Incidents:
On February 28, 2024, the company released the 2023 performance report. In 2023, the company achieved operating income of 819 million yuan, a year-on-year increase of 14.64%; achieved net profit of 92 million yuan, a year-on-year decrease of 9.23%; and achieved non-deducted net profit of 54 million yuan, a year-on-year decrease of 36.71%.
Net profit was under pressure in the short term, and backbone products recovered significantly since Q4:
In 2023, due to a combination of factors such as changes in the macro environment, sluggish industry and market demand, and downstream customer inventory removal, the company's overall operation was under heavy pressure. However, since Q4, China Mobile's next-generation 400G backbone network upgrade work has officially started. Products such as L++ optical amplifiers, C++ optical amplifiers, and OXC optical backplanes launched by the company were first used in the 400G backbone network upgrade and construction, which played a positive role in the company's revenue growth. In 2023, the company achieved revenue of 819 million yuan, an increase of 14.64% over the previous year. Due to falling prices of related products, the company's gross profit level declined; at the same time, the company continued to increase R&D investment and market development, and related expenses grew rapidly, which comprehensively affected the company's net profit decline slightly. In 2023, net profit to mother was 92 million yuan, a year-on-year decrease of 9.23%; net profit not deducted to mother was 54 million yuan, a year-on-year decrease of 36.71%. Performance is expected to pick up as market demand picks up, the company's fund-raising projects reach production one after another, and overseas construction is carried out in an orderly manner.
The release of an equity incentive plan highlights the company's confidence in development:
On December 30, 2023, the company issued a restricted stock incentive plan. The number of restricted shares to be granted is 2,000,000 shares, accounting for about 1.99% of the company's total share capital when the draft incentive plan was announced, and the grant price (including reserves) is 30.00 yuan/share. Incentives include a total of 330 company directors, senior management personnel, core technical personnel, and other personnel (excluding independent directors and supervisors) that the board of directors believes need incentives, accounting for 46.61% of the total number of 708 employees of the company as of December 31, 2022, which is a high proportion. The assessment requirements are 2024/2025/2026 operating income of 8/9/10 billion yuan, respectively, or 2024/2025/2026 net profit of 1.25/135/145 million yuan, respectively. In addition to performance assessment at the company level, the company has set up a strict performance evaluation system at the individual level, which can make a relatively accurate and comprehensive comprehensive evaluation of the work performance of the target person being motivated. The total amortization expenses are estimated to be approximately $37.51 million. This incentive plan will help stimulate the enthusiasm of core employees, improve operating efficiency, reduce operating costs, and play a positive role in improving the company's long-term performance.
The product application field is rich in customer resources and high quality, and 800G optical module products have been launched:
The company is one of the few high-tech enterprises in the optical communication industry that also has comprehensive horizontal and vertical integration capabilities in the industrial chain. Its products are widely used in important fields such as optical communication backbone networks, carrier networks, access networks, 5G fronthaul, 5G midstream backhaul, data link acquisition, data center interconnection, and UHV communication protection. The company has long served high-quality customers including ZTE, China Mobile, China Telecom, Infinera, Ciena, State Grid, FIBERHOME, China Unicom, Nokia and ECI. According to the company announcement, the company launched 400G and 1.2T coherent modules in 2023, and 100G/200G coherent optical modules began to be delivered to customers in batches. The big language model for generative artificial intelligence came out in 2023, triggering a rapid increase in the demand for artificial intelligence computing power. The demand for high computing power has further stimulated the upgrading and evolution of optical communication networks and the demand for high-speed optical modules such as 800G. According to the company's announcement, the company launched a low-power 800G product based on TFLN (thin-film lithium niobate) technology, and simultaneously pre-researched LPO.
Investment advice:
We expect the company's revenue from 2023 to 2025 to be 819/10.02/1,301 million yuan, up 14.6%/22.3%/29.8% year on year; net profit to mother will be 0.92/1.47/ 209 million yuan, respectively, -9.2%/+59.1%/+42.1% year-on-year; corresponding EPS of 0.92/1.46/2.07 yuan, respectively. We gave the company 35 times PE in 2024, corresponding to a target price of 51.10 yuan, maintaining a “buy-A” investment rating.
Risk warning: the risk of high customer concentration and dependence on major customers, changes in downstream industry demand, declining market share, reliance on overseas procurement for core raw materials, and lack of optical chip manufacturing capabilities