Incident: The company released the 2023 annual report and the 2024 quarterly report. Revenue for 23 years was 1,037 million yuan, YoY +35.17%; net profit to mother was -20 million yuan, after deducting non-return net profit of -67 million yuan, all of which decreased year-on-year losses. Looking at the 24Q1 quarter, revenue was 254 million yuan, YoY -13.61%, QoQ +58.80%; net profit to mother -0.06 billion yuan, YoY -138.73%, QoQ +90.37%, net profit after deducting non-attributable net profit of $22 million, YoY -281.29%, and QoQ +127.88%. The decline in 24Q1 revenue was mainly due to increased delivery efforts by some customers in the first half of '23; profit pressure was mainly due to the company responding to downstream customer requirements to improve product performance and rich specifications. R&D expenses increased 67% year over year, and R&D cost ratio was +17.74 pcts year over year.
Gross margin is under pressure, which increases the share of Ethernet switching chips. The revenue of Ethernet switching chips, Ethernet switching chip modules, and Ethernet switches in '23 was 7.92, 1.51, and 90 million yuan, compared with a year-on-year period of +60.58%, 1.78%, and -20.30%, respectively. The gross margins were 28.76%, 62.96%, and 55.18%, respectively. The company's comprehensive gross margin reached 36.26%, YOY-6.90pcts. Modules and switches have strong customization properties, so they have high gross profit, while the increase in revenue share of Ethernet switching chips with low gross margin has lowered the overall gross profit margin. The decline in gross margin of the chip itself is mainly due to fluctuations in the gross margin of some models due to tight supply chains.
New products were delivered as scheduled, and continued to enter the high-end market. The company's products are mainly positioned at the middle and high-end, covering enterprise networks, operator networks, data center networks and industrial networks. At the end of '23, the chip was tested to customers as planned. The product supports a maximum port rate of 800G, and is equipped with advanced features such as enhanced secure interconnection, enhanced visualization and programmability, which can better adapt to the white-box switch trend. It is expected to gradually increase the ASP of the company's product ASP after 24 years.
Contract liabilities have increased, and future performance growth can be expected. At the end of '23, contract debt reached 242 million yuan, an increase of 5867% over the previous year, mainly due to an increase in prepayments for downstream customers' orders to lock in forward demand; the 24Q1 balance was still as high as 221 million yuan, and I am optimistic that subsequent performance will continue to grow under high contract liabilities.
Profit forecast: The company's revenue for 24-26 is estimated to be 1,457, 19.03, and 2.01 billion yuan, respectively. The corresponding PS is 10.4, 8.0, and 6.9 times, respectively, maintaining the “gain” rating.
Risk warning: New products are progressing slower than expected, supply chain tension intensifies, product prices are falling, etc.