The decline in demand in 2023 led to pressure on performance. Demand picked up in 1Q. High-end optical chip testing was successfully delivered. Yuanjie Technology released 2023&1Q24 results, with revenue of 144 million yuan (yoy -49.0%) for 23 years and a net profit of 19.48 million yuan (yoy -80.6%). 4Q23 revenue was 51.21 million yuan (yoy -42.8%), net profit attributable to mother - 197 million yuan (yoy -107.5%). 1Q24 revenue was 60.06 million yuan (yoy +72.3%), and net profit attributable to mother was 10.53 million yuan (yoy -11.1%). The decline in downstream demand in 2023 put pressure on the company's performance; in 1Q24, with the recovery in demand in the optical fiber access market and the expansion of the company's 10G EML products, performance picked up. Looking ahead to 2024, we are optimistic that products such as 10G EML emission and 100G EML and CW light sources will gradually contribute revenue. We forecast net profit to mother for 2024-2026 of 0.9/17/20 million yuan.
Comparatively, the company's 25-year Wind unanimously expected an average PE value of 41.5 times. Considering the company's leading position in the field of optical communication chips, products such as 100G EML and CW light sources advanced ahead in China, giving the company 91 times PE in 25 years, maintaining a target price of 181.0 yuan and a “buy” rating.
The decline in demand in 2023 put pressure on performance. 1Q24 demand recovery & product expansion in 2023, by product: 1) Telecom market product revenue of 130 million yuan (yoy -43.8%, accounting for 92.1%), a year-on-year decrease of 20.6pp. The decline in revenue was mainly due to downstream customer inventory removal and a slowdown in terminal operator construction. The decline in gross margin was due to increasingly intense price competition for some products in the domestic market, combined with changes in sales product structure; 2) Data center and other product revenue of 4.71 million yuan (yoy - 89.5%, accounting for 3.3%), gross profit margin of 83.6%, an increase of 9.0pp over the previous year. The decline in revenue was mainly due to the decline in demand in the traditional cloud computing market. 1Q24 benefited from the recovery in demand in the optical fiber access market, shipments of key products such as 10G EML increased, and the company's performance picked up. 1Q24 had revenue of 6.06 million yuan (yoy +72.3%), and net profit of 10.53 million yuan (yoy -11.1%).
High-end optical chip research and development continues to advance. 100G EML and CW light sources have progressed smoothly for 23 years. The company has continued to increase R&D, with R&D expenses of 30.0946 million yuan (yoy +14.2%). In the field of optical fiber access, 10G DFB products with differentiated solutions have been developed and tested, and 10G EML products have been continuously optimized. Develop and test ONU and OLT end optical chips for next-generation 25G/50G PON optical networks. In the data center field, 100G PAM4 EML, 70mW/100mW high-power CW chips have been developed, designed, and tested on the client. Currently, related tests are progressing smoothly. Performance development and in-factory testing of 200G PAM4 EML have been initially completed, and continuous optimization is ongoing.
Maintain a target price of $181.0 and a “buy” rating
Considering that the recovery of the company's traditional business was slower than expected, we lowered our 24-year profit forecast and forecast net profit to the mother for 2024-2026 to be 0.9/1.7/20 billion yuan (value before 24/25:1.2/170 million yuan).
Considering the company's new products such as 100G EML and CW light sources, which may be released in 25 years, a 25-year valuation is used. Comparatively, the company's 25-year Wind unanimously expected an average PE value of 41.5 times. Considering the company's leading position in the field of optical communication chips, products such as 100G EML and CW light sources advanced ahead in China, giving the company 91 times PE in 25 years, maintaining a target price of 181.0 yuan and a “buy” rating.
Risk warning: EML chip development progress falls short of expectations, and digital communication market customer development falls short of expectations.