Update profit forecasts, raise target prices, and give ratings to increase holdings. The company released its 2023 annual report and quarterly report. Among them, the annual report was in line with previous express announcements, and the quarterly report's performance was in line with expectations.

Considering that the industry is expected to gradually rise in the next quarter, and the first quarter will be an inflection point in performance, we raised our 2024-2026 net profit forecast to 0.51/1.20/215 million yuan (+8.0%/+2.0% /- adjusted respectively from the previous forecast), and the corresponding profit per share was 0.11/0.26/0.47 yuan. Considering the same industry valuation, the 2025 industry valuation was given 60x, and the target price was raised to 15.6 yuan (previous value 12.5 yuan) to give it an incremental rating.

Results were in line with expectations, and quarterly revenue resumed profit improvement. The company announced its 2023 and 2024Q1 financial reports, and achieved net profit of -48 million yuan in 2023, which is the same as the previous express report. In 2024Q1, we achieved revenue of 197 million yuan, an increase of 32.85% year on year; net profit to mother of 8.443 million yuan was achieved, reversing losses from quarter to quarter. Judging from financial indicators, the company's revenue grew rapidly year-on-year, mainly driven by varying degrees of growth in optical chips and devices, indoor optical cables, and cable materials. In terms of profitability, the company's Q1 gross profit margin was 24.13%, an increase of 8 percentage points over the previous month, which is a significant improvement.

Continue to innovate and develop to meet the resonance of AI needs at home and abroad. With global investment in the AI industry, it will drive the rapid development of the 400G/800G optical module device industry in 2024. In 2023, the company will focus on investing in product lines such as AWG for 400G/800G optical modules, as well as high-speed lasers and CW lasers for silicon light. We expect that as the share of high-end product shipments increases, the company's quarterly revenue and profitability will improve significantly.

Catalysts: Overseas subsidiary investment progressed smoothly, and domestic and foreign digital communication markets picked up.

Risk warning: Investment landing, demand recovery falling short of expectations, and delays in optical chip development.