Incident: On April 2, the company released its 2023 annual report. For the full year of 2023, it achieved revenue of 710 million yuan, a year-on-year increase of 10.50%, achieved net profit of 596.361 million yuan, a year-on-year decrease of 49.38%, and realized net profit deducted from non-mother of 39.4845 million yuan, a year-on-year decrease of 48.17%. Looking at the 23Q4 single quarter, revenue was 186 million yuan, up 25.11% year on year, up 0.27% month on month, and realized net profit to mother of 129.4775 million yuan, down 53.46% year on year and 13.47% month on month.
Fluctuations in downstream demand and continued increase in R&D expenses in emerging fields have put pressure on the company's performance in the short term: 1) fiber laser device revenue was 427 million yuan, up 24.25% year on year, gross profit margin 29.81%, down 4.60 pct from last year. Revenue growth benefited from increased orders and market share, but intense competition led to lower gross margin; 2) Optical communication device revenue of 204 million yuan, down 6.49pct from the same period last year. Due to fluctuations in demand, changes in product structure were the main reason for the increase in gross margin; 3) Revenue of lithium niobate modulators and photonic integrated products was 446.803 million yuan, down 8.17% year on year, and gross margin was 19.73%. The decline in revenue was due to fluctuations in demand from some customers, and gross margin was greatly affected by plant & equipment transformation in fund-raising projects; 4) Other business revenue was 347.726 million yuan, up 7.33% year on year. In addition, the company continues to focus on investment in fields such as thin-film lithium niobate and lidar light source modules. R&D expenses in 23 increased by 239.777 million yuan compared to 22, an increase of 23.99% over the previous year, which is also one of the factors affecting profits.
Continuously strengthen the layout of data center optical interconnection products and thin-film lithium niobate: AI accelerates development and continues to drive demand in the digital communication field. The company has accumulated a deep accumulation in the field of optical microconnection components, and the future is expected to fully benefit. In terms of products, based on traditional connectivity products, the company is currently also focusing on the research and development of MxN high-density FAU for high-speed optical interconnection OXC applications in digital communication centers, and has also developed a series of micro-optical connectors for CPO products. In terms of thin-film lithium niobate, the focus is on accelerating the development of the digital communication market and promoting customer verification and small-batch production of PAM-4 chip products.
The lidar business is also one of the important future development directions, helping to further broaden the company's future growth space: while focusing on providing one-stop component combination delivery capabilities and integrated solutions for 1550nm emission light sources, the company will also continue to strengthen complementary advantages and strategic collaboration with its holding subsidiary Bai'an Industrial in optical communication devices, laser light source modules, technology research and development and customer resources to enhance the company's competitive strength in the field of automotive lidar light source modules.
Investment advice: We expect the company's net profit to be 0.90/135/205 million yuan in 2024-2026, respectively, and the corresponding PE ratio is 128/85/56x. As a scarce supplier of lithium niobate chips and devices in China, the company has a deep accumulation and is expected to fully benefit from the large growth space brought by thin-film lithium niobate in the future. At the same time, the rapid growth in demand for digital optical device products brought about by AI and the accelerated development of the lidar field will also provide important development opportunities for the company. Maintain a “Recommended” rating.
Risk warning: Demand in the downstream fiber laser and optical communication sector falls short of expectations, lithium niobate business development falls short of expectations, and lidar business development falls short of expectations.