Core views

The company's performance grew rapidly in 2023 and 2024Q1. Thanks to the booming digital economy, AIGC is driving the acceleration of artificial intelligence. As an important hardware product in computing power infrastructure, optical modules are being updated and iterated quickly, and demand is strong. As one of the leading manufacturers in the global optical module industry, the company benefits from the rapid growth of the market.

As one of the leading manufacturers of optical modules in the world, the company's shipments of 400G and 800G optical modules have increased dramatically, and it is at the forefront of the industry. It is fully leading the 1.6T layout, and silicon optical modules are progressing rapidly, so it is expected to achieve a rapid breakthrough.

occurrences

Recently, the company released the 2023 annual report and the 2024 quarterly report. In 2023, the company achieved operating income of 10.718 billion yuan, an increase of 11.16%; realized net profit of 2,174 billion yuan, an increase of 77.58% over the previous year; and realized net profit deducted from non-mother of 2,124 billion yuan, an increase of 104.71% over the previous year. With 2024Q1, the company achieved operating income of 4.843 billion yuan, an increase of 163.59%; realized net profit of 1,009 billion yuan, an increase of 303.84% over the previous year; realized net profit of 990 million yuan without return to mother, an increase of 325.73% over the previous year.

Brief review

1. Excellent performance, and the demand for high-speed optical modules benefits from the rapid development of AI.

In 2023, the company achieved operating income of 10.718 billion yuan, an increase of 11.16% over the previous year; achieved net profit of 2,174 billion yuan, an increase of 77.58% over the previous year; realized net profit without deduction of 2,124 billion yuan, an increase of 104.71% over the previous year. Among them, the company's revenue for high-speed optical communication modules was 9.799 billion yuan, up 12.03% year on year, and revenue from medium- and low-speed optical modules was 383 million yuan, a decrease of 42.46% year on year. Thanks to the booming digital economy, AIGC is driving the acceleration of artificial intelligence. As an important hardware product in computing power infrastructure, optical modules are being updated and iterated quickly, and demand is strong. As one of the leading manufacturers in the global optical module industry, the company benefits from the rapid growth of the market. 2024Q1, the company's performance continued to achieve high growth. The company achieved operating income of 4.843 billion yuan, a year-on-year increase of 163.59%; realized net profit attributable to mother of 1,009 billion yuan, an increase of 303.84% over the previous year; and realized net profit without return to mother of 990 million yuan, an increase of 325.73% over the previous year.

2. The proportion of high-speed products increased, and gross margin increased significantly.

The gross sales margin in 2023 was 32.99%, up 3.68pct year-on-year. Among them, the gross margin of high-speed optical modules was 35.06%, up 4.31pct year on year, and the gross margin of medium- and low-speed optical modules was 10.5%, down 6.8pct year on year. The company's net profit margin in 2023 was 20.6%, up 7.8pct year-on-year. In 2023, the sales expense ratio was 1.16%, down 0.22pct year on year, the management expense ratio was 4.05%, down 1.21pct year on year, R&D expenses were 6.9%, down 0.94pct year on year, financial expenses were -0.78%, down 0.55pct year on year. The sales expense ratio of 2024Q1 was 0.93%, down 0.28 pct year on year, management expense ratio was 2.67%, down 2.27 pct year on year, R&D cost rate was 5.32%, down 3.19 pct year on year, but R&D expenses were 257 million yuan, a sharp increase of 64.74% year on year, and the financial cost ratio was -0.53%, down 1.43 pct year on year. Thanks to the gradual increase in the revenue share of high-speed optical modules such as 400G and 800G, the product structure was continuously optimized, and the company's gross margin and net margin were further increased under the impetus of continuous cost reduction and efficiency.

3. The company's silicon optical technology is developing rapidly, and 1.6T optical modules are expected to continue to lead.

The rapid development of AIGC has brought about explosive demand for computing power. The network plays an increasingly important role in the overall AI data center, and can significantly improve the efficiency of computing power. Demand for 800G optical modules has increased dramatically, and mass production of 1.6T optical modules has been greatly accelerated, and it is expected to become the main demand force in 2025. Rapid network speed upgrades brought about by AI computing power construction, and reducing power consumption and costs have also become a major trend in the field of optical modules. Therefore, 800G silicon optical modules are expected to usher in mass production opportunities, and the advantages of silicon light and thin-film lithium niobate will become even more obvious in the future 1.6T era. As one of the leading manufacturers of optical modules in the world, the company's shipments of 400G and 800G optical modules have increased dramatically, and it is at the forefront of the industry. It is fully leading the 1.6T layout, and silicon optical modules are progressing rapidly, so it is expected to achieve a rapid breakthrough.

4. Profit forecast and investment advice: The company is the world's leading manufacturer of optical modules. It has strong competitiveness in many fields, and various products can be shipped in batches. The company has maintained deep cooperative relationships with North American cloud vendors, carried out research and development in response to customer needs, and achieved a first-mover advantage and high market share.

While consolidating its leading position in the digital communication market, the company also performed well in the telecommunications market and related markets. The company also focuses on cutting-edge and emerging fields of the industry, including silicon light technology, CPO technology, and lidar products to ensure future competitiveness. The rapid development of AIGC technology, represented by ChatGPT, is expected to significantly drive demand for network side light modules. At the same time, 1.6T optical modules are expected to accelerate industrialization, and demand can be expected in 2025 and beyond.

We expect the company's revenue for 2024-2026 to be 25.377 billion yuan, 35.141 billion yuan, and 41,969 billion yuan, respectively, and net profit to mother will be 4.998 billion yuan, 6.955 billion yuan, and 8.711 billion yuan respectively. The current market value corresponds to PE 28X, 20X, and 16X, maintaining a “buy” rating.

Risk analysis

AI development falls short of expectations. For example, without popular AI applications, the continued demand for computing power hardware such as optical modules will have an impact; the impact of exchange rate fluctuations exceeds expectations; the North American economic recession is gradually increasing, and there is a risk that the capital expenditure of cloud vendors will fall short of expectations; the market demand for high-speed digital optical modules falls short of expectations; midstream competition in the optical communications industry has accumulated. If competition intensifies, it will have a great impact on the price of optical modules; many chips are used in optical modules, including electric chips, optical chips, etc.; if there are no cores, it will affect the normal delivery of optical module products by the company; Environmental changes. As a leader in the global optical module industry, if the supply chain is limited, there is a risk that performance will be greatly affected; CPO will have a negative impact on the optical module industry.