The company released its 2023 annual report and 2024 quarterly report. The company achieved revenue of 340 million yuan in 2023, a year-on-year decrease of 1.3%; net profit to mother was 42 million yuan, a year-on-year decrease of 28.7%. The company achieved revenue of 94 million yuan in the first quarter of 2024, an increase of 20.6% over the previous year, and realized net profit of 11 million yuan, an increase of 72.1% over the previous year.

AI has driven the boom in optical modules, and the company's performance has clearly recovered. In 2023, the company's optical communication business was under pressure due to the removal of inventory from downstream optical communication customers and the slowdown in demand from overseas telecom and traditional data centers. In 2023, the company's optical communications business achieved revenue of 120 million yuan, a year-on-year decrease of 28.3%, driving the company's overall revenue and profit to a certain extent. With the rapid rise in demand for high-speed optical modules driven by AI in the second half of 2023, the upstream optical device industry gradually broke out of the slump in demand. Since entering the first half of 2024, the upstream optical device boom has continued to rise, and the company's optical communication business is also expected to continue to benefit from industry growth.

Downstream demand for industrial lasers is recovering steadily, and new businesses are being developed at an accelerated pace. In 2023, the company achieved revenue of 180 million yuan in the field of fiber lasers, an increase of 16.5% over the previous year; scientific research, biomedicine, consumer optics, semiconductor equipment and other application fields achieved a total revenue of 34.06 million yuan, an increase of 104.5% over the previous year.

Looking at the whole year, downstream demand for industrial lasers continued to recover. At the same time, the company is actively developing businesses in biomedicine, AR, automotive, semiconductor equipment, etc., exploring the application of high-end optical module products in semiconductor equipment and biomedicine, and achieving an increase in sales orders.

Focus on scientific research and new business layout to raise the ceiling for growth. In 2023, the company invested 34.15 million yuan in R&D, accounting for 10.1% of the company's revenue. On the one hand, the company continues to invest in the research and development of high-end components for optical communication and industrial lasers, while also focusing on improving efficiency and improving yield in the production process. At the same time, the company has also accelerated its business layout upstream and downstream of the industrial chain, set up a holding subsidiary in Hefei to carry out functional crystal materials and device construction projects; set up a branch in Nanjing to develop product technology for AR nanoimprinted diffraction waveguides; the company promoted the acquisition of the North American company GouMax to expand and improve the business layout in the field of optoelectronic test modules and instruments/equipment. Through a series of initiatives, the company's product line is further extended, and the room for business growth is broadened.

Investment advice: We expect the company's 2024-2026 revenue to be 4.9/6.7/870 million yuan, and net profit to mother of 0.76/0.98/137 million yuan, corresponding to PE48.0/37.3/26.7x. Affected by the 23-year overseas telecom side and traditional data center optical module removal cycle, we lowered the company's profit forecast. Taken together, the company is one of the few high-quality companies with the ability to mass-produce high-end precision optical devices in China. The company's downstream optical communication benefits from AI, and industry demand is recovering at an accelerated pace, which is expected to contribute new impetus to the company's growth and maintain a “buy” rating.

Risk warning: AI demand falls short of expectations, industrial order recovery falls short of expectations, new business expansion is slow.