Event: Hengtong Optoelectronics released its 2023 annual report and 2024 quarterly report: the company achieved revenue of 47.622 billion yuan (+2.49% year over year), net profit of 2.54 billion yuan (+35.77% year on year after adjustment), net profit after deduction of 2,033 billion yuan (+31.74% year on year according to adjusted caliber), gross profit margin of 15.31% (+1.14pct year on year), net profit margin of 4.52% (YoY +1.11pct); 24Q1 achieved revenue of 11.785 billion yuan (YoY +) 8.45%), net profit to mother of 513 million yuan (YoY +29.87%), net profit of 411 million yuan (YoY +13.90%), gross profit margin 15.04% (YoY -0.79pct), net profit margin 4.35% (YoY +0.72pct).

Industrial and new energy intelligence and copper conductors are growing rapidly, and the gross margin of optical communication has increased significantly. By product:

In '23, the company's optical communications achieved revenue of 7.369 billion yuan (YoY -2.52%), gross margin of 29.36% (YoY +9.27pct); smart grids achieved revenue of 19.344 billion yuan (YoY +10.00%), gross margin of 13.57% (YoY +0.41pct); Marine Energy and Communications achieved revenue of 3.383 billion yuan (-24.57% YoY), gross margin of 32.81% (YoY -3.31pct); Industrial and New Energy Smart achieved revenue of 5.728 billion yuan (YoY +14.41 pct) %), gross margin was 15.13% (YoY +1.07pct); copper conductors achieved revenue of 99.42 billion yuan (+22.85% YoY) and gross margin of 2.31% (YoY +1.11pct). By region, domestic business achieved revenue of 38.786 billion yuan (-0.52% YoY), gross margin of 16.08% (YoY +1.88pct), overseas business achieved revenue of 8.153 billion yuan (YoY +14.13%), and gross margin of 12.10% (YoY -1.86pct).

Various business segments have blossomed, and there are plenty of orders in hand. According to the annual report for '23, by the end of '23, the company had about 18.5 billion yuan of on-hand orders in the energy interconnection sector such as submarine cables, marine engineering and land cable products, about 5.5 billion yuan in on-hand orders relating to the marine communications business, and over 300 million US dollars for PEACE's trans-ocean cable communication system operation project.

Profit forecast and investment recommendations: We expect the company's revenue for 2023-2025 to be $51.752 billion, $55.815 billion and $59.671 billion respectively, with net profit attributable to mother of $2,686 billion, $3,020 billion and $3.350 billion respectively, and EPS of $1.09, $1.22 and $1.36. Referring to the company's historical valuation and the average valuation level of comparable companies, the company was given a 2024 dynamic PE range of 18-20X, corresponding to a reasonable value range of 19.60-21.78 yuan, which is “superior to the market” rating.

Risk warning: Haifeng construction progress falls short of expectations; overseas fiber optic cable construction falls short of expectations.