Incident: The company publishes its 23 annual report and 24 quarterly report. Revenue for the full year of '23 was 3,098 billion yuan (-6.43%), net profit of 688 million yuan (-23.82%), net profit after deducting non-return to mother of 678 million yuan (-13.54%), and gross profit margin of 30.99% (-5.67pcts). Some products were adjusted according to market conditions, leading to a decline in gross margin levels. The telecom market business was weakened by the structural adjustment needs of the industry, and overall revenue in '23 was under pressure. 24Q1 revenue of 1,113 million yuan (+85.41%), net profit of 325 million yuan (+200.96%), net profit after deducting non-return to mother of 325 million yuan (+206.69%), gross profit margin of 42.00% (+7.96pcts), mainly due to the company benefiting from the continuous capital expenses of data center operators, and sales revenue increased significantly year-on-year.
Revenue from point-to-point optical modules has recovered, and the share of overseas revenue continues to grow. In '23, the revenue of point-to-point optical modules was 3,031 billion yuan (-6.68%), with a gross profit margin of 31.03% (-5.64pcts), of which 23H2 revenue was 1.77 billion yuan, which was driven by the AI digital communication industry. The year-on-year decline narrowed to -1.56%. In addition, the company continued to promote overseas expansion, with foreign revenue of 2,594 billion yuan (-6.36%) in 23 years, accounting for 83.75% of revenue.
Continuous investment in R&D and stable expenses. In '23, the company made many breakthroughs and progress in R&D projects for new products and technologies related to high-speed optical modules, silicon optical modules, 800G LPO optical modules, etc., and the sales share of high-speed optical module products continued to increase. R&D expenses for 23 years were 134 million yuan, accounting for 4.32% of revenue. Sales expense ratio 1.21% (-0.38pcts), management expense ratio 2.46% (-0.09pcts), financial expense ratio -3.49% (+0.27pcts).
Deeply cultivate the optical module business and continue to promote overseas layout. 1) The company has achieved batch delivery of 100G, 200G, and 400G high-speed optical modules, and has mastered high-speed optical device chip packaging and optical device packaging technology. In terms of high-speed optical modules, the company has successfully launched the industry's latest 800G/1.6T optical module product based on single-wave 200G optical devices, showcased the industry's first 4x200G LPO at OFC2024, and announced that 8x100G LPO will enter mass production. 2) Alpine, an overseas subsidiary of the company, provides the company with technical support and reliable supply chain assurance in the technical direction of silicon optical modules, coherent optical modules, and silicon photonic chips. The company signed a supplementary agreement with Alpine on August 24, 23 to change the technical product 2 in the transaction agreement. The changed technical product goals will enhance the company's silicon chip research and development capabilities, enhance the synergy between the company and Alpine, and better adapt to and meet the requirements of the future technological development of the industry.
Profit forecast. We believe that Xinyisheng, as a leading manufacturer of optical modules, has an advantage in the competitive landscape of the industry, and its business revenue is expected to grow steadily, which will further open up room for growth. We estimate that the company's revenue for 2024-2026 will be 5.398 billion yuan, 8.079 billion yuan and 11.286 billion yuan, respectively; net profit to mother will be 1,492 billion yuan, 2,337 billion yuan and 3.344 billion yuan, respectively, and EPS of 2.10 yuan, 3.29 yuan and 4.71 yuan, respectively. Referring to comparable company valuations, the company was given a 2024 dynamic PE range of 35-40X, corresponding to a reasonable value range of 73.50-84.00 yuan, which is “superior to the market” rating.
Risk warning. Market competition increases risks, technological upgrading and iterative risks, and macroeconomic risks.