Incident: The company released the 2023 Annual Report & 2024 Quarterly Report. In 2023, it achieved revenue of 750 million yuan, a year-on-year decrease of 16.5%; net profit to mother was 475.47 million yuan, a year-on-year decrease of 174%. Among them, 23Q4 achieved revenue of 210 million yuan in a single quarter, down 2.4% year on year and 1.1% month on month; net profit of 1.1% month on month; net profit of 1.91 million yuan, down 555.9% year on year, down 100.7% month on month; 24Q1 achieved revenue of 198 million yuan, up 32.85% year on year, and net profit to mother was 8.4432 million yuan, reversing losses.
Performance is under pressure in the short term and will not change the long-term positive trend. Looking at the full year, the company's revenue was 750 million yuan, -16.5% year-on-year, mainly due to a combination of factors such as macroeconomic environment and industry development, which led to a decrease in demand for products related to the main business, such as optical chips and devices, indoor optical cables and cable materials, and lower prices for some products. Net profit pressure was 47.547 million yuan, or -174% year-on-year. The net profit pressure was mainly affected by a decline in operating income and a sharp decline in net interest rates in the optical chip and device business sector. The company continues to strengthen cost reduction and efficiency, improve resource allocation, and improve internal management efficiency. With the explosion of AI models and demand for computing power, the market demand for optical communication related products is growing rapidly. Optical chips, devices, and optical fiber cables will usher in new development opportunities. The overall future market prospects are improving, and the company still has plenty of room for development.
Profitability declined in the short term, and the cost side was well controlled. In 2023, the company's comprehensive gross margin was 18.6%, down 26.1% year on year. The main reason was the reduction in the price of the company's optical chips and device-related products, and the related gross margin level dropped significantly and accounted for a relatively large share. 24Q1 ushered in marginal improvement, and comprehensive gross margin increased to 24.1%. Cost-side control is good. The company's sales/management expenses ratio in 2023 was 3.5%/8.4%, respectively, down 0.3/1.8pp year on year.
Continue to increase investment in R&D and optimize the direction of product development. According to ICC forecasts, in 2019-2024, the sales volume of Chinese optical chip manufacturers will continue to increase in the global optical chip market, and the localization of optical chips will accelerate. Now that the 800G/1.6T era has arrived, silicon light technology has become one of the key technical directions. At the same time, AI technology breakthroughs represented by ChatGPT and Sora have had a profound impact on the development of optical chips, and active devices/modules are also developing in a higher speed direction. The company's R&D expenses for 21/22/23 were 9.79%/8.9%/12.73%, respectively, and the R&D expenses for 23 were 96.027 million yuan, +19.51% over the same period last year. The company transformed and optimized existing products and determined the direction of new product development. The passive platform gradually transitioned to ultra-high refractive index difference process technology, and the active platform gradually transitioned to photonic integrated process technology to improve chip integration.
Profit forecast and investment advice: EPS is expected to be 0.09 yuan, 0.17 yuan, and 0.23 yuan respectively in 2024-2026, corresponding to dynamic PE of 110 times, 58 times, and 42 times, respectively. The net profit growth rates for the next three years were 185.49%, 91.74%, and 37.11%, respectively. The first coverage gives a “hold” rating.
Risk warning: risk of macroeconomic and industry fluctuations, risk of increased market competition, risk of loss of key technical talents, etc.