Key points of investment
Summary: Tianfu Communications released financial reports for the full year of 2023 and the first quarter of 2024. 1) The company achieved revenue of 1.94 billion yuan for the full year of 2023, +62% year-on-year net profit, +81% year-on-year, net profit to mother of 37.6%, an increase of 4.0 percentage points; 2) The company achieved revenue of 730 million yuan in the first quarter of 2024, +155% year-on-year, and net profit of 280 million yuan, +203% year-on-year.
AI computing power construction is driving demand for high-speed optical devices. The company's revenue and profitability have both increased due to the development of AI technology and the increase in computing power demand. Global data center construction has driven continuous and steady growth in demand for high-speed optical devices. The company's demand for high-speed optical devices with high profit margins is growing rapidly. At the same time, benefiting from forward-looking layout and high R&D investment, the company's new product line can quickly meet customer needs. Of these, for the whole of 2023:
1) Revenue from optical passive devices was 1.18 billion yuan, +23% year over year, and gross margin increased 5.2 percentage points to 60.3% year over year; 2) Optical active device revenue was 750 million yuan, +243% year over year, and gross margin increased 8.0 percentage points to 44.8% year on year
The company is expected to continue to enrich its products, production capacity and customer sequence. Performance growth can be expected 1) Demand for overseas+domestic high-speed optical modules is high, and the company's customer share is also expected to increase. We expect the company's Thai base to gradually start production to meet high demand, and the company's performance space will continue to open up; 2) The company lays out optical devices and other products for 1.6T and silicon light technology routes in advance. We believe that the company is expected to continue to expand the customer base for optical engines and other products in the context of strong demand and technical solutions. While existing products resonate with the industry, the company can open up this new growth pole.
Profit forecast and investment rating: The company's optical device product line is expected to open up performance space in line with downstream demand and technology expansion. We raised the company's projected net profit for 2024/2025 from 11.6/1.47 billion yuan to 1.39/2.20 billion yuan, and forecast that the company's net profit to mother in 2026 will be 2.66 billion yuan, and the closing price on April 25, 2024 will correspond to PE 41.7/26.3/21.7 times, respectively. Maintain a “buy” rating.
Risk warning: demand for high-speed optical devices falls short of expectations; customer development and share falls short of expectations; product development implementation falls short of expectations; industry competition intensifies; supply of raw materials is scarce.