Incident: The company released its financial report for the first quarter of 2024. In 2024Q1, the company achieved operating income of 60 million yuan, an increase of 72.3% year on year; net profit to mother was 0.1 billion yuan, down 11.1% year on year.
The recovery in downstream demand was compounded by the release of high-specification EML products, and revenue growth in the first quarter was impressive. 2024Q1:1) Revenue side: The company's revenue increased 72.3% year-on-year, mainly due to the significant recovery of the optical chip industry compared to 2023, the company's richer product line, and the further expansion of EML products. 2) Profit side: The company's net profit to mother decreased by 11.1% year on year; the company's gross margin was 34.8% and net profit margin was 17.5%. They all declined year over year, but the overall trend was positive and recovering. 3) Expense side: The cost ratio narrowed markedly during the company period. The sales expense ratio was 3.6%, down 0.7 pp year on year; the management expense ratio was 9.7%, down 8.2 pp year on year; R&D expenses rate was 14.9%, down 3.8 pp year on year.
High-speed product iterative upgrades are advancing at an accelerated pace, opening up a new growth curve for the company. 1) In the field of optical fiber access, 10G DFB products with differentiated solutions have been developed and tested to customers, and 10G EML products have been continuously optimized and upgraded; for next-generation 25G and 50GPON optical networks, the company develops and tests related ONU and OLT end optical chip products to customers. 2) In the data center field, the company is making efforts to deploy DFB and EML laser series products with higher speed. The 100G PAM4 EML chip has completed product development, design and finalization, and sample testing on the client side. The 200G PAM4 EML product has completed performance development and in-factory testing. The company's high-speed products continue to be iteratively upgraded, and it is expected to break the monopoly situation of overseas optical chip manufacturers in the future.
High-end chip research and development continues to be promoted, and high-power CW chips are progressing smoothly. As demand for 400G, 800G or above high-speed optical modules increases in data centers and AI computing, demand for high-optical power lasers is expected to accelerate. The company continues to increase investment in technology and equipment related to high-power optical chips and other products. The 70mW/100mW high-power CW chip has completed product development, design and finalization, and sample testing on the client side. If it passes verification and mass production in the future, it is expected to open up new growth space for the company.
Profit forecasting and investment advice. Considering the company's stable position and outstanding technical advantages in the domestic optical communication chip field, and its leading edge in the product layout and progress of high-speed products and digital communication markets, and the acceleration of AI development is a sustainable catalyst and driving the company's industry, we expect the company's net profit to the mother is expected to maintain a compound growth rate of around 100% in 2024-2026. Net profit to mother is 0.8, 130, 180 million yuan, and EPS is 0.92, 1.52, and 2.13 yuan, respectively, corresponding to the current stock price of about 100, 72 times PE. First coverage, giving the company a “holding” rating.
Risk warning: risk of new product development and introduction falling short of expectations; risk of changes in product structure and customer structure; increased risk due to industry competition.