Introduction to this report:
Lower profit forecasts, lower target prices, and give ratings to increase holdings; short-term operations are under pressure; wait for demand to pick up; promote overseas layout and complete filing procedures.
Key points of investment:
The profit forecast was lowered, the target price was lowered, and an increase in holdings rating was given. The company released a forecast for 2023, with an estimated loss of 47 million yuan. Considering that it will take time for the traditional digital communication industry to recover, we lowered our 2023-2025 net profit to -0.48 billion (-307.0%)/47 million (-44.0%)/118 million yuan (-7.0%), corresponding EPS to -0.10/0.26 yuan. Currently, the company is carrying out a number of high-end chip research and development, and plans to improve the overseas layout. Considering that the average valuation and business of the chip sub-field in the communications industry is most similar to Yuanjie Technology, the 2025 PE 48x will be given, the target price will be lowered to 12.5 yuan (previous value 17.5 yuan), and the holding increase rating will be given.
Short-term operations are under pressure, waiting for demand to pick up. The company announced that the estimated net profit for 2023 was -47 million yuan, a loss compared with the same period, and the performance was lower than expected. The main reason is that the company increased R&D investment in 400G/800G AWG, parallel light modules, CW lasers, etc. during the reporting period. The R&D cost rate is at a high level in the industry, but at the same time, due to the slowdown in the development of traditional digital communication and lower prices, the company's operations are under pressure in the short term.
Promote overseas layout and complete filing procedures. On January 16, 2024, the company announced the progress of the overseas subsidiary layout. Since the subsidiary was previously established in Thailand with an investment amount of 5 million US dollars, the investment company has recently completed the relevant filing of foreign investment projects with the Department of Commerce and the Foreign Exchange Administration. We expect to further open up overseas markets as the overseas layout progresses smoothly.
Catalyst: Overseas subsidiary investment progressed smoothly, and traditional digital communication picked up.
Risk warning: Investment implementation, traditional demand recovery, and optical chip development fell short of expectations.