The dawn of satellite internet marks a pivotal shift in the evolution of internet infrastructure, presenting an intriguing third generation beyond traditional wired and wireless connectionsThis burgeoning domain encompasses a vast array of components, from chips and devices to algorithms and software, all of which are undergoing continual enhancementsAs the satellite industry matures and captures large-scale application scenarios, the potential for capital investments is becoming increasingly alluring.

The satellite communications sector is witnessing accelerated growth in its infrastructure and applications, with China's BeiDou navigation system entering a prosperous phaseSome publicly traded companies have already reported robust revenue and profit growth in the first half of 2024, indicative of the broader industry's upward trajectory.

Domestic manufacturers have successfully developed a high-precision positioning chip technology platform characterized by high-precision GNSS chips, boards, modules, and antennas

Mass production of these components, including GNSS baseband chips and antennas, signifies a move towards technological self-relianceThe advent of direct satellite connectivity for smartphones is poised to expand satellite internet's reach within the civilian market, thereby catalyzing new markets for onboard phased array systems, inter-satellite links, signal processing, and mobile chip segmentsThe interplay between various networks—space-based via orbiting satellites, air-based through aircraft, and traditional ground-based networks—promises to create a comprehensive information network that integrates air, land, sea, and space communicating harmoniouslyThis integration will enhance the ability to tap into the forthcoming 6G ecosystem, spurring advancements across chipsets, systems, modules, and components while fostering a new industrial ecosystem.

The pace of commercialization in this sector is accelerating.

The satellite supply chain can be categorized into three primary segments: the space sector, the ground sector, and the user segment, which can be further divided into upstream hardware components like chips, boards, and antennas, mid-stream operators, and downstream software and hardware platforms

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In 2023, the overall industry output is projected to reach an impressive 536.2 billion yuan, a notable 7.09% increase from 2022. Crucially, the components directly linked to satellite navigation technology—including chips, devices, algorithms, software, navigation data, terminal devices, and infrastructure—saw a production value growth of 5.5%, totaling 161.1 billion yuan, which accounts for 30.04% of the overall outputMoreover, associative production driven by satellite navigation applications and services experienced a 7.79% increase, totaling 375.1 billion yuan, representing 69.96% of the entire output.

In the space sector, 2024 is set to be a critical year as BeiDou scales up its applications toward commercialization, industrialization, and internationalizationCurrently, there are 45 BeiDou satellites in orbit—15 from the BeiDou-2 series and 30 from the BeiDou-3 series—all actively providing services with steady operational stability

According to forecasts by Founder Securities, the annual launch capacity for low-earth orbit satellites could reach 1,000 units by 2028, and by 2030, the number could soar to 5,000. The ultra-low orbit satellite constellation offers immense commercial potential; for instance, the reduced orbital height elevates remote sensing to proximity sensing levels, cutting costs while enhancing observation resolution and minimizing data transmission delays.

Citing data from the Satellite Industry Association (SIA), the market size of China's satellite internet industry reached 29.25 billion yuan in 2021, and estimates show it could grow to 44.69 billion yuan by 2025, demonstrating an impressive compound annual growth rate of 11% from 2021 to 2025.

On the application front, the sale of domestically produced smartphones supporting the BeiDou-3 short messaging functionality hit millions in 2023, with a staggering 269 million units featuring BeiDou positioning capabilities

This presents a potential market for one billion devicesThe commercial rollout of these products still requires policy implementation and increased participation from various manufacturers to substantiate market viability and growth potentialSome domestic new energy vehicles have already equipped BeiDou positioning and short message communication features, covering over 100 cities with lane-level navigation, enhancing user driving safety, and improving traffic efficiency.

According to Northeast Securities, the BeiDou system is expected to provide crucial navigation capabilities for aircraft in the low-altitude economy and assist in building air traffic management systemsFurthermore, as the levels of autonomous driving advance, particularly with the transition from L2 to L3 automation and the rollout of city Navigation On Automated (NOA), the demand for lane-level precision positioning is increasing, gradually becoming standard in premium vehicles

The agricultural machinery sector remains in its nascent stage regarding automated driving, signifying substantial growth opportunities ahead.

The technology enabling smartphones to directly connect to satellites holds promise for a diverse range of industries, including the Internet of Vehicles, government law enforcement, industrial, residential services, and emergency communicationsThis technology is geared towards addressing specific needs in timed and geographically constrained scenariosCurrently, the satellite connectivity sector has relatively few participating enterprises across the supply chain, including satellites, chips, modules, terminals, and ground stations, all intertwined with complex technologiesThe “G60 Star Link” project is set to launch 108 satellites in 2024, targeting a network of approximately 15,000 satellites by 2030, facilitating various integrated services.

Publicly listed companies have begun to capitalize on these advancements.

Since 2024, the Ministry of Industry and Information Technology has initiated pilot city selections to enhance BeiDou's penetration rate and facilitate the orderly upgrade of devices and applications to the BeiDou-3 standard

Recently, the ministry called for a systematic reform of satellite internet business access policies, boosting support for private enterprises engaging in mobile communication resale and service innovations, thereby fostering a more robust environment for private telecommunications companiesAt a micro level, the profit outlook for listed companies in the satellite communications supply chain varies; leaders maintain stability while innovative enterprises face significant market fluctuations, resulting in a few companies falling short of performance expectations.

Haige Communication operates across wireless communication, BeiDou navigation, aerospace, and smart ecological sectors, with its satellite internet terminals achieving core technological accreditation and entering the ranks of waveform system manufacturersIn the first quarter of 2024, their revenue and net profit excluding extraordinary items grew by 10.67% and 86.67% year-on-year, respectively.

Guobo Electronics serves as a core supplier of RF devices for base stations, supplying several RF integrated circuits to 5.5G sensory fusion base stations, with strong demand for new generation intelligent antennas

The company expects stable gross margins in its core business, with an overall upward trend.

In the first half of 2024, Huace Navigation's high-precision positioning equipment revenue reached 900 million yuan, while systems application and solution revenue stood at 581 million yuan, reflecting a year-on-year growth of 22.86%. Their net profit excluding extraordinary items was 211 million yuan, up 34.55% year-on-yearZhongke Star Map generated between 1.05 and 1.15 billion yuan in revenue, marking a year-on-year increase of 45.40% to 59.25%. However, their net profit saw a significant decline, attributed to external market pressures, despite continued revenue growth.

The core industry continues to achieve breakthroughs.

5G is characterized by high rates, massive connectivity, and low latency, while 6G plans to enhance these traits further, with additional immersive scenarios such as integrated sensing, intelligence, and a unified air-space-ground interface

Expect network devices to support radar-like sensor capabilities, especially in low-altitude, drone, maritime, and smart traffic domainsThe deep integration of AI within 6G will enable profound applications and elevate levels of service automation, propelling satellite communications into the 6G ecosystem.

In May 2024, China Telecom has successfully initiated smartphone satellite connectivity services in Hong Kong, leveraging the Tiantong satellite system and simultaneously commencing international operationsChina Mobile is rapidly progressing towards an integrated air-space-ground network, enhancing the fusion of airborne internet, satellite communication, and terrestrial networksThe engagements in high-accuracy BeiDou positioning under five-generational networks reached 17 trillion calls, effectively demonstrating the robust infrastructure that supports trajectory advancement, including the launch of two low-orbit test satellites designed to validate 6G architecture.

BeiDou ground-based enhancement information is now embedded within smartphones, enabling meter-level positioning; by 2022, around 98.5% of domestic smartphones supported BeiDou functionalities