Event: On April 25, the company released its 2023 annual report and 2024 quarterly report. For the full year of 2023, we achieved revenue of 6.061 billion yuan, a year-on-year decrease of 12.31%, and realized net profit of 619 million yuan, an increase of 1.80% over the previous year, and realized net profit without deduction of 565 million yuan, an increase of 3.45% over the previous year. Looking at the 24Q1 single quarter, we achieved revenue of 1,291 billion yuan, up 1.79% year on year, down 25.55% month on month, realized net profit of 774.316 million yuan, down 24.21% year on year, down 62.22% month on month, and realized net profit without deduction of 73.3358 million yuan, down 5.15% year on year and 65.74% month on month.
Telecom demand is stable, and the company's overall performance in 23 years is steady, with the highest market segment position: the company's revenue in '23 fell 12.31% year on year, and net profit increased 1.80% year on year. Looking at core business, 1) transmission business: achieved revenue of 3.344 billion yuan, down 8.55% year on year, revenue accounted for 55.18%, gross profit margin 29.56%, down 0.78 pct year on year; 2) Data and access business: achieved revenue of 2,664 billion yuan, down 17.01% year on year, revenue accounting for 43.95%, gross profit margin 13.04% year on year. Decreased by 2.39pct. The company's performance is affected by steady demand in the telecom market. In terms of the access network market, the global PON port shipment volume (OLT+ONT/ONU) situation is basically the same as in 2022. In terms of the optical transmission market, the global scale increased by 2% in 2023. As Chinese operators increased their investment in optical fiber backbone networks and 400G OTN collection began, the Chinese market's optical equipment expenditure increased significantly after two years of decline, while demand in the North American, European and Japanese markets declined due to excessive inventory and rising interest rates. Furthermore, in terms of market share, 2022Q4-2023Q3 has a market share of 6.3% in the global optical device market, ranking fourth in the world. In market segments, the company ranked 4/5/3 in the world in the three market segments of telecom transmission networks, data centers, and access networks, respectively.
Driven by AI, demand in the digital communication market continues to be high: Recently, downstream giants Meta, Microsoft, etc. have successively released financial reports. Meta is optimistic about the CAPEX outlook for the full year of 24, and the guidelines were raised to 35 to 40 billion US dollars (the previous guidance was 30 to 37 billion US dollars); Microsoft's FY24Q3 capital expenditure was 10.952 billion US dollars, up 65.8% year on year, up 12.5% month on month. At the same time, Microsoft expects that basic expenses will continue to increase significantly from month to month for AI and cloud infrastructure investment. FY25 capital expenditure is higher than FY24.
The digital communication field is focusing on efforts, and there is broad room for future growth: Currently, the company has a rich product matrix of 50G/100G/200G/400G/800G/1.6T optical modules, including 10G/25G/50G/100G/200G/400G AOC, etc., and continues to promote the industrial development of lasers, detectors, and thin-film lithium niobate with 100G PAM4 rate and above. Currently, some chips are released and delivered. Furthermore, at the 2024 OFC exhibition, the company also unveiled its MEMS series OCS (Optical Circuit Switch) all-optical switch. As the popularity of AI continues to drive up demand, the company's digital communication business is full of momentum for growth.
Investment advice: The company is a supplier with full coverage in the field of scarce optical chips/devices/modules/subsystems in China. In the future, it is expected to fully benefit from the boom in digital communication, 400G backbone network upgrade, 5G-A, and the gradual introduction of commercial development opportunities in the 25G/50GPON access network. We estimate that the company's net profit for 2024-2026 will be 805/10.72/1,386 million yuan, respectively, with a corresponding PE of 37X/28X/22X. Maintain a “Recommended” rating.
Risk warning: Demand in the telecommunication/digital communication market falls short of expectations, and industry competition intensifies.