordinary WiFi hardware, Macro WiFi is aimed at commercial and overseas customers such as large farms, mining operations, and palm oil businesses in Southeast Asia, with stronger specifications and service attributes.

  Risks

  If end-user demand develops more slowly than expected, revenue contribution from Macro WiFi could be delayed.

Key data

• RatingBuyGoldman Sachs initiates coverage and assigns a Buy rating.
• 12-month target priceRmb79.00Based on 44.7x 2030E P/E and discounted back to 2027E using a 10.8% COE.
• Current priceRmb47.31Price disclosed on the report cover.
• Potential upside67.0%Upside versus the current price.
• Market capRmb24.8bn / $3.6bnKey data disclosed in the report.
• Enterprise valueRmb24.8bn / $3.7bnKey data disclosed in the report.
• 3-month average daily turnoverRmb2.2bn / $317.5mnLiquidity metric disclosed in the report.
• Satellite internet revenue growth+207% CAGR in 2025-30EThe report expects satellite internet revenue to be driven by China's major LEO constellation buildout cycle.
• Total revenue growth+72% CAGR in 2025-30EThe report expects revenue to be driven by constellation buildout, ground stations, user terminals, and Macro WiFi expansion.
• Gross margin forecast20% in 2025 to 28% in 2030EGross margin improvement is driven by a product mix upgrade toward satellite antennas.
• Operating expense ratio forecast21.4% in 2025 to 18.0% in 2030EHigher revenue scale and improved operating efficiency drive lower expense ratios.
• Net profit growth+98% CAGR in 2025-30EDriven by revenue growth and improved profitability.
• Cash conversion cycle202 days in 2025 to 27 days in 2030EThe report expects improvements in receivables and inventory turnover.
• ROE1% in 2025 to 32% in 2030EImproved net margin and asset turnover drive higher returns.
• Free cash flowpositive in 2026E; Rmb501m in 2030EImproved operating cash flow drives free cash flow to turn positive and grow.

Impact & implications

If the launch and network deployment pace of China's LEO constellations meets expectations, Tongyu Communication's revenue mix will further shift from traditional base station antennas toward satellite internet products, creating a higher-specification, faster-growing, and relatively healthier competitive product portfolio. The report believes this will support strong revenue growth, gross margin expansion, and valuation re-rating, but the current high forward P/E also makes the investment case sensitive to launch progress, order conversion, and competition dynamics.

Risks

• Slower-than-expected LEO satellite launch progress in China, leading to downward revisions to phased-array antenna shipments and earnings forecasts.
• Competition stronger than expected, which could pressure satellite internet product pricing and the company's gross margin.
• Weaker-than-expected base station antenna demand, affecting the traditional business that still accounts for a relatively high share of revenue.
• Rising prices of copper, aluminum, plastics, and other raw materials may compress near-term gross margin.
• Given the high current valuation, if the satellite revenue mix, net profit growth, or gross margin improvement falls short of expectations, the valuation may de-rate.

What to watch

• The actual number of launches and network deployment progress of major Chinese LEO constellations such as GW, G60, and Honghu.
• Testing and commercialization progress of reusable rockets from CASC, LandSpace, i-Space, and Galactic Energy.
• Order conversion for Tongyu Communication's satellite payload antennas, ground station antennas, and user terminals.
• Whether the 2028E satellite business revenue mix exceeds 50% as the report expects.
• The pace of customer expansion for Macro WiFi and WiFi-as-a-Service in overseas commercial use cases.
• Whether gross margin improves from about 20% in 2025 to 28% in 2030E as forecast.
• Changes in raw material prices and their impact on 2026E gross margin.
• Whether traditional base station antenna demand drags on or supports revenue in 2026-27E.