Revenue was solid in 2022 and 2023Q1, but profitability was compromised. The company released its 2022 annual report and the 2023 quarterly report. In 2022, the company achieved revenue of 642 million yuan, -3.8% year on year; achieved net profit of 118 million yuan to the mother, -9.9% year on year. In the first quarter of 2023, the company achieved revenue of 155 million yuan, +9.94% year on year, and achieved net profit of 16 million yuan to the mother, which was -32.5% year on year. Overall revenue remained steady.
The decline in profitability is mostly affected by the external environment. In 2022, the company's operations were affected by many external environments, including (1) macroeconomic fluctuations adversely affected customer demand, supply chain logistics, production and operation; (2) the Russian-Ukrainian war continued to cause oil, natural gas, and electricity prices to rise sharply, while the prices of raw materials such as rare and special gases rose sharply, increasing the operating costs of the Milan optical library; (3) demand in the industrial laser industry was insufficient, competition in the domestic market was fierce, and upstream device prices fell year-on-year.
The company continues to increase investment in R&D and plans to invest in Thai subsidiaries to focus on long-term competitiveness. R&D side: In 2022, the company continued to increase investment in thin-film lithium niobate high-speed modulator chips and devices, autonomous vehicle lidar light source modules, etc. R&D expenses increased 29.2% year-on-year, significantly faster than revenue growth. In 2023Q1, the company's R&D investment reached 0.3 billion yuan, an increase of 34.3% over the previous year, and continued to increase investment in new products.
On the production side, the company announced in March 2023 that it plans to invest 30 million US dollars in Thai subsidiaries to optimize domestic and foreign production layouts and deeply integrate into the global supply chain system of core customers. The subsidiary's business scope includes lidar light source modules and optical communication services. We believe that the company's R&D and production side overseas factory layout in terms of products is expected to strengthen the company's long-term competitiveness and accelerate market development.
Looking ahead to 2023: Focus on the recovery in demand for industrial lasers and the progress of new businesses such as chips and lidar.
We think the main focus in 2023 is: (1) the recovery in demand in the industrial laser industry. Prices fell in 2022 due to falling industry demand. If industry demand recovers smoothly, it is expected that the gross margin level will be relatively stable; (2) In terms of thin-film lithium niobate chips: In 2022, the Zhuhai factory renovation project and R&D center and package testing center equipment commissioning and acceptance will be completed. Currently, new product development and chip production center equipment procurement, personnel recruitment, and process platform construction are being carried out; (3) In terms of lidar and optical communication: In 2022, the company will expand its business layout in the field of optical communication. Combined with the Thai subsidiary plan, it is expected that the company will accelerate progress in the fields of lidar and optical communication.
Risk warning: The progress of new products falls short of expectations, competition intensifies, and profitability falls short of expectations.
Investment advice: Lower the 2023-2024 profit forecast, add the 2025 profit forecast, and maintain the “increase in holdings” rating. Considering that the previous profit forecast for 2022 was higher than the actual value, we lowered the 2023-2024 company's profit forecast and added the 2025 profit forecast. The company's net profit for 2023-2025 is estimated to be 1.3/16/20 billion yuan (before the reduction was 2023-2024 was 21/301 million yuan), corresponding PE 70/57/45 times, respectively. I am optimistic about the company's demand repair for industrial devices and the launch of new businesses such as chips, and maintain the “increase in holdings” rating.