Event description
On April 28, the company released its annual report for 2019 and quarterly report for 2020. In 2019, the company achieved revenue of 2.974 billion yuan and net profit of 22 million yuan, down 5.78% and 71.68% respectively from the same period last year. In the first quarter of 2020, the company achieved revenue of 569 million yuan, down 17.54% from the same period last year, and lost 59 million yuan in net profit.
Event comment
Acquisition integration and epidemic situation are a drag on performance, and on-hand orders will help reverse the performance: in 2019, the revenue of optical module business is 371 million yuan, an increase of 596.07% over the same period last year, and the gross profit margin is 29.09%, maintaining a high level. The cost of acquisition and integration increased significantly, R & D expenditure was 273 million yuan, 108.02% year-on-year growth, management expenses 185 million yuan, 39.63% year-on-year growth, while the scale of expansion brought about by capacity climbing was limited. The loss of the optical module business is a drag on the annual performance, and the total losses of the two subsidiaries in Japan are more than 50 million. Thanks to the upgrading of the product structure, the gross profit margin of the company's PON and wireless business has increased significantly, the switch business has grown rapidly, the traditional business of the ICT terminal has remained stable as a whole, and the profit has increased. In the first quarter of 2020, the increase in labor costs, raw materials, order delivery rate, logistics costs and other factors brought about by the epidemic led to a decline in income growth and performance losses, but there were sufficient orders on hand, of which, by the end of the first quarter, the backlog of ICT terminal orders was about 481 million yuan, and optical module related orders 123 million yuan, laying a solid foundation for future performance reversals. With the completion of work resumption, the release of production capacity was accelerated. The fixed increase of funds will help speed up the expansion of production, and the business situation is expected to improve gradually.
High-end optical modules "bloom in an all-round way", profoundly benefiting from the 400G+5G wave: since the completion of the Oclaro acquisition, the original major customers of 100G LR4 have taken over smoothly, 100G DR1 has broken through, and 2020Q1 has achieved mass production; 200g products have made positive progress and customer testing has been completed; 400G FR4/LR4 has been shipped smoothly and 400G DR4 is expected to be shipped in the second half of the year. The company has a comprehensive layout in the field of high-end products, and major customers have made positive progress, and it is expected to grow into a major global supplier of high-end optical modules in the future, profoundly benefiting from the 400G+5G tide, and the business scale space has been thoroughly opened; the company continues to invest high in research and development, and 800G can provide prototype testing in 2020, which is expected to fully benefit from the optical module iterative dividend.
Profit forecast and investment advice: in 2019, the company's optical module revenue growth, gross profit margin remains high, costs drag on performance growth; 2020Q1, the epidemic affects the order delivery rate, with the completion of work, performance is expected to pick up quarter by quarter; the company's high-end optical module is in full bloom, gradually becoming a global mainstream supplier, fully benefiting from iterative dividends. From 2020 to 2022, the company is expected to maintain a "buy rating" with net profits of 1.36,2.46 and 342 million yuan, corresponding to 46,25 and 18 times PE.
Risk tips: 1. The overseas epidemic affects the capital expenditure of cloud service providers; 2. The growth of ICT terminal business is weak.