Incidents. On April 25, the company released its 2024 quarterly report. The company achieved operating income of 11.785 billion yuan, an increase of 8.45% over the previous year, and realized net profit of 513 million yuan, an increase of 29.87% over the previous year.
The 24Q1 performance exceeded expectations, and full-year operations are expected to show a pace of profit improvement first, followed by revenue growth.
The company's 24Q1 net profit increased rapidly year-on-year. At the same time, the revenue growth rate increased slightly by 2.45 pcts compared to 23Q4, and gross margin was 15.04%; in terms of period expenses, the 24Q1 company's rate for the period was 10.6%, down 0.98 pct from the same period last year. Among them, sales rate/management rate/R&D rate/financial rate were 2.6%/2.6%/4.0%/1.4%, respectively, a decrease of 0.2/0.4/0.2 pct compared to the same period last year, while asset impairment losses were 49.21 million yuan. The year-on-year decline was 34%. In 24Q1, the company's operating cash flow reached 173 million yuan, which changed from negative to positive and increased significantly. At the same time, the company's accounts receivable and notes were 186 million yuan, down 1.0% year on year, and accounts receivable increased 1.0% year on year, all less than the revenue growth rate, and the company's cash return rate and cash control capacity improved. We believe that with the drastic improvement in the company's profitability in the field of optical communications driving performance growth, and with the release of revenue from submarine cables and submarine cables in the marine sector, which is growing in 24 years, the year-round operation is expected to show a linear trend of profit improvement and subsequent revenue growth.
The 24Q1 domestic submarine cable bid has been won at an accelerated pace, and the domestic and overseas layout is optimistic about the growth of marine energy and communications. In April, the company won the bid for the 220kV submarine photoelectric composite cable project in Danzhou, Hainan, in Datang, with a bid price of 477 million yuan.
In mid-March 2024, the company announced that it had won bids for submarine cable and offshore projects in Hainan and Shandong with an amount of 1,186 billion yuan. In March, the company announced that the total amount of capital introduced into the marine energy sector would not exceed RMB 3 billion.
In addition to the traditional Jiangsu and Guangdong Haifeng provinces, the company has the ability or experience to acquire projects in Guangxi, Hainan, Shandong and other places where Haifeng has recently accelerated its deployment. At the same time, the company has extensive overseas business and channel accumulation, and overseas project orders and projects are expected to accelerate in 24 years.
In '24, operators used quantum communication as one of the key development areas, and the company's layout of quantum secure communication is expected to fully benefit from industry trends. In 2016, the company and researchers from the Chinese University of Science and Technology jointly invested in the establishment of Jiangsu Hengtong Wentian Quantum Information Research Institute Co., Ltd. The subsidiary has now launched five series of products, including the quantum key distribution terminal QKD, quantum secure communication networking equipment, and quantum device management platforms. Ultra low loss optical fiber and large effective area optical fiber required for quantum secure communication. Currently, only two domestic manufacturers, including Hengtong Optoelectronics, can provide them. At the 2023 MWC conference, the company and its partner China Unicom launched the “5G+ quantum” series of innovations incorporating quantum encryption technology. In addition, China Telecom has made quantum secure communication security one of its key business expansion directions for 24 years. In the low-altitude optical communication application scenario, Hengtong Quantum's joint partner used a drone quantum entanglement distribution system to verify and solve the connection stability problem of free-space optical communication. In the future, the company will integrate quantum cryptography and untrusted network encryption technology to continue to create next-generation security solutions for key users in defense, government affairs, communications, and electricity.
Investment advice: We expect the company to achieve net profit of 30.29/40.31/5.119 billion yuan in 2024/2025/2026, corresponding to 11/8/7 times PE, maintaining the “recommended” rating.
Risk warning: Offshore wind power construction in 2024 fell short of expectations, and quantum communication applications fell short of expectations.