Event: On April 27, 2024, the company released its 2023 Annual Report and 2024 Quarterly Report. In 2023, the company achieved operating income of 400 million yuan, a year-on-year decrease of 20.29%; net profit attributable to the owner of the parent company - 12.7795 million yuan, a year-on-year decrease of 123.19%. In the first quarter of 2024, the company achieved operating income of 108 million yuan, up 14.20% year on year and 25.82% month on month; realized net profit of 8.5925 million yuan, up 275.02% year on year, and 795.36% month on month.

Comment: The performance of the semiconductor thermoelectric business was impressive, and the company showed a strong recovery trend. Among the company's core products, sales revenue of semiconductor thermoelectric devices reached 99.934 million yuan, an increase of 26.18% over the previous year. Among them, foreign sales in the consumer electronics sector were 76.742 million yuan, up 22.11% year on year; foreign sales in the communications and other fields were 14.2514 million yuan, up 53.79% year on year.

Sales revenue for semiconductor thermoelectric systems was 99.294 million yuan, up 5.27% year over year. The company's main business accounts for a relatively high share of export revenue, and its products are exported to Europe, North America and other places. The weak global economy, poor consumer markets, and important customer initiation procedures generated $4.864 million in bad receivables, leading to a decline in the company's revenue and net profit in 23 years. China's foreign trade exports picked up rapidly in 2024, and the company's performance recovered month-on-month in the first quarter. Based on this, we continue to be optimistic about the future development of the company.

R&D investment continues to increase, and the thermoelectric business is fully blossoming. In 2023, the company spent 31.546 million yuan on R&D, accounting for 7.89% of the current revenue, an increase of 1.12 percentage points over the previous year; 178 R&D personnel, accounting for 13.93% of the company's total number of employees, and 55 new patent applications were added. 1) In terms of thermoelectric devices, the device subsidiary has completed capital increases and stock expansion to introduce strategic investors. Currently, it has a production capacity of 3 million pieces of miniature thermoelectric refrigeration devices per year. In the communications sector, the device subsidiary achieved sales revenue of 11.1582 million yuan in 2023, and miniature thermoelectric refrigeration devices for temperature control of optical modules in 5G networks have been supplied in batches to many leading companies. In the automotive sector, the device subsidiary has passed the IATF 16949 automotive industry quality management system certification, actively explores automotive application scenarios for thermoelectric refrigeration devices, and generated sales revenue of 2.364 million yuan. 2) In terms of thermoelectric systems, the company provides domestic alternative temperature control solutions. In 2023, it will be supplied in batches to customers in the energy storage, medical and other industries, achieving sales revenue of 3.21,000 yuan. 3) In terms of thermoelectric machines, the company independently develops and iterates smart wearable air conditioning products to meet the cooling needs of high-temperature outdoor workers.

The global optical module market has broad prospects, and Micro TEC has ushered in development opportunities. In optical communication network signal transmission, using Micro TEC to accurately and actively control the temperature of optical modules is the main technical solution. With the development of technology, global demand for optical modules, especially high-speed optical modules, is rising at the same time. 400G/800G high-speed optical modules are expected to lead the market share, and some will use Micro TEC temperature control for heat dissipation. According to Light Counting analysis, 400G optical modules will lead in 2020-2024, and is expected to usher in the 800G era after 2025; Yole predicts that the global optical module market revenue is expected to reach US$22.3 billion by 2028, with a compound growth rate of about 12% in 2028. In 2023, the company developed the Micro TEC project for digital 400G/800G high-speed optical modules with optical module manufacturers, and increased R&D investment in 24.

Investment advice: In the context of downstream recovery, we are optimistic about the company's long-term development in the semiconductor thermoelectric field and the application and promotion of Micro TEC technology in the field of optical module temperature control. Considering the pressure on the company's 23-year performance, the company's net profit is expected to be lowered from 1.50/218 million yuan to 0.62/074 million yuan in 24-25, and the net profit to mother is expected to be 100 million yuan in 2026. In terms of valuation, we selected semiconductor materials company Pran Co., Ltd., Zhongke Feizei and Lanco Technology as comparable companies. According to Wind's unanimous expectations, the corresponding 24-year PE average was 71.56, giving Fushin 65X a valuation corresponding to a target price of 46.15 yuan/share, maintaining a “buy” rating.

Risk warning: macroeconomic risk, overseas business falling short of expectations, risk of exchange rate fluctuations