Matters:
The company announced the 2023 annual report and the first quarter report of 2024. In 2023, the company achieved operating income of 144 million yuan, a year-on-year decrease of 48.96%; realized net profit of 19.4798 million yuan, a year-on-year decrease of 80.58%; realized deducted non-net profit to mother of 238,700 yuan, a year-on-year decrease of 100.26%. A cash dividend of 1 yuan (tax included) is distributed for every 10 shares. No bonus shares are transferred from the capital reserve to increase the share capital. In the first quarter of 2024, the company achieved revenue of 60.632 million yuan, a year-on-year increase of 72.33%; realized net profit of 10.535 million yuan, a year-on-year decrease of 11.06%; and realized deducted non-net profit of 9.571 million yuan, an increase of 109.72% over the previous year.
Ping An's point of view:
The downstream market is recovering, and the company achieved high revenue growth in the first quarter of 2024. In 2023, the company faced a complex business environment: on the one hand, the inventory of downstream telecom operator customers was high and capital expenditure was slowing down, competition in the domestic optical chip market was still fierce, and the company's revenue declined significantly, while gross margin also declined markedly; on the other hand, investment in traditional data centers also slowed in 2023, which greatly affected the company's sales in the medium- and high-speed product sector. In addition, the company calculated impairment for some assets at risk of impairment. Affected by the above factors, the company experienced a sharp decline in revenue and performance in 2023. In the first quarter of 2024, downstream recovery was obvious. Our product line was further enriched, EML and other products began to be launched, the company's revenue increased significantly compared to the previous year, and performance improved markedly.
Using high-speed EML and high-power optical chips, the product structure has been further optimized. The company focuses on the optical chip industry. Its main business is R&D, design, production and sales of optical chips. Its main products include 2.5G, 10G, 25G, 50G, 100G and higher speed laser chip series products, which are currently mainly used in the telecommunications market, data center market, and automotive lidar. In the traditional telecom market, medium- and low-speed products are relatively mature, and the level of localization is relatively high. In the future, the requirements for optical chips for 25G/50G PON access networks will also increase. The company has developed corresponding integrated technology and optical amplifier integration technology platforms to meet the needs of high-speed access networks. In the data center market, due to AI, demand for 400G, 800G or above high-speed optical modules is rapidly increasing, and demand for high-speed and high-power chips has increased significantly, mainly 100GPAM4 EML optical chips, 70mW, 100mW high-power lasers, etc. According to the company announcement, the company has launched corresponding high-speed EML and high-power laser products, which can compete with similar international products in terms of performance.
New technologies and applications will bring greater opportunities to optical chips, and the company will fully benefit. On the one hand, the rapid development of the AI industry will further increase the demand for high-speed optical modules in data centers, especially those above 1.6T. On the other hand, silicon light technology is gradually becoming one of the important solutions to improve cost efficiency. In silicon light solutions, CW laser chips are used as external light sources, and silicon-based chips perform rate modulation functions. Finally, optical chips will also be used in new fields such as sensing and intelligent driving, and downstream racetracks will continue to expand. Although the company faced significant operating pressure last year, it is also actively responding to the rapid iteration of optical chips in terms of technology and market, continuing to increase R&D investment in corresponding fields, and maintaining its competitiveness. In 2023, the company's R&D expenses still reached 309.461 million yuan, an increase of 14.23% over the previous year.
Investment advice: As an important domestic supplier of optical chips, the company has achieved batch supply of its main products in markets such as optical fiber access, 5G and data centers. Along with the recovery of the downstream market, the company's revenue and performance are expected to enter an upward channel in 2024. At the same time, in line with the demand for high-speed transmission in data centers brought about by AI, and the application of silicon light solutions is on the agenda, products such as high-speed EML and high-power lasers developed by the company will all benefit. Based on the company's market environment and the latest financial performance, we adjusted the company's profit expectations. Net profit for 2024-2026 is estimated to be 61 million yuan (previous value: 138 million yuan), 103 million yuan (previous value: 183 million yuan), and 148 million yuan (new), and PE corresponding to the closing price on April 25 is 196.2X, 116.2X, and 81.0X, respectively. Although the company's performance has fluctuated greatly in recent years, we are still optimistic about the company's track and market position, and maintain the “recommended” rating for the company.
Risk warning: 1) the risk of fluctuating demand in the downstream market; 2) the risk that technology evolves less than expected and the gap widens; 3) the risk of increased market competition.