Event: On April 25, 2024, the company released the 2023 Annual Report and the 2024 First Quarter Report. In 2023, the company's revenue was 6.061 billion yuan, down 12.31% year on year, and net profit to mother was 619 million yuan, up 1.80% year on year. Revenue for the first quarter of 2024 was 1,291 billion yuan, up 1.79% year on year, and net profit to mother was 77 million yuan, down 24.21% year on year.
Performance was restored month-on-month, and the overseas digital communication market is expected to increase. The company's revenue in 2023 was 6.61 billion yuan, down 12.31% year on year; net profit to mother was 619 million yuan, up 1.80% year on year. Revenue for the fourth quarter of 2023 increased 6.32% year-on-year and 14.69% month-on-month. As downstream inventory pressure improved, performance recovered month-on-month. By product, 1) transmission products: revenue of 3.344 billion yuan, down 8.55% year on year, accounting for 55.18% of revenue; 2) data and access products: revenue of 2,664 billion yuan, down 17.01% year on year, accounting for 43.95% of revenue. By region, foreign revenue was 2,080 billion yuan, down 17.98% year on year, accounting for 34.32% of revenue, down 2.37 pct year on year; domestic revenue was 3,981 billion yuan, down 9.02% year on year, accounting for 65.68% of revenue, up 2.37 pct year on year. The overseas digital communication market has yet to form a first-mover advantage, and breakthroughs will bring significant performance growth. Revenue for the first quarter of 2024 was 1,291 billion yuan, up 1.79% year on year and down 25.55% month on month; net profit to mother was 77 million yuan, down 24.21% year on year and 62.22% month on month.
Net interest rates have been rising steadily, and comprehensive cost control capabilities have improved. In 2023, the company's net profit margin increased by 1.34 pct year on year, and gross margin decreased by 0.98 pct year on year. Among them, gross margin of transmission products decreased by 0.78 pct year on year, gross margin of data and access products decreased by 2.39 pct year on year, and sales/management/finance/R&D expenses decreased 21.16%/12.10%/25.06%/15.26% year on year. Net interest rate for the first quarter of 2024 fell 1.58 pct year on year and 6.29 pct month on month, mainly due to: 1) gross margin decreased 2.18 pct month-on-month 2) sales/management/R&D expenses increased by 0.76/2.11/2.89 pct month-on-month, mainly due to equity incentive expenses. Accrued credit impairment losses of $0.3 billion were mainly due to a reduction in accounts receivable.
The 400G upgrade of the backbone network and AI demand drive performance growth and promote the development of high-end products. Drivers of the company's performance include growth in the industry's market capacity and new product launches. In terms of the telecommunications market, global PON port shipments in 2023 are basically the same as in 2022. The global optical transmission market will grow by 2% throughout 2023, and 400G will be commercialized in trunk networks. Opportunities within the industry in the next few years include 400G backbone network upgrades and the gradual introduction of 5G-A and 25G/50G PON into commercial use. In terms of the digital communication market, the total expenditure on cloud infrastructure services increased 18% to US$290.4 billion in 2023. Demand for artificial intelligence optical modules accounted for 33% of Ethernet optical modules. Future industry opportunities include the demand for 400G, 800G, 1.6T, and 3.2T high-speed connections in artificial intelligence clusters. The company has Ethernet optical module products at various speeds, and continues to promote the commercialization of optoelectronic chips such as lasers, detectors, and thin-film lithium niobate with 100G PAM4 rate and above. Some chips have been released and delivered to achieve 400G/800G optical interconnection, 400G/800G coherent, 5G-A/6G carrying, 50G PON and other optical module products. It has a rich optical module product matrix and continuously promotes technological research and development innovation.
Investment advice: The slowdown in downstream operator construction in the first quarter of 2024 will affect performance. In the future, as 400G backbone network construction is expected to drive telecom demand and artificial intelligence clusters drive demand for high-speed optical modules, the company will continue to lay out overseas digital communication markets, which is expected to fully benefit from rapid performance growth. At the same time, the company actively lays out self-research on optical chips to promote an increase in the self-supply rate of optical chips, which is expected to drive an increase in the gross margin of the digital communication sector. We expect the company to achieve operating income of 79.44/107.28/12.711 billion yuan in 2024/25/26, an increase of 31%/35%/18% year-on-year; net profit to mother of 9.11/13.30/1,693 billion yuan, an increase of 47%/46%/27% year-on-year. Maintain a “Highly Recommended” investment rating.
Risk warning: Demand in the field of AI and digital communication falls short of expectations, expansion in new fields falls short of expectations, market competition increases risks, and the risk of international trade disputes.