Incident: On April 22, the company released its 2023 annual report and 2024 quarterly report. The full year of 2023 achieved revenue of 3,098 billion yuan, a year-on-year decrease of 6.43%, and realized net profit of 688 million yuan, a year-on-year decrease of 23.82%, and realized net profit without deduction of 678 million yuan, a year-on-year decrease of 13.54%. Looking at the first quarter of 2024, we achieved revenue of 1,113 billion yuan, up 85.41% year on year, up 10.12% month on month, and realized net profit to mother of 325 million yuan, up 200.96% year on year and 25.40% month on month. Achieved net profit of 325 million yuan after deduction, up 206.71% year on year and 28.04% month on month.
Price adjustments for some products and fluctuations in demand in the telecom market affected 23-year performance. The increase in gross margin exceeded expectations: demand in the overseas digital communication market was stable in 2023, and the company's products progressed smoothly, but some product prices were adjusted according to market conditions, leading to a decline in gross margin levels. At the same time, the telecom market business weakened due to structural adjustment needs in the industry, which led to a year-on-year decline of 6.43% and 23.82%, respectively. Breaking down revenue for 2023 by region, foreign countries achieved 2,594 billion yuan, a year-on-year decrease of 3.63%, accounting for 83.75% of revenue, and domestic revenue of 503 million yuan, a year-on-year decrease of 18.62%, accounting for 16.25% of revenue. Entering the first quarter of 2024, performance rebounded significantly. While revenue and net profit to mother grew at a high year-on-year rate, they also achieved 10.12% and 25.40% month-on-month growth, respectively. In terms of comprehensive gross margin, the company's comprehensive gross profit margin for the full year of 2023 was 30.99%, a year-on-year decrease of 6.67 pct, and the company's comprehensive gross margin increased sharply to 42.0% in 24Q1. In terms of production capacity, the first phase of the company's factory in Thailand has been officially put into operation. Currently, the second phase of the Thai factory is being accelerated and construction is expected to be completed and put into operation within 2024.
The company has strong strength in the field of digital optical modules, and is expected to fully benefit from AI opportunities: the company has now successfully launched the industry's latest 800G/1.6T optical module products based on single-wave 200G optical devices. The high-speed optical module product portfolio covers technical solutions such as VCSEL/EML, silicon light, and thin-film lithium phosphate. The product matrix also includes 400G and 800G ZR/ZR+ coherent optical module products used in data center interconnection scenarios. Furthermore, in the field of LPO, the company is deeply focused. Current products include 400G/800G LPO optical modules. In addition to single-channel 100G 400G and 800G LPO optical modules, the company also focused on exhibiting a single-channel 200G 800G OSFP DR4 LPO at the 2024OFC exhibition. At the same time, the ecosystem of LPO optical modules in the industry continues to improve. In March 2024, 12 manufacturers announced the establishment of the LPO MSA (Linear Pluggable Optical Multi-Source Protocol) to develop specifications for network devices and optical modules to support a broad ecosystem of interoperable LPO solutions. We believe that the progress of the LPO optical module industry is expected to accelerate, and the company is expected to fully benefit.
Investment advice: The company has strong strength in the digital optical module field. While deeply tied to leading overseas manufacturers, the company continues to focus on new customer breakthroughs, and the company actively lays out in cutting-edge fields such as silicon light and LPO. It is expected that the future will continue to benefit from the growth in demand for high-end optical module products brought about by AI. From 2024 to 2026, we expect the company's net profit to be 1,526/22.80/3.323 billion yuan respectively, corresponding to PE 32/21/15 times, respectively, maintaining the “recommended” rating.
Risk warning: Demand in the AI and telecommunications sector falls short of expectations, industry competition intensifies, and product price reduction pressure.