The company's optical module asset integration is basically completed, gaining momentum to re-launch. The company acquired MACOM Japan in 2018 and Oclaro Japan assets in 2019, quickly moved into the field of optical components and optical modules, and has completed certification and re-signed framework agreements with a number of key customers. Since the second half of 2019, the company has carried out large-scale domestic production expansion and equipment commissioning, and is now in the stage of rapid capacity climbing. After the merger and acquisition, a number of product research and development projects have been established, including the promotion of new high-end product research and development, cost reduction of existing products, and the rapid introduction of domestic components. The integration of optical module assets and resources has achieved phased results and gained momentum.
New products and key customers continue to break through, and the optical module business is expected to rise to a higher level. Optical module business customers are divided into telecom equipment vendors and cloud manufacturers. Telecom equipment manufacturers mainly have more than 20 customers, such as Huawei, Cisco Systems, FiberHome, Arista, Juniper, Infinera, Fujitsu, etc., and their products are mainly 100G LR4/ER4, 400G FR4/LR4 and 200G FR4/LR4. The new business breaks through three cloud vendor customers, mainly 400G DR4+/FR4, 400G LR4100GDR1/FR1, and 100G LR4, which is expected to drive rapid revenue growth. In addition, the company's 200GFR4/LR4/ER4, 50G LR4/ER4 and other products are expected to benefit from the domestic 5G base station construction of the larger demand for return products, driving the company's revenue to a higher level.
5G overlay Datong market 400G upgrade cycle began, the prosperity of the industry has risen. 1) 5G will speed up the construction and boost the volume of optical modules in the telecom market. 5G RAN network will evolve from 4G BBU and RRU two-level structure to CU, DU and AAU three-level structure, deriving forward, intermediate and backhaul, 5G high-bandwidth requirements need to introduce high-speed optical ports, access and convergence layer need 25G/50G rate interface, while the core layer needs super-100G/200G rate interface, which will pull 5000-60 million optical modules. We estimate that the demand for 5G optical modules in 2020 and 2021 will be about 10 million and 18 million respectively. 2) the 400G upgrade in the Datong market is expected to usher in 400G DR4 and 100G DR1. With the continuous growth of cloud computing traffic, optical modules in overseas data centers have been upgraded. 2019 is the first year of 400G, and 400G is expected to increase in 2020, starting a new upgrade cycle. We estimate that the global demand for 400G will be 200000 in 2019, 800000 in 2020 and 3 million in 2021. In addition, at present, 100G optical modules are mainly CWDM4 and PSM4. It is expected that with 400G upgrade, 100G optical modules also need to be replaced. 100G DR1 is expected to increase the permeability in 100G, bringing volume and opportunities for breaking through new customers.
Profit forecast and investment rating: after the completion of the integration of optical module assets, the prosperity of large customers breaking through the superimposed optical module has risen, and the company's business development is expected to rise to a higher level; 5G small base stations will be laid out in advance to expand new business growth points; traditional main business management integration, raw material prices return to rationality, gross profit margin stabilized and rebounded. The company's 2019-2021 net profit is expected to be 18 million, 135 million, 291 million yuan, corresponding to PE 367X, 48X, 23x, this year and next year to meet the rapid outbreak of business, the current time point, given a "buy" rating.
Risk hints: overseas epidemic affects market demand, development is less than expected, competition intensifies, and so on.