Incident: The company released its 2023 annual report and 2024 quarterly report. The full year of 2023 achieved revenue of 290 million yuan, -24.74% year-on-year; net profit to mother -92 million yuan, -177.10% year-on-year. 24Q1 achieved revenue of 52 million yuan, or -41.91% year-on-year, and net profit to mother of $0.19 billion, or -1420.27% year-on-year.

Performance is under pressure in the short term. The company's 23-year performance declined year-on-year, mainly due to: 1) Increased competition in the laser industry. The company adopted a price strategy to lower the price of single-tube chips, and prices for other product lines were also lowered, affecting revenue and gross profit margin. The gross margin for 23 was 33.54%, or 18.02pct year on year. 2) The company's inventory level is high, and asset impairment losses increased by 45.09 million yuan over the same period last year; 3) Trust products experienced payment risks, and 48 million fair value change losses were confirmed in '23. The sharp decline in 24Q1 performance was mainly due to: 1) due to personnel fluctuations around the Spring Festival, production capacity bottlenecks occurred in some parts of the company's production line, which affected output; 2) scientific research modules were insufficient and could not be fully delivered due to difficult production. At present, the company has made targeted adjustments, production capacity bottlenecks have been overcome, and second-quarter results are expected to be repaired.

Domestic optical chip platform enterprises have broad room for growth. 1) High power single tube: The company's ultra-high power single-tube chip has made breakthrough progress in structural design and development technology. The single-tube chip developed has a continuous power of more than 100W at room temperature (chip width 500 μm) and a working efficiency of 62%, opening a new era of 100-watt single-tube chips; 2) VCSEL chips: have broad application prospects in consumer electronics, optical communications, and automotive radar. The company's VCSEL has passed vehicle certification and is actively deploying automotive EEL and 1550nm fiber laser pump sources; 3) Optical Communications: The company launched single-wave 100G EML, 50G VCSEL, and 100mWCW DFB high-power optical communication laser chips. Currently, the company's optical communication products are the core components of the current 400G/800G supercomputing data center interconnect optical modules. Furthermore, the company initiated the establishment of a photonic industry fund to implement the strategic layout of “one platform, one fulcrum, horizontal expansion, and vertical expansion” to expand new fields of the laser industry horizontally. Looking forward to the future, we are optimistic that the company will integrate platform resources to open up room for growth.

Profit forecast: We expect net profit to be 0.50, 0.96, and 143 million yuan respectively in 2024-26, maintaining the “increase in holdings” rating.

Risk warning: Expansion into new fields falls short of expectations, downstream demand recovery falls short of expectations, industry competition intensifies, etc.