Introduction to this report:
Profit forecasts were raised, target prices were raised, and the increase rating was maintained; Q1 performance fell short of expectations, due to increased expenses; AI drove the explosion of domestic 400G demand, which directly benefited the company.
Key points of investment:
Raise the profit forecast, raise the target price, and maintain the holdings increase rating. The company's 2023 performance was in line with expectations, and the 2024Q1 performance was lower than expected, but considering that domestic AI investment was growing significantly, the progress exceeded our previous 23Q3 forecast. For this reason, we raised and updated 2024-2026 net profit of 9.50/12.11/1,512 billion yuan (increase of 37.0%/52.2% /-), corresponding to EPS 1.20/1.52/1.90 yuan. Referring to the industry average valuation, the target price was raised to 50.4 yuan (previous value: 34.8 yuan) in 2024, and the increase in holdings rating was maintained.
Q1 Performance fell short of expectations due to increased expenses. In 2023, the company's revenue was 6.061 billion yuan, down 12.31% year on year; net profit to mother was 619 million yuan, up 1.8% year on year. In 2024Q1, we achieved revenue of 1,291 billion yuan, up 1.79% year on year; net profit to mother was 77 million yuan, down 24.21% year on year. The company's annual report was in line with expectations, but the first quarter results fell short of market expectations.
We believe that the main reason is that the company completed the restricted stock incentive program in 2023 and is expected to add additional fees in 2024, which combined to drive an increase of more than 30 million in sales, management, and R&D expenses.
AI is driving the explosion in domestic 400G demand, and the company is expected to benefit. Entering 2024, we have observed that domestic Internet vendors have begun to invest heavily in AI and build large clusters by purchasing a large number of AI chips and supporting network communication devices such as optical modules. In this context, we believe that 100G/200G optical modules were commonly used in China, and demand for 400G driven by AI is expected to continue to grow rapidly month-on-month, and the company is expected to directly benefit as a domestic core supplier.
Catalyst: AI is driving domestic demand to explode, and investment in computing power clusters is increasing.
Risk warning: Carrier/cloud vendor investment falls short of expectations.