Event: on October 20, Tengjing Technology released a report on the third quarter of 2023, announcing that in the first three quarters of 2023, the company achieved operating income of 247 million yuan, down 5.91% from the same period last year, and net profit of 31 million yuan, down 30.45% from the same period last year.

23Q3's single-quarter gross profit margin remained stable and continued to be optimistic about the company's development: the company's revenue in the third quarter of 2023 was 80 million yuan, down 15.25% from the same period last year; its net profit was 11 million yuan, down 40.00% from the same period last year. The decline in profits in the first three quarters of 2023 is mainly due to: 1) in the main business, the telecommunications market in the optical communications field is relatively weak, and the demand for individual products slows down. The steady recovery of fiber laser downstream is accompanied by the strategy of active price reduction and share increase of some mature products; 2) the company's investment in production facilities has increased fixed costs such as depreciation and amortization; 3) the company has further implemented the technological innovation strategy of high-performance precision optical components, continue to increase investment in research and development. In addition, typhoon, rainstorm and other extreme weather brought a small amount of non-recurrent losses to production and operation in the third quarter. On the profit side: the company's gross profit margin of 2023Q3 is 33.28%, which is higher than that of 2023Q2 (29.42%), and that of 2022Q3 is 0.13% higher than that of 2022Q3 in the same period last year. The gross profit margin of 2023Q3 in the single quarter of 2023 tends to maintain stability; the net profit rate of 2023Q3 is 13.30%, which is lower than that of 2023Q2 (15.49%). From the cost point of view: the sales / management / financial expenses of 2023Q3 Company are 237.50, 655.19 yuan, an increase of 57.98, 16.05, 103.70% over the same period last year. We believe that with the recovery of the optical fiber laser industry and the continuous expansion and promotion of the company's products in the optical communication field, the company is expected to benefit from the continued development of future performance.

Continue to maintain high R & D investment, order delivery capacity continues to improve: in the first three quarters of 2023, the company invested 24 million yuan in R & D, an increase of 9.18% over the same period last year. R & D investment accounted for 9.70% of the current revenue, an increase of 1.34pct over the same period last year. 2023Q3 invested 9 million yuan in R & D, an increase of 8.29% over the same period last year, and R & D investment accounted for 10.78% of the current revenue, an increase of 2.34pct over the same period last year. According to the company's disclosure on September 26, the company is steadily expanding its business in various application fields, and the situation of on-hand orders is stable; at the same time, the company adapts its production capacity according to its own strategic planning, business plan and market customer demand. continue to improve the flexible production and delivery capacity of orders. With the implementation of the company's fund-raising project, the company's production capacity has been effectively expanded, and the order delivery capacity has also been continuously improved, and the specific production capacity has been gradually released according to the order demand. We believe that the company has sufficient production capacity at present, which provides sufficient capacity support for the subsequent continuous increase in computing demand.

The proposed acquisition of GouMax extends downstream, and the business progress continues: in order to expand the product category of the optical communication industry chain, deepen the construction of the technology platform for enabling optical-mechanical integration and testing, and provide customers with more valuable technology solutions and products, the company intends to acquire GouMax. After this transaction, it will help the company to build the core technology platform of optical-mechanical integration and testing, realize the expansion of business to the lower reaches of the industrial chain, rapidly expand and improve the product and technology layout of the company in the field of optoelectronic testing modules, instruments / equipment, and enhance the overall profitability of the company. At the same time, in the first half of 2023, we developed the application of high-end optical module products in semiconductor equipment, biomedicine and other fields and achieved sales order growth, and related products are currently being verified; some of the optical communication company's precision optical component products can be used in 400G, 800G and other high-speed optical modules, and the specific demand fluctuates with customer orders. With the strong demand for computing power driven by the development of AI, the company continues to enrich and improve the technology and products in the field of optical communication to meet the upgrading needs of downstream customers for longer transmission distance and larger bandwidth capacity.

Profit forecast and investment rating: we expect the company's 2023-2025 return net profit to be 0.49 billion yuan, the current share price corresponding to the PE times 82-49-33, in view of the company as a high-quality domestic manufacturer of optical components and optical fiber devices, future performance is expected to achieve growth and maintain the "buy" rating.

Risk tips: gross profit margin decline risk, differentiation competition risk, product certification risk, major customer change risk.