Satellite Internet Stocks Surge

On November 27th, Chinese satellite internet concept stocks surged, with key players such as China Satcom and Xingwang Yuda reaching their upper trading limits. Other companies like China Satellite, Aerospace Hongtu, Tianyin Electromechanical, and Haige Communication also experienced significant increases in their market shares. This surge followed the indication in the 14th Five-Year Plan for the digital economy that there is a need for accelerated development of satellite communication networks and to promote the construction of satellite internet systems. As such, it is anticipated that the layout and implementation of satellite internet will expedite over the coming years.

Satellite internet represents a relatively low-capacity method of global internet access. Aiming to achieve global coverage necessitates launching a larger number of satellites to ensure high-speed internet connectivity. The competition for future mobile communication technologies is gradually shifting from terrestrial to celestial realms. Several Chinese companies have begun laying the groundwork for this transition, notably with Aerospace Science and Technology, along with Aerospace Science Industry, unveiling their respective “Hongyan Constellation” and “Hongyun Project,” which have already launched experimental satellites.

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According to the outlined plans, the “Hongyan Constellation” aims to deploy over 300 low-earth orbit satellites, while the “Hongyun Project” has a target launch count of 156 satellites. In total, combining other enterprises in the sector, the anticipated satellite launch quantity during the 14th Five-Year Period may reach as high as 2,198 satellites.

Statistics from the U.S. Satellite Industry Association show that between 2015 and 2018, global satellite industry revenues increased by about 3% annually, reaching $277.4 billion in 2018. Projections from the CIEDS (China Electronics Industry Development Research Institute) suggest that by 2030, China’s satellite internet market size will accelerate towards the trillion-yuan mark. Since the satellite internet sector is still in its nascent stages, industries related to satellite manufacturing, launching, ground equipment, and satellite operations stand to gain the most initially.

In the satellite industry chain, revenue shares from satellite launching, manufacturing, ground equipment, and operational services are 2.24%, 7.03%, 45.13%, and 45.6%, respectively. Operational services are noted as the most valuable sector. However, due to rapid market expansion, leading companies within various segments are likely to find new opportunities for growth.

In April 2021, the establishment of the China Satellite Network Group (StarNet Group) marked a pivotal moment, signaling the official commencement of the "national team" into the satellite internet industry, thereby accelerating its overall development. Among the notable companies in this domain is Chengchang Technology, a subsidiary of Heheta Technology (002402.SZ), which specializes in T/R microwave and millimeter-wave RF chips. Chengchang is distinguished as the only private enterprise in China capable of undertaking national-level large-scale launch tasks, with its products already integrated into major projects such as the BeiDou II navigation and satellite communication initiatives.

T/R chips, primarily employed in radar systems, particularly phased array radars, are crucial to modern military aviation. The U.S. has comprehensively updated its deployed F-15C, F-15E, and F-18E aircraft to include active phased array radars, while the F22 and F35 jets depend on them as standard equipment. In missile defense systems like THAAD, individual phased array systems can utilize tens of thousands of T/R components. These core components are estimated to make up 40% to 50% of radar costs, highlighting their significance. More demanding performance requirements govern satellite-based T/R components, and over 90% of Chengchang Technology’s revenues derive from spaceborne applications. It is estimated that by 2025, the T/R chip market will explode to an estimated 82.3 billion yuan, with low-earth satellite applications accounting for approximately 15 billion yuan.

The high barrier to entry within this industry means that apart from Chengchang Technology, companies like the 13th and 55th Research Institutes of China Electronics Technology Corporation also possess capabilities in phased array T/R chips. These state-owned enterprises are projected to produce between 1 to 1.5 billion chips annually, whereas Chengchang’s output stands at hundreds of thousands, leaving it with a relatively low market share.

With the downstream market demand anticipated to explode, Chengchang Technology—one of the few "seed players" in the industry—also presents itself as a "rare asset" in the investment landscape. The ratio of investment to outcome for space exploration projects stands at 1:10, indicating profound potential for satellite internet to amplify downstream market opportunities into the trillions.

Fast forward to the present, as BeiDou's industry finds its footing, companies like Beidou Starcom (002151.SZ) are stepping into the light after navigating previous struggles. Their business architecture includes verticals across the entire BeiDou industry chain, encompassing upstream, midstream, and downstream sectors.

Moreover, Aerospace Science and Technology's China Satellite, which focuses on satellite manufacturing and applications, along with China Satcom's satellite space operations, are poised to benefit from broader strategic initiatives focused on satellite internet. A noteworthy advancement includes terahertz communication, representing a transition from electronics to photonics, effectively solving the increasingly scarce frequency band resources and posited as a core communication technology for the upcoming 6G era.

In June 2020, a satellite named "University of Electronic Science and Technology" successfully launched from Taiyuan, paving the way for terahertz communication technology experiments, designated as the world’s first 6G experimental satellite. Recently, China has set records for the highest real-time wireless transmission rates within the terahertz communication domain, indicating its leading position in this field. Outside mobile communication, terahertz technologies find extensive applications in large security screening instruments, precision medical devices, and military radar systems.

China Unicom has established a terahertz joint innovation center, while Tianyin Electromechanical—through its subsidiary Huqing Ruida—has successfully completed terahertz communication technology experiments for a division of the People’s Liberation Army, earning a reputation as one of the few publicly traded companies in this sector that has translated research efforts into performance.

Shifting from 5G to 6G, large-scale antenna technologies are consistently evolving. These expansive intelligent antennas are anticipated to be applicable in high-speed scenarios like trains and planes, city-wide coverage, and precision positioning. Innovative research directions include Intelligent Reflective Surfaces (IRS) and electromagnetic wave angular momentum. IRS helps create smarter antennas by restructuring the propagation environment to attain large-scale use at minimal cost and power consumption. On the other hand, electromagnetic wave angular momentum enables the enhancement of spectral efficiency without additional spectrum cost and temporal loss.

Presently, the Ministry of Industry and Information Technology's IMT-2030 (6G) promotion group is collaborating with major players like China Mobile, China Telecom, ZTE Corporation, Huawei, and Unisoc on relevant technological research and development. Notably, ZTE partnered with China Unicom to achieve the industry’s first technical testing of intelligent reflective surface panels at mid-frequency 5G. However, the research and development of large-scale antenna technology is still in its theoretical validation and experimental phases, with numerous uncertainties surrounding commercial deployment, and it is far from contributing significant performance indicators for related enterprises.

In contrast, the satellite internet segment of the 6G industry serves as the foundational precondition and cornerstone for all subsequent industry establishment phases. This integral component is already moving towards a phase of rapid advancement. Compared to terahertz and multivariate antennas, satellite internet deserves closer scrutiny as it is at the forefront of commercialization.

With each new generation of mobile communication ventures into commercial territory, research for the next generation begins concurrently. A decade from now, the arrival of the 6G era, which holds the potential to unlock markets exceeding 10 trillion yuan, is approaching with acceleration. This domain is pivotal for the future of information industries, making it a critical battlefield that cannot afford any losses.