Core views

In the first half of 2023, the company achieved total operating revenue of 5.024 billion yuan, a year-on-year decrease of 19.2%; net profit attributable to shareholders of listed companies was 582 million yuan, an increase of 3.28% over the previous year. The company's revenue decline in the first half of the year was mainly due to a sharp decline in revenue from the small base station business and sluggish demand in the domestic consumer electronics industry, but other businesses continued to grow. On the profit side, in addition to a decrease in profit due to a decline in revenue, investment income fell 15.73% year over year. As demand in the consumer electronics industry gradually picks up in the future and shipments of high-speed optical modules gradually increase, the company's performance is expected to improve. The company's gross margin was 22.8%, up 4.6 pct year on year, net profit margin was 11.53%, up 2.6 pct year on year, and profitability increased significantly. The overseas digital communication optical module market is expected to usher in a breakthrough, and the sensor business continues to grow rapidly.

occurrences

Recently, the company released its semi-annual report for 2023. In the first half of 2023, the company achieved total operating income of 5.024 billion yuan, down 19.20% year on year; net profit attributable to shareholders of listed companies was 582 million yuan, up 3.28% year on year; net profit attributable to shareholders of listed companies after deducting non-recurring profit and loss was 545 million yuan, up 2.89% year on year.

Brief review

1. Dragged down by the decline in small base station shipments, the company's Q2 performance is under pressure in the short term.

In the first half of 2023, the company achieved total operating income of 5.024 billion yuan, down 19.20% year on year; net profit attributable to shareholders of listed companies was 582 million yuan, up 3.28% year on year; net profit attributable to shareholders of listed companies after deducting non-recurring profit and loss was 545 million yuan, up 2.89% year on year.

On a quarterly basis, 2023Q2 achieved revenue of 2,359 million yuan, a year-on-year decrease of 29.79%, and a year-on-year decrease of 11.48%; net profit for return was 274 million yuan, a year-on-year decrease of 18.86%; net profit after deducting non-net profit of 269 million yuan, a year-on-year decrease of 16.61%.

By product, connectivity business revenue was 1,837 billion yuan, down 43.74% year on year, mainly due to the impact of the 5G construction cycle, small base station business revenue was only 200 million yuan, a year-on-year decrease of 1.79 billion yuan; perceived business revenue was 1,461 billion yuan, up 45.37% year on year. The company continued to focus on smart homes and new energy vehicles to maintain its leading position in the industry; intelligent manufacturing business revenue was 1,473 billion yuan, down 9.53% year on year, mainly due to the downturn in the domestic consumer electronics industry.

We believe that the company's revenue decline in the first half of the year was mainly due to a sharp decline in revenue from the small base station business and sluggish demand in the domestic consumer electronics industry, but other businesses continued to grow.

On the profit side, in addition to a decrease in profit due to a decline in revenue, investment income fell 15.73% year on year, mainly due to the impact of Changguang Huaxin shares held by the company calculated on investment income according to the equity method. As demand in the consumer electronics industry gradually picks up and shipments of high-speed optical modules gradually increase, the company's performance is expected to improve.

2. Gross margin has increased markedly, and the three major business sectors have continued to increase investment in R&D.

In the first half of 2023, the company's gross margin was 22.8%, up 4.6 pct year on year, net profit margin was 11.53%, up 2.6 pct year on year. Q2 The company's gross margin was 24.64%, up 6.28 pct year on year, net margin was 11.5%, up 1.47 pct year on year. The company's management expenses rate in the first half of the year was 2.84%, up 0.46 pct year on year; sales expense ratio was 5.35%, up 0.55 pct year on year; financial expense rate was -1.1%, down 0.45 pct year on year, mainly due to increased interest income; R&D expense ratio was 5.70%, up 1.99 pct year on year. The company's R&D investment in all three major business sectors increased by 10 million yuan, which helps all businesses continue to expand their layout and ensure future competitiveness. The company's net cash flow from operating activities in the first half of 2023 was 356 million yuan, compared to -226 million yuan in the same period last year. This is a sharp improvement over the previous year, mainly due to an increase in net return of working capital.

3. The overseas digital communication optical module market is expected to usher in a breakthrough, and the sensor business continues to grow rapidly.

In the first half of 2023, the company launched the world's first 400G ZR+Pro coherent optical module, which received widespread attention from major overseas customers. Currently, sample delivery of this product is progressing smoothly and is expected to achieve a breakthrough. In the field of digital communication, the company has a full range of 100G/200G/400G/800G optical module product matrices, and is continuously expanding its product line. Currently, many products have been shipped in batches to customers at home and abroad. At the same time, in the context of the rapid development of artificial intelligence, the company has a variety of high-speed optical module products used in the field of artificial intelligence, and is expected to make a breakthrough in sample delivery and verification for major overseas customers. The company's sensor business remains at the forefront of the new energy vehicle and smart home industries. Shipments of products such as thermal management systems and pressure sensors for new energy vehicles continue to reach record highs, and its market share continues to increase. The company ranked first in market share of NTC temperature sensors and PTC heaters for new energy vehicles.

4. Profit prediction and investment advice.

The company's school-enterprise reform unleashes enterprise vitality, optimizes decision-making processes, and enhances efficiency. The company's optical module products are expected to break through the overseas high-speed digital communication market and provide low-level high-speed network connectivity for AI development. The company's new energy vehicle sensors and thermal management systems are expected to increase emissions as the penetration rate of new energy vehicles increases. The company leverages its collaborative advantages, and the intelligent manufacturing business is expected to achieve revenue growth and efficiency improvement. We expect the company's revenue for 2023-2025 to be 11.919 billion yuan, 15.06 billion yuan, and 18.949 billion yuan, respectively, and net profit to be 1,026 million yuan, 1,358 billion yuan, and 1,773 billion yuan respectively. The current market value corresponds to PE 31X, 23X, and 18X, giving it a “buy” rating.

Risk analysis

Investment in cloud computing and 5G fell short of expectations, and products such as optical modules and small stations in the company's connectivity business were affected; the company's high-speed optical module products can be used for low-level hardware facilities in the AI field. If AI development falls short of expectations and the company's customer breakthroughs and progress falls short of expectations, it will affect the development of the company's optical module products; the development of the company's new energy vehicle sensing business falls short of expectations, PTC's past growth rate has been rapid, and revenue share has gradually increased. If the laser industry falls short of expectations, the company's laser processing equipment revenue will be affected The impact; increased competition and declining gross margin; changes in the international environment; the company is subject to overseas regulation and restrictions; the company's overseas expansion of optical modules falls short of expectations, etc.