Announcement summary: The company released its 2023 annual report and 2024 quarterly report. It achieved revenue of 144 million yuan for the full year of 2023, a year-on-year decrease of 48.96%, and realized net profit to mother of 0.19 million yuan, a year-on-year decrease of 80.58%. 2024Q1 achieved zero revenue.

It was 6 billion yuan, up 72.33% year on year, and net profit to mother was 111 million yuan, down 11.06% year on year.

24Q1 revenue increased sharply year on month, and the telecom market recovered to a broad digital communications market. In 2023, by market, the telecommunications market business achieved revenue of 133 million yuan, a year-on-year decrease of 43.83%, and gross margin of 38.87%, a year-on-year decrease of 20.64 pcts; the data center related market business achieved revenue of 0.05 billion yuan, a year-on-year decrease of 89.47%, and gross margin of 83.60%, an increase of 9.03 pcts year-on-year. The gross margin for the full year of 2023 was 41.88%, down 20.02 pcts year on year; the net profit margin was 13.49%, down 21.97 pcts year on year; mainly because the telecom market was affected by the slowdown in downstream customer inventories and terminal operator construction. At the same time, price competition for some products in the domestic market was increasingly intense, and changes in the product structure of sales. In terms of expenses, the sales/management/R&D/finance cost ratios were 4.51% /17, respectively.

94%/21.43%/-14.90%, 0.48/6.96/11.86/-14.73 pcts, respectively, and continued to maintain high investment in R&D. The 24Q1 company's revenue increased sharply year on month, with a year-on-year increase of 72.33% and a year-on-month increase of 17.28%; net profit to mother decreased 11.06% year over year, but deducted 10 million yuan from mother, up 109.72% year on year, mainly due to a decrease in government subsidies received this quarter. In the future, as inventory removal comes to an end in the telecom market, the company's 10G EML is expected to gradually increase, which will bring the company's revenue and profit to resume quarterly growth. In the data center market, with the massive demand for network connections brought about by AI intelligent computing centers, the company continues to explore the high-speed optical chip market, which is expected to usher in a period of rapid revenue and profit growth.

The leading domestic optical chip company is expected to benefit from the demand for high-speed digital communication. The scale of global information interconnection continues to expand, placing higher demands on the speed, power, and transmission distance of optical chips. On the telecommunications side, investment and deployment of 10G PON networks has maintained a high level globally; gigabit broadband is rapidly becoming popular and is beginning to accelerate to “gigabit +” and “10 gigabytes”; according to Omdia's forecast, 50G PON port shipments will continue to increase from 2024 to 2028, and maintain a compound annual growth rate of 200% per year. On the digital communication side, demand for high speed rates continues to increase. Currently, GPU demand for optical modules is mainly 400G/800G, and the next generation will increase to 800G/1.6T. According to Light Counting's forecast, the global optical module market will exceed 20 billion US dollars in 2027, and the compound average growth rate from 2022 to 2027 is 12%. The company is a leading domestic optical chip manufacturer. Its main products include 2.5G, 10G, 25G, 50G, 100G and higher speed DFB, EML laser series products and high-power silicon light source products, which are mainly used in optical fiber access, 4G/5G mobile communication networks and data centers. The company continues to increase the design, development and production of various EML and CW light source optical chips based on deep cultivation of the original DFB optical chip product business. In addition, the company has established an IDM full-process business system including chip design, wafer manufacturing, chip processing and testing, and has multiple production lines covering MOCVD epitaxial growth, grating technology, optical waveguide production, metallization, end surface coating, automated chip testing, high-frequency chip testing, and reliability testing and verification.

Continuing to increase investment in R&D, CW chips are entering the era of silicon light. In terms of R&D expenses, the company spent 30.95 million yuan on R&D in 2023, an increase of 14.23% over the previous year, accounting for 21.43% of revenue. With the rapid development of artificial intelligence, demand for 400G, 800G and other high-speed optical modules will be greatly boosted. As a strong competitor of next-generation interconnection technology, silicon optics has characteristics such as broad band, resistance to electromagnetic interference, strong confidentiality, low transmission loss, and low power. Silicon optical integrated technology will give full play to the bandwidth advantages of optical interconnection. The company's 70mW/100mW high-power CW chips, etc. have all completed product development, design and finalization, and sample testing on the client side. Currently, related tests are progressing smoothly, and the future is expected to usher in new opportunities in the silicon light era. In addition, 100G PAM4 EML has been sent for testing, 200G PAM4 EML has completed performance development and in-factory testing, and is expected to occupy a certain share of 800G/1.6T high-speed connectivity in the future. In the field of optical fiber access, the company developed and tested 10G DFB products with differentiated solutions to customers, and continuously optimized and upgraded 10G EML products; it also developed and tested related ONU and OLT end optical chip products to customers for next-generation 25G/50G PON optical fiber networks. In the field of automotive lidar, the company's current products cover products such as 1550-band automotive lidar laser chips. In the future, the company will continue to be deeply involved in the optical chip industry and is committed to becoming a world-class supplier of optoelectronic semiconductor chips and technology services.

Investment advice: The company is a leader in scarce laser chips in China. In the medium to long term, with the demand for high-speed network connections in AI data centers, the company's high-speed optical chips and other products are expected to bring new incremental space. Furthermore, the company announced the 2024 “Improve Quality, Increase Efficiency, and Value Return” action plan, which is expected to further improve the level of corporate governance. We expect the company's net profit for 2024-2026 to be 106 million yuan/154 million yuan/203 million yuan, respectively, and the corresponding EPS will be 1.24 yuan/1.80 yuan/2.37 yuan respectively, maintaining the “buy” rating.

Risk warning: downstream market demand falls short of expectations; development or new product progress falls short of expectations; market competition deteriorates.