Event: The company released its 2023 annual report on April 21, 2024, and the first quarter report of 2024 on April 23. In 2023, the company's revenue was 1,939 million yuan, up 62.04% year on year, and net profit to mother was 730 million yuan, up 81.14% year on year. Revenue for the first quarter of 2024 was 732 million yuan, up 154.95% year on year, and net profit to mother was 279 million yuan, up 202.68% year on year. AI demand continues to catalyze high-speed passive & active optical device shipments, and downstream demand continues to be strong. Maintain a “Highly Recommended” rating.
Performance was greatly improved, and demand for high-speed products drove performance growth. The company's revenue in 2023 was 1,939 million yuan, up 62.04% year on year; net profit to mother was 730 million yuan, up 81.14% year on year. Among them, 1) optical passive devices: revenue of 1,183 million yuan, up 23.28% year on year, accounting for 61.04% of revenue; 2) optical active devices: revenue of 746 million yuan, up 242.52% year on year, accounting for 38.48% of revenue.
Benefiting from AI demand driving high-speed optical device shipments, higher unit prices boosted gross profit, and revenue increased dramatically. Revenue for the first quarter of 2024 was 732 million yuan, up 154.95% year on year, down 0.11% month on month; net profit to mother was 279 million yuan, up 202.68% year on year, down 4.1% month on month. The month-on-month change in profit was mainly due to personnel rotation temporarily affecting production capacity, and subsequent quarterly results are expected to be gradually released as personnel expansion.
Product structure has been optimized, and gross margin has increased significantly. In 2023, the company's net profit margin increased 3.8 pct year on year, and gross margin increased 2.7 pct year on year. Among them, the gross margin of optical passive devices increased by 5.24 pct year on year, and the gross margin of optical active devices increased by 8.02 pct year on year. High-speed passive & active optical devices led to an increase in gross profit. Net interest rate for the first quarter of 2024 rose 6.15 pct year on year and 1.37 pct month on month, mainly due to: 1) gross margin fell 1.04 pct month-on-month, which was affected by insufficient productivity of newly hired employees; 2) sales/management/R&D expenses increased by 0.74/1.08/1.89pct month-on-month, mainly due to equity incentive expenses. As yield increases and production efficiency is optimized, the company's gross margin is expected to rise as major material numbers gradually increase.
Adhere to high R&D investment and comprehensively lay out high-speed products. In 2023, the company invested 143 million yuan in R&D, an increase of 16.74% over the previous year. Among them, R&D projects include fiber array device product development for various special application scenarios, which can currently meet the application needs of silicon optical customers; the development of Pigtail for 400G/800G optical modules is in the batch stage; the development of optical devices for automotive lidar is in the batch stage; AWG and PLC devices suitable for high-power applications of silicon optical products are in the small batch stage; and the development of silicon optical module special optical fiber devices and single-channel high-power laser products, suitable for 800G/1.6T 2xFR4 transmission and reception Optical devices are in the small batch stage, and the products have successfully entered major customers in the industry. The company has always maintained technological leadership in segmented fields and accelerated the development and commissioning of high-end optical device products.
Overseas production capacity layout enhances overall competitiveness, and major AI customers drive rapid revenue growth. In 2023, the company's optical communication component production capacity was 569 million units, an increase of 2.15% over the previous year. In terms of capacity utilization, the company continues to upgrade information systems and automation, reduce costs and increase efficiency at the Jiangxi production base, and the capacity utilization rate of high-speed products has improved markedly. In terms of future production capacity layout, according to the 2023 annual report, the company's production base in Thailand will soon be put into use. The layout of overseas production capacity enhances the company's overall competitiveness in participating in global business, while also helping to integrate overseas and domestic supply chain resources and form a three-dimensional global division of labor with complementary location advantages. Major AI customers led to rapid revenue growth. The top five customers in 2023 accounted for 81.64% of revenue, of which the largest customer, Fabrinet, the Thai foundry, accounted for 53.61%.
Investment advice: Due to production capacity in the first quarter of 2024, short-term performance growth slowed slightly. Looking ahead to the next few quarters, the company's performance is expected to continue to rise month-on-month as yield increases and production efficiency is optimized, and major materials gradually increase. AI demand continues to catalyze high-speed passive and active optical device shipments, and the company is expected to fully benefit from rapid growth in performance. We maintain our profit forecast. We expect the company to achieve operating income of 36.90/59.85/7.780 billion yuan in 2024/25/26, an increase of 90%/62%/30% year on year; net profit to mother of 13.37/21.06 billion yuan, an increase of 83%/58%/31% year on year. Maintain a “Highly Recommended” investment rating.
Risk warning: Demand in the field of AI and digital communication falls short of expectations, expansion in new fields falls short of expectations, market competition increases risks, and the risk of international trade disputes.