Incident: The company released the 2023 Annual Report & 2024 First Quarter Report. In 2023, it achieved revenue of 6.06 billion yuan, a year-on-year decrease of 12.3%; net profit to mother of 620 million yuan, an increase of 1.8% year on year; net profit after deducting non-return to mother was 550 million yuan, an increase of 3.5% year on year. 2024Q1 achieved revenue of 1.29 billion yuan in a single quarter, up 1.8% year on year and 0.4% month on month; net profit to mother of 774.32 million yuan, down 24.2% year on year and 4.0% month on month; net profit without return to mother of 73.36 million yuan, down 5.2% year on year and 0.7% month on month.
Performance is under pressure in the short term and will not change the long-term positive trend. By product, the company's revenue from transmission products fell 8.55% year on year, accounting for 55.18%, and gross margin decreased 0.78pp year on year; revenue from data and access products fell 17.01% year on year, accounting for 43.95%, and gross margin decreased 2.39pp year on year. According to the latest statistics from Omdia, a market research agency in the industry, during the 2022/Q4 to 2023Q3 cycle, the company's share of the global optical device market was 6.3%, ranking fourth in the world. In terms of market segments, the company ranked 4th, 5th, and 3rd in the world in the three segments of telecom transmission networks, data centers, and access networks, respectively. The company has laid out the 400G backbone network upgrade and the gradual introduction of 5G-A and 25G/50G PON for commercial use and artificial intelligence clusters in areas such as the demand for 400G/800G/1.6T/3.2T high-speed connections, and the demand for optical devices for smart cars and satellite communication applications, which is expected to become an important driving force for future performance growth.
Profitability declined slightly, and the cost side was well controlled. In 2023, the company achieved net profit of 620 million yuan, a year-on-year increase of 1.8%; 2024Q1 achieved net profit to mother of 774.32 million yuan, a year-on-year decrease of 24.2%. The company reduces costs and increases efficiency, and has good cost management capabilities. In 2023, the company's sales/management/financial expenses ratio was 2.2%/1.9%/-2.6%, respectively, down 0.2/0/0.8pp year-on-year. The 2024Q1 sales/management/finance expense ratios were 3.3%/3.0%/-2.0%, respectively, with year-on-year changes of 1.5/0.9/-1.1 pp, mainly due to equity incentive amortization costs and market development, increased resource investment and exchange rate fluctuations.
The prospects for the digital communication market are promising, and AI is driving a recovery in demand. According to Yole's forecast, the overall size of the global optical module market will grow from $9.6 billion in 2020 to $20.9 billion in 2026. Among them, the share of the data communication market will increase from 55.2% to 77.2% in 2026, becoming the main driving force for the growth of the optical module market. In the digital communication market, AIGC provides a new growth engine for cloud computing, and the investment boom in AIGC will also have a positive impact on demand for Ethernet optical modules. According to Lightcounting, the proportion of AI optical module demand in 2021-2022 was 15% to 20%, increased to 33% in 2023, and will further increase to 53% and 60% by 2024 and 2025. The company pays close attention to the iteration of data center products in market competition, and lays out ahead of time when customers introduce new technology and new products. The company is expected to achieve major breakthroughs in the overseas digital communication market and achieve significant growth in performance.
Profit forecast and investment advice: EPS is expected to be 0.98 yuan, 1.26 yuan, and 1.63 yuan respectively in 2024-2026, corresponding to dynamic PE of 39 times, 30 times, and 23 times, respectively. The first coverage gives a “hold” rating.
Risk warning: risk of demand falling short of expectations, risk of optoelectronic chip supply chain, risk of increased market competition, risk of exchange rate fluctuations, etc.