Incident: On April 26, the company released its 2023 annual report and 2024 quarterly report. The full year of 2023 achieved revenue of 4.345 billion yuan, an increase of 2.78% year on year, realized net profit of 43.253 million yuan, a year-on-year decrease of 79.82%, and realized net profit deducted from non-mother of 6.8214 million yuan, a year-on-year decrease of 88.91%. Looking at the 24Q1 single quarter, revenue was 816 million yuan, down 12.75% year on year, down 41.68% month on month, and realized net profit to mother of 27.323 million yuan, up 13.14% year on year, reversing losses from month to month. Achieved deduction of non-net profit of 21.8324 million yuan, a year-on-year increase of 34.56%, reversing losses from month to month.

Factors such as fluctuating demand in the optical communications industry and a year-on-year increase in credit impairment losses led to short-term pressure on the company's performance: the company's net profit fell 79.82% year on year in 2023. The main reasons include: A) the transfer of 80% of Shanghai Junyi's shares in the previous year (2022) led to an increase of 128 million yuan in net profit in fiscal year 22; B) This year's credit impairment losses increased by 43.849 million yuan year on year, mainly due to deduction and impairment preparation of 454.53 million yuan for other accounts receivable from Wuhan Guangtong; C) orders in the optical communications sector fell short of expectations, and overall gross margin ratio compared to the same period Decrease. Looking at specific product segments, 1) Optical Communications: Achieved revenue of 823 million yuan in '23, down 17.63% year on year, gross profit margin of 13.34%, down 1.93 pct year on year; 2) Automobile wiring harness achieved revenue of 1,397 billion yuan in '23, down 15.37% year on year, gross profit margin 14.21%, up 4.13 pct year on year. New automotive wiring harness projects have entered a stable period of mass production, optimized factory efficiency, reduced direct labor costs, and promoted gross margin growth; 3) Power engineering:

Revenue of 1,487 billion yuan was achieved in '23, an increase of 45.27% over the previous year, mainly due to the completion of the Khulna power plant project in Bangladesh, and the year-on-year increase in the completion progress of the current phase of the Bangladesh GTOG project. Electric power engineering gross profit margin 20.10%, up 6.27pct year on year; 4) Big data application: achieved revenue of 95.79 million yuan in '23, up 99.29% year on year, gross profit margin of 41.96%, down 8.98pct year on year; 5) Superconductivity and copper conductors: achieved revenue of 439 million yuan in '23, up 13.99% year on year, gross profit margin 15.26%, up 4.38 pct year on year.

Optical chips and superconductors are advancing rapidly in emerging fields, focusing on breakthroughs: In terms of optical chips, the company has layouts in the three market segments of passive wavelength division filter (filter) chips, AWG (array waveguide grating) chips, and active laser chips. As far as filters are concerned, the company has achieved mass production of 100G DWDM (Dense Wavelength Division Multiplexing) and various types of patch chips, and has also shipped filters in small batches in the 50G PON and lidar fields. In terms of laser chips, the company's IDM model has outstanding technical strength. Currently, many chips have been successfully distributed, and its technical strength is the highest in China. Currently, it has provided customers with a variety of chips for verification. In terms of superconductivity, the company is accelerating the application of high-temperature superconducting strips in fields such as magnetically constrained and controlled nuclear fusion, superconducting induction heating, magnetically drawn single crystals, and superconducting cables. Currently, it continues to expand the production capacity of second-generation high-temperature superconducting strips, and there is broad scope for future development.

Investment proposal: While continuing to consolidate its position in traditional business markets such as optical communications, overseas power engineering, and automotive wiring, the company accelerates the rapid development of high-tech barriers such as optical chips and high-temperature superconductivity, and has broad room for future growth. We expect the company's net profit to be 223/3.83/614 million yuan in 2024-2026, respectively, with corresponding PE multiples of 27X/16X/10X. Maintain a “Recommended” rating.

Risk warning: Competition in the industry is intensifying, and the development of emerging fields falls short of expectations.