Core views
The company's revenue has increased dramatically, its ability to reduce costs and increase efficiency is outstanding, and the cost ratio has dropped significantly. Under the premise of a steady increase in gross margin, the cost control effect is remarkable, and profitability continues to be strengthened.
With the advent of AIGC, demand for computing power has increased dramatically, and the prosperity of global data center construction has further increased, driving the demand for high-speed optical devices to continue to grow. The company has fully grasped the market opportunities. A number of high-speed products, including Light Engine, can quickly meet customer needs, bind customers deeply, and achieve rapid growth in performance.
occurrences
Recently, the company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved operating income of 1,939 billion yuan, an increase of 62.04% over the previous year; achieved net profit of 730 million yuan, an increase of 80.25% over the previous year; and realized net profit of 720 million yuan without return to mother, an increase of 97.42% over the previous year. With 2024Q1, the company achieved operating income of 732 million yuan, an increase of 154.95%; achieved net profit of 279 million yuan, an increase of 202.68% over the previous year; realized net profit without deduction of 279 million yuan, an increase of 215.07% over the previous year.
Brief review
1. Performance continues to increase, and demand for high-speed products benefits from the rapid development of AI.
In 2023, the company achieved operating income of 1,939 billion yuan, a year-on-year increase of 62.04%; achieved net profit of 730 million yuan, an increase of 80.25% over the previous year; realized net profit of 720 million yuan without return to mother, an increase of 97.42% over the previous year. Among them, revenue from optical passive devices was 1,183 billion yuan, up 23.23% year on year, and revenue from optical active devices was 746 million yuan, a sharp increase of 242.2% year on year, mainly due to a sharp increase in revenue from high-speed optical engine devices.
In 2023, AIGC came out of nowhere, demand for computing power increased dramatically, and the prosperity of global data center construction further increased, driving continued growth in demand for high-speed optical devices. The company has fully grasped the market opportunities. A number of high-speed products, including Light Engine, can quickly meet customer needs, bind customers deeply, and achieve rapid growth in performance.
In 2024Q1, the company's performance continued to achieve high growth. The company achieved operating income of 732 million yuan, an increase of 154.95% year on year; realized net profit of 279 million yuan, an increase of 202.68% year on year; realized net profit without return to mother of 279 million yuan, an increase of 215.07% year on year.
2. Significant increase in gross margin and excellent cost control ability.
The gross sales margin in 2023 was 54.3%, up 2.68pct year-on-year. Among them, the gross margin of Light Passive products was 60.25%, up 5.24 pct year on year, and the gross margin of Light Active products was 44.77%, up 8.02 pct year on year. The company's net profit margin in 2023 was 37.65%, up 3.8pct year-on-year. In 2023, the sales expense ratio was 0.94%, down 0.56pct year on year, the management expense ratio was 4.26%, down 0.97pct year on year, R&D expenses were 7.39%, down 2.87pct year on year, financial expenses were -3.04%, down 1.36pct year on year. The sales expense ratio of 2024Q1 was 0.77%, down 0.66 pct year on year, management expense ratio was 4.6%, down 0.89 pct year on year, R&D cost rate was 7.16%, down 3.7 pct year on year, but R&D expenses were 52 million yuan, a sharp increase of 67.74% year on year, and financial expenses ratio was -2.5%, up 1.34 pct year on year. The company's revenue has increased dramatically, its ability to reduce costs and increase efficiency is outstanding, and the cost ratio has dropped significantly. Under the premise of a steady increase in gross margin, cost control is excellent, and profitability continues to be strengthened.
3. Demand for AI has exploded, and leading optical devices have fully benefited.
In the first quarter of 2024, the four major cloud giants Google, Microsoft, Amazon, and Meta had a total capital expenditure of US$44.3 billion, an increase of 30% over the previous year, and are optimistic about future capital expenditure guidelines. We believe that the core driver of the strong investment of overseas cloud vendors in AI infrastructure is AI's current drive for business and optimistic development expectations for future AI applications. The role of networks in AI is becoming more and more important. Higher network bandwidth can transmit more data per unit of time. Increased memory is synchronized with increased bandwidth, which can improve the computing power level of the computing power system in disguise. As a leading upstream manufacturer in the optical module industry, the company has industry-leading strength in high-speed optical device products. Against the backdrop of a sharp increase in market demand, the company fully grasps market opportunities and benefits the core.
4. Profit forecast and investment advice: The company is a leading upstream enterprise in the domestic optical communication industry. It is positioned as the world's leading provider of overall optical device solutions and advanced optical packaging manufacturing services. High-speed products such as 400G and 800G rank at the leading level in the industry. The conversion of Arctic Optoelectronics production is progressing steadily, and the quality of profit is expected to improve. The lidar business is expected to achieve breakthroughs in product categories and on the customer side, and its contribution to performance will further improve. Furthermore, the company's traditional optical communication business will continue to grow steadily. AIGC boosted the market boom in digital optical modules, and demand on the training and inference side remained strong. As a leading upstream manufacturer of optical communication, the company achieved mass production of high-speed optical engines and optical devices such as 800G, while actively deploying high-speed products such as 1.6T. We expect the company's revenue for 2024-2026 to be RMB 3,845 billion, RMB 5.363 billion, RMB 7.441 billion, and net profit to mother of RMB 1,411 billion, RMB 1,955 billion, and RMB 2.69 billion respectively. Corresponding PE is 39X, 28X, and 21X, respectively, maintaining a “buy” rating.
Risk analysis
If the capital expenditure of domestic and overseas cloud vendors falls short of expectations, it will lead to a decline in demand in the digital optical module market, so there is a risk that sales of optical devices will decline, and the company's traditional digital optical device business may be affected; increased industry competition will affect the price of the company's related products, thereby affecting the company's gross margin level; AIGC development falls short of expectations, and there are no explosive applications on the downstream application side, which will have an impact on the demand for optical modules; the company's optical engines and active products will use chip products, and if there are no cores, it will have an impact on the production and delivery of relevant companies' products; lidar As the company's new business, there is uncertainty about its development. If new products fall short of expectations in category development and customer expansion; the company has a certain percentage of export revenue. If the international environment changes, it may affect the company's expansion in overseas markets.