Incident: The company released its annual report in 2023, and achieved operating income of 1,939 million yuan, an increase of 62.04%; net profit to mother of 730 million yuan, an increase of 81.14%; net profit after deducting non-return to mother was 720 million yuan, an increase of 97.42%, and non-recurring revenue fell from 38.36 million yuan in '22 to 10.13 million yuan.
Optical engines drive high growth in active business, and passive business also exceeded expectations: (1) passive device business revenue was 1,183 billion yuan (YoY +23.28%), and in the case of a relative downturn in the telecom market and traditional digital communication other than AI in 23, the company's passive business growth slightly exceeded expectations; (2) active device business revenue was 746 million yuan (YoY +242.52%), and the high performance increase is expected to mainly benefit from overseas AIDC construction's rapid growth in the gross margin of various businesses: The company's overall gross margin increased significantly throughout the year: The company's overall gross margin increased significantly throughout the year: The company's overall gross margin increased significantly throughout the year: The company's overall gross margin increased significantly throughout the year: The company's overall gross margin increased significantly throughout the year: The company's overall gross margin increased significantly throughout the year: The company's overall gross margin increased significantly throughout the year: The company's overall gross margin increased significantly throughout the year: The company's overall gross margin increased significantly throughout the year: The company's overall gross margin increased significantly throughout the 2.69pct, of which the gross margin of the passive/active business increased by 5.24 pct/8.02pct respectively. We determined that the increase in gross margin of passive business was mainly due to iterative changes in industry technology and the development of customer product rates to the high-end; the increase in active business gross profit was mainly due to cost reduction and efficiency of the Jiangxi production base, production line information system and automation upgrades, and a marked increase in capacity utilization.
Expense rates and other increases and decreases that have had a significant impact on the statements: the company's expense ratio was reduced by 5.76 pcts during the 23-year period, and the sales/management/R&D/finance expenses ratio was reduced by 0.56/0.97/2.87/1.35 pct respectively. The large change in financial expenses was mainly due to interest income of 52.84 million yuan in 23 years. In addition, other items that have had a significant impact on the income statement include: 1) non-operating expenses due to fixed asset scrapping losses amounting to RMB 21.29 million; 2) the reduction in exchange earnings from RMB 13.45 million to RMB 7.1038 million in 2022.
Record high single-quarter results: Q4 revenue of 732 million yuan, up 138.78%, up 35.16% year on year; net profit to mother was 291 million yuan, up 131.21% year on year, up 43.20% year on year. We expect shipments from the light engine business to increase markedly from quarter to quarter. In Q4, the company's gross margin remained flat year on year and increased 1.2 pct month-on-month. The net profit margin to mother decreased by 1.3 pct and increased by 2.2 pct. The decrease in net interest rate was mainly reflected in Q4 due to large non-operating expenses.
Inventory is sufficient and safe: The company's inventory increased from 186 million yuan at the end of '22 to 256 million yuan at the end of '23. Among them, products and inventory increased significantly, confirming that the company is fully prepared for the increase in customer demand. Contract liabilities increased from $34.19 million at the end of '22 to $83.71 million at the end of '23, and there was a significant increase in customer contracts within one year.
Investment advice: The company is located in the upstream of optical modules, fully benefiting from the boom in the global AI market. Combined with the continuous expansion of the company's product line and mass production of key optical engine products, the future performance is full of momentum for growth. Based on a significant increase in the company's Q4 results in a single quarter, profitability is still improving. We raised the company's net profit to mother for 24-26 to 1,535/24.51/3.391 billion yuan (previously forecast net profit to be 1,42/2.04 billion yuan for 24-25) and the corresponding annual PE to 42/26/19X, maintaining the “incremental” rating.
Risk warning: downstream customer demand falls short of expectations, progress of new 1.6T light engine products falls short of expectations, production capacity expansion falls short of expectations, etc.