Incident: On April 19, the company released the “2024 Restricted Stock Incentive Plan (Draft)”. The total number of restricted shares to be awarded under the incentive plan is 430,000 shares (1.5% of the current total share capital of 2869573.83 million shares), and the grant price is 13.29 yuan per share.
Set high-growth performance assessment targets to demonstrate the company's confidence in future development: restricted stocks are divided into two vesting periods, with a ratio of 50% each. The performance assessment goals are divided into three goals. The ownership ratio for each period is linked to the degree of performance completion during the assessment period. Performance assessment targets A1, A2, and A3 correspond to 60%, 80%, and 100% ownership ratios, respectively. 1) First vesting period: Performance assessment targets A1, A2, and A3 are net profit of 2024 not less than 160%, 180%, and 200% of 2023 net profit, respectively, that is, 2024 net profit is not less than 130 million yuan, 147 million yuan, and 163 million yuan respectively; 2) Second vesting period: performance assessment targets A1, A2, and A3 are the cumulative net profit for the two years 2024-2025, or 350%, 425%, and 500% of the net profit for 2023, respectively Net profit was not less than 285 million yuan, 346 million yuan, and 407 million yuan. Judging from the performance assessment goals, high growth requirements are placed on net profit, which shows that the company has full confidence in future development. Looking at the scope of incentives, for the first time, a total of 88 people were awarded incentives, including directors, senior management, and technical/business key personnel, with sufficient coverage. Looking at the cost amortization situation in financial reports, the total cost is estimated to be 35.3484 million yuan, and amortized 15.3414 million yuan, 16.2309 million yuan, and 37.561 million yuan in 2024, 2025, and 2026, respectively.
While the company is based on the traditional telecommunications market, it has begun to focus on breakthroughs in the digital communication field in recent years. After completing the acquisition of Changxinsheng, the company helped the company further expand downstream consumer & industrial connectivity application scenarios and fully open up future growth space: the company supplies 25-400G optical modules, AOC, and DAC in batches to domestic and foreign Internet customers in the digital communication field, and 800G copper cable products used in the digital communication field have been developed and delivered to customers. The future is expected to fully benefit from the high demand brought about by AI. Changxinsheng has outstanding strength in the field of active AOC. In addition to helping the company strengthen digital AOC, it has also added product layouts for consumer & industrial connectivity applications, such as consumer and industrial active optical cables, high-speed analog chips in related active optical cables, and core photoelectric conversion module component products for consumer active optical cables. Changxinsheng's self-developed multi-channel optoelectronic transceiver chips for active optical cables occupy the world's leading market share. It has two major sub-brands, FIBBR and iConec. At the same time, it has independently developed and designed a series of electronic chips for high-speed interface communication based on the CMOS process, such as USB, HDMI, and DisplayPort, which have a strong technical competitive advantage.
Investment advice: Considering the high growth performance assessment targets set in the company's equity incentives, we raised our profit forecast. The company's net profit for 2024-2026 is estimated to be 175/2.62/320 million yuan, respectively, and the corresponding PE multiples are 37X/25X/20X. While the company is based on the traditional telecom market, it continues to focus on promoting layout and breakthroughs in the digital communication field. At the same time, the acquisition of Changxin Sheng will also provide important support for the company's development in the digital communication & consumer & industrial connectivity markets, and is full of momentum for future development. Maintain a “Recommended” rating.
Risk warning: Telecom demand falls short of expectations, competition intensifies price declines significantly, and AI development falls short of expectations.