Incidents. On April 24, the company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved operating income of 1,037 billion yuan, an increase of 35.17% over the previous year; realized net profit of 19.538 million yuan, an increase of 33.62% over the previous year. In the first quarter of 2024, the company achieved revenue of 255 million yuan, a year-on-year decrease of 13.61%; realized net profit to mother of 6.0688 million yuan, a year-on-year decrease of -138.73%.
Net profit losses continued to narrow throughout the year, and high R&D investment supported the development of the cloud computing industry. At the beginning of 2023, overall demand in the integrated circuit market was weak. At the same time, due to the narrowing of upstream raw material supply, downstream confidence in suppliers declined and early delivery efforts increased, increasing the volatility of the company's revenue data for the first half of the year. As the company established a long-term stable supply and marketing relationship with upstream and downstream, abnormal fluctuations were gradually eliminated, and the company's performance declined slightly at the end of 2023. Overall, the net profit loss margin of the company has narrowed, mainly due to the steady development of the product system and the formation of scale effects. The decline in expenses during the period was affected, and the company's profitability increased. In 2023, the company achieved operating income of 1,037 billion yuan, an increase of 35.17% over the previous year; net profit to mother was -20 million yuan, an increase of 33.62% over the previous year. At the beginning of 2024, it was mainly affected by the base effect in early 2023. The company's revenue declined year-on-year, and net profit to mother was mainly affected by increased R&D investment to cope with localization trends and meet customer needs. In the first quarter of 2024, the company achieved operating income of 254 million yuan, a year-on-year decrease of 13.61%; realized net profit of -0.06 billion yuan, a year-on-year decrease of -138.73%, and a year-on-year increase of 90.37%. In 2023, the company maintained a high R&D cost rate for technology accumulation and product innovation. It incurred R&D expenses of 314 million yuan, an increase of 19.00% over the previous year, and continued to increase R&D investment in high-end chips. The company's chip products for large-scale data centers and cloud services have been sent to customers for sample testing before the end of the year, and the route switching integrated network chip R&D project, which is one of the fund-raising projects, is also progressing steadily according to the plan. The company will enrich the product sequence for cloud computing core and edge computing applications to further support and serve the development of cloud computing related industries in China at the network infrastructure level.
Focus on building multiple application scenarios and enriching the Ethernet switching chip product matrix. The company focuses on the Ethernet switching chip business. It not only provides customized development services, but also develops a small number of Ethernet switches to explore various network application scenarios. In 2023, Ethernet switching chips and modules are positioned in the middle and high-end product lines, covering 100Gbps to 2.4Tbps switching capacity and 100M~400G port speed, suitable for enterprises, operators, data centers and industrial networks. Among them, chip products for large-scale data centers and cloud services have been sent to customers for sample testing before the end of the year 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. Ethernet switches are mainly built on self-developed high-performance Ethernet switching chips. They are aimed at network solution integrators or brand equipment manufacturers with technical and market capabilities. The product incorporates emerging innovative ideas such as white box switches and SDN in design. The products have now established application models in the field of distribution, security, cloud computing and SDN, and have realized current network applications. We believe that with the continuous development of the digital economy, the company insists on investing in R&D to accumulate technology and innovative products, and the company's performance is expected to continue to improve.
Profit forecast and investment rating: We expect the company's net profit to be 0.06/0.25/0.76 billion yuan in 2024-2026, and the PB corresponding to the current stock price is 6.4/6.3/6.1 times, respectively. As a leading domestic switch chip company, the company is rapidly transforming its switching chip technology into revenue, the localization process is accelerating, and we continue to be optimistic about the company's future performance development and maintain a “buy” rating.
Risk warning: Risk of gaps between technical standards and industry leaders; risk of developing new products falling short of expectations; risk of high supplier concentration; risk of macroeconomic and industry fluctuations.