Overview of events
According to the company's annual report in 2019 and the first quarter report in 2020, the company achieved revenue of 2.974 billion yuan in 2019, down 5.78% from the same period last year, and its net profit was 22 million yuan, down 71.68% 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 its net profit was-59 million yuan, down 1296% from the same period last year.
The integration of optical module business is smooth and is expected to turn losses into profits in the second half of the year.
The decline was mainly due to the increase in R & D expenses and other period expenses to varying degrees due to the acquisition of some assets of Oclaro Japan in 2019, but it took some time to climb the slope for production and shipment, resulting in a loss in the optical module business in 2019. In 2019, mainly due to the increase in the proportion of optical module products, the company's overall gross profit margin increased to 17.49% from 11.63% in 2018. As the revenue share of optical module products continues to increase, gross profit margin is expected to continue to improve in the future. In the first quarter of 2020, the company's production capacity continued to be affected due to the epidemic, and many production bases were shut down, resulting in an average delivery rate of only 61.2% in the first quarter. The backlog of orders on hand was serious. By the end of the first quarter, the company had a backlog of about 481 million yuan for ICT business orders and 123 million yuan for optical module orders. Among them, the newly merged Japanese Optoelectronics subsidiary (CIG Japan Sagahara) suffered losses due to year-on-year increases in production capacity and expenses. In addition, the company's production of raw materials such as capacitors in the first quarter caused a sharp rise in prices due to the epidemic, which also had a certain impact on performance. With the rapid increase in production capacity and the accelerated introduction of new products developed after mergers and acquisitions and old products with lower costs, the Optoelectronics Division is expected to turn a profit from the second half of 2020.
The company increases investment in research and development of high-speed optical modules.
The company's R & D expenditure rose to 273 million yuan from 131 million yuan last year, an increase of 108.2% over the same period last year, accounting for 9.17% of revenue. The substantial increase in R & D expenses of the company is mainly due to the R & D investment related to optical modules generated by the merger of Japanese subsidiaries. High-end optical module product research and development investment has achieved results, the company has developed 100G, 200G and 400GPAM4 optical module products, the product line has covered DR1/FR1 and DR4/FR4/LR4 optical module specifications. Continuous research and development of new high-speed optical module products, such as the successfully developed 200G LR4 (10km) project for 5G backhaul carrier network and 200G FR4+ (2km/3km) project for big data Center, as well as the low-cost 200G QSFP56 optical module and 800G optical module and silicon 400G DR4 scheme to be launched in 2020.
The non-public set-up has been successfully completed, and the optical module will be released soon.
The optical module industry benefits from the strong demand from 5G carrier networks and data centers, and the demand for medium and high transmission rate optical modules will grow rapidly. According to Light Counting's forecast, the market demand for optical modules will grow by 30%, 50% in the next three years, is expected to reach US $12 billion in 2021, and is expected to exceed US $15 billion by 2025. On April 30, the company announced the completion of the non-public offering project, raising a total of 750 million funds for the expansion of 100G, 200G, 400G high-speed optical module and 5G wireless communication network optical module production line. After the completion of the project, the company will form an annual production capacity of 1.01 million 100G optical modules, 50,000 200G optical modules, 180000 400G optical modules and 1.35 million 5G wireless communication network optical modules. The smooth implementation of the project will help to improve the production capacity of the company's high-end optical modules, consolidate and strengthen the company's market advantage and position.
Investment suggestion
The company's traditional business has grown steadily, the optical module business has been integrated smoothly, and the volume of high-end products is expected to continue to break through major customers at the same time. We are optimistic that the performance of the company's optical electronics division will usher in an inflection point in 2020. we predict that the company's revenue from 2020 to 2022 will be 3.931 billion yuan, 5.129 billion yuan and 6.551 billion yuan respectively, and the net profit of returning home will be 129 million yuan, 242 million yuan and 312 million yuan respectively. Corresponding to the current price PE is 57 times, 30 times, 23 times, covering for the first time, given the "overweight" rating.
Risk hint
Demand in overseas markets has shrunk as a result of the epidemic; 5G construction is not as fast as expected.