Due to the slowdown and depreciation of the telecommunications and digital communication business, the company released its 23-year annual report and quarterly report for '24. It achieved operating income of 144 million yuan, a decrease of 49% over the previous year, and net profit to the mother of 19.48 million yuan, a decrease of 81% year over year. The main reasons were: 1) the decline in gross margin due to the slowdown in investment in the telecommunications market and fierce domestic competition; 2) Investment in the digital communication sector of traditional cloud computing; 3) Asset and credit impairment was 20.84 million yuan, compared to only 4.1 million yuan in '22.
In the first quarter of '24, revenue increased year-on-year. In the four quarters from 2Q23 to 1Q24, the company's revenue was 26.47 million yuan, 31.87 million yuan, 51.71 million yuan, and 6.06 million yuan, respectively. 1Q24 revenue increased 72% year on year and 17% month-on-month, improving quarter by quarter, mainly because the optical chip industry recovered significantly compared to 2023, and the company's product line was further enriched, and EML products were further expanded. Net profit for 1Q was 10.53 million yuan, which is also a new high for the past four quarters.
23-year business and gross margin performance
By business: 1) Telecom market revenue was 133 million yuan, down 43% year on year, gross profit margin was 39%, down 21 percentage points year on year; 2) Data center and other revenue was 4.71 million yuan, down 89% year on year, and gross profit margin was 84%, up 9 percentage points year on year.
The number of R&D personnel expanded rapidly, and R&D expenses for high-speed digital communication and telecom optical chips were 30.95 million yuan in 2023, +14% over the same period, accounting for 21% of revenue. The number of R&D personnel increased from 77 in '22 to 100 in '23, an increase of 30% over the previous year.
The company has increased investment in products such as high-speed optical chips and high-power optical chips: 1) In the digital communication field, 100GPAM4 EML, 70mW/100mW high-power CW chips have completed product development, design and finalization, and samples have been sent to the client for testing. The 200G EML has initially completed performance development and in-factory testing, and is continuously being optimized. 2) In the telecommunications sector, for next-generation 25G/50G PON optical networks, the company develops and tests related ONU and OLT end optical chips to customers.
Profit forecasting and investment advice
According to the company's annual report and the situation for the first quarter, we expect net profit to be RMB 105 million, RMB 186 million and RMB 287 million for 2024 to 2026, respectively (the original forecast was RMB 125 million and RMB 204 million for 2024 and 2025, respectively). As a leading third-party optical chip manufacturer in China, Yuanjie continues to enrich the digital communication and telecom optical chip categories, and is expected to achieve breakthroughs and maintain the “gain” rating.
Risk warning: Downstream investment falls short of expectations; product prices fall short of expectations; customer development speed falls short of expectations; gaps widen; product revenue structure and customer composition have changed; operating cash flow fluctuates greatly; R&D investment is lower than peers; there is a risk of potential competition between some downstream manufacturers and companies.