Incidents:
On April 21, 2024, Zhongji Xuchuang released its 2023 Annual Report and 2024 Quarterly Report:
In 2023, the company achieved operating income of 10.718 billion yuan, an increase of 11.16% over the previous year; net profit attributable to shareholders of listed companies was 2,174 billion yuan, an increase of 77.58% over the previous year. In the first quarter of 2024, the company achieved operating income of 4.843 billion yuan, an increase of 163.59% over the previous year; net profit attributable to shareholders of listed companies was 1,009 billion yuan, an increase of 303.84% over the previous year.
Opinions:
Demand for optical modules is growing rapidly, and the company's performance has increased dramatically. In 2023, demand for optical modules ushered in rapid growth, driven by factors such as continuous upgrading of computing power and a sharp increase in demand.
Zhongji Xuchuang's market share continues to grow with advantages such as industry-leading technology research and development capabilities, low-cost product manufacturing capabilities, and comprehensive delivery capabilities. For the full year of 2023, the company achieved operating income of 10.718 billion yuan, an increase of 11.16% over the previous year, and realized operating profit of 2,494 billion yuan, an increase of 87.89% over the previous year. In the first quarter of 2024, we also benefited from sales growth in high-speed optical module products such as 800G and 400G. The company's performance increased, achieving operating income of 4.843 billion yuan, an increase of 163.59% over the previous year; net profit attributable to shareholders of listed companies was 1,009 billion yuan, an increase of 303.84% year on year.
The share of high-end product shipments has increased, and the company's profit level has further increased. In terms of profit level, thanks to the gradual increase in the share of high-end products such as 800G/400G shipments, continuous optimization of the product structure, and continuous cost reduction and efficiency, the company's product gross profit margin and net profit margin have been further improved. In 2023, the company's gross margin of optical module products was 34.14%, an increase of 4.34 percentage points over the previous year.
Demand for 1.6T optical modules is expected to be released, and the company's active layout strengthens its competitive advantage. The company is actively introducing 1.6T into the market, aiming to achieve mass production and delivery in 2025. At the same time, we are also pre-researching next-generation optical module technology to ensure that the company can maintain the industry's technological leadership and continued competitiveness in the trend of rapid iteration of optical modules. At the same time, the company's high-end optical module business accounts for more than 90% of the main business, and overseas sales of optical module products account for a relatively high proportion. In order to meet the continuous growth of customer needs at home and abroad and ensure a stable supply chain, the company has established R&D centers, production bases, sales organizations, etc. in many parts of China, North America, and Southeast Asia, creating a global operating pattern.
Profit forecast and investment rating: The company is a leading global optical module enterprise. With advantages such as industry-leading technology research and development capabilities, low-cost product manufacturing capabilities, and comprehensive delivery capabilities, the continuous growth in market share is expected to benefit from the rapid growth in demand for optical modules. We expect the company to achieve net profit of 5,095 billion yuan, 6.934 billion yuan, and 9.160 billion yuan in 2024-2026, respectively. The current stock price corresponds to PE of 26.5, 19.5, and 14.7 times, respectively.
The first coverage gives a “buy” rating.
Risk warning: Optical module market demand falls short of expectations; optical module product prices fall; industry competition intensifies; risk of exchange rate fluctuations; adverse changes in the macro environment; the cited data sources publish erroneous data.