Incidents:
On April 22, Xinyisheng released Q1 reports for 2023 and 2024. In 2023, the company achieved operating income of 3,098 billion yuan, -6.43% year-on-year; realized net profit of 688 million yuan, or -23.82% year-on-year.
Among them, in Q4 2023, the company achieved operating income of 1,011 billion yuan, 12.78% YoY and 29.17% YoY; realized net profit of 2.59, or 83.29% YoY. In Q1 2024, the company achieved operating income of 1,113 billion yuan, or 85.41% year-on-year, 10.12% month-on-month; realized net profit to mother of 325 million yuan, 200.96% year-on-year and 25.40% month-on-month.
Comment:
In '23, it was pressured by telecom market demand, and profitability increased dramatically from 23Q4 to 24Q1. Looking at the full year of '23, demand in the foreign data center market was stable, and new products were progressing smoothly, but demand on the telecom side weakened, leading to a decline in the company's operating income and net profit in fiscal year 23 compared to the previous year. Benefiting from the high rate of product release, the 23Q4 and 24Q1 companies' revenue both returned to positive year-on-month growth.
At the same time, with the capital raised by the company to invest in the completion and commissioning of the high-speed optical module production line project and the further expansion of the overall scale of the Thai factory, the company's production capacity and product delivery capacity have been further enhanced, providing a strong guarantee for the continuous increase of new products in the future. On the gross margin side, the gross margins of 23Q4 and 24Q1 companies reached 36.77% and 42% respectively, up 10.61 and 5.24 percentage points from month to month, respectively. We believe this is mainly due to changes in product structure and strong cost control capabilities (including automated construction of production lines, etc.).
Repurchase and cancel some restricted stocks. The high rate and new structure promoted the smooth repurchase and cancellation of some restricted shares. According to the company's “2022 Restricted Stock Incentive Plan (Draft)”, due to the departure of the incentive target and the failure to complete the company-level performance assessment for the first period to lift the sales restrictions, 1.1082 million shares will be repurchased and cancelled at a price of 8.21 yuan/share. After the cancellation is completed, the total number of shares of the company will be changed from 709,919,026 shares to 708,810,852 shares, including 91,192,974 restricted shares and 617,617,878 outstanding shares. The company has always attached importance to the research of new technologies and products in the industry. At present, 400G, 800G, 1.6T series high-speed optical module products based on VCSEL/EML, silicon light and thin-film lithium niobate solutions, 400G and 800G ZR/ZR+ coherent optical module products, and 400G/800G LPO optical module products based on 100g/LANE and 200g/LANE have been successfully launched.
Investment advice and profit forecasting
As an industry-leading supplier of optical modules, the company has abundant technical reserves, rich customer resources, and leading cost control, and will fully enjoy the dividends brought about by the explosion of the industry. We expect that in 2024-2026, the company's net profit due to mother will be 1.5 billion yuan, 1.8 billion yuan, and 2.7 billion yuan, respectively, corresponding to PE valuations of 39, 31, and 21 times, respectively, maintaining a “buy” rating.
Risk warning
AI hardware demand and deployment pace fall short of expectations, risk of macroeconomic fluctuations