Report summary:
Incident: The company released its 2023 performance forecast on the evening of January 29. In 2023, it is expected to achieve net profit of 0.60-70 million yuan, a year-on-year decrease of 69.13% to 73.54%; it is expected to deduct non-net profit of -0.07 to 0.03 billion yuan, putting short-term pressure on performance.
Comment: Performance is under pressure in the short term, downstream demand for telecommunication terminal equipment has gradually slowed, and industry prices and gross margins have declined. The company's profit side was under short-term pressure in 2023, mainly due to the fact that downstream demand for the company's telecommunications terminal equipment was affected by the weak global economy, saturated domestic market demand, and sluggish demand in overseas industries. On the other hand, there is a clear trend of exchanging price for volume in the industry due to downstream customers' demand for inventory removal and cost reduction, and order prices and gross margin have declined. In 2023, Shandong Wenyuan, a subsidiary of the company, experienced a significant decline in revenue and profit due to a decline in downstream demand. The annual profit loss is expected to exceed 16 million yuan, while at the same time, goodwill impairment of about 200 million yuan, corresponding reduction in the company's net profit for 2023 by about 200 million yuan. The company's exchange earnings in 2023 decreased by more than 60 million yuan year-on-year.
The company's Netcom business is progressing steadily, and the digital communication business is rapidly expanding due to global AI demand. In terms of Netcom business, in 2023, the company successfully broke through the 10G PON JDM project for overseas A customers, the XGSpon+WiFi7 project for overseas S customers and H customers, and the WiFi7 project for domestic R customers & H customers and overseas S customers. Wifi 7 10 gigabit routers have been shipped in batches, and FTTR products are expected to enter trial production and mass production in the third quarter. Project acquisition and product shipments are progressing steadily. In terms of digital communication business, the company's 400G switches have been shipped in batches, and 800G products have entered the research stage.
The explosion of AI computing power catalyzes new opportunities for switches and servers in the digital communication field. Demand for computing power has surged due to the training of large AI models. As the core equipment of computing power networks and one of the important foundations of AI, switches and servers have fully benefited from the explosion of downstream demand and the rise in prosperity. According to IDC data, the global 200/400GbE switch market increased 141.3% year-on-year in the first half of 2023. The AI server market will also grow rapidly, driven by big model training. Mainland AI server shipments will reach 284,000 units in 2022, and will reach 650,000 units by 2027. With years of experience and overseas layout, the company actively explores AI server cooperation opportunities, which is expected to open up new performance growth points.
Profit forecast and investment advice: Gongjin Co., Ltd. is a leading broadband terminal manufacturer in China. We are optimistic that the company will benefit from rapid growth in downstream AI, automotive and other fields. It is expected to achieve revenue of 89.50/116.99/14.525 billion yuan in 2023-2025, and net profit of 0.65/503/607 million yuan, corresponding to EPS of 0.08/0.64/0.77 yuan/share, maintaining the “buy” rating.
Risk warning: raw material price fluctuations, exchange rate fluctuations, customer inventory risk.