Xinyisheng: An optical module company covering a full range of optical communication applications. The company's business mainly covers optical modules for a full range of optical communication applications. The company has always been committed to the R&D, production and sales of high-performance optical modules. Its products serve domestic and foreign customers in the fields of AI/ML clusters, cloud data centers, data communication, 5G wireless networks, telecommunications transmission, and fixed network access. It provides 100G, 200G, 400G, 800G and 1.6T optical module products for cloud data center customers; 5G fronthaul, midpass, and backhaul optical modules, and optical module solutions for metropolitan area networks, backbone networks and core network transmission for telecommunication equipment vendors. 2024Q1, the company achieved operating income of 1,113 billion yuan, an increase of 85.41% year on year; realized net profit of 325 million yuan to mother, an increase of 200.96% year on year.

The AI revolution opens up room for company growth. GPT applications are exploiting the generative artificial intelligence AIGC market based on large models. Large cloud computing companies, represented by Microsoft and Google, continue to invest heavily in the construction of AI data centers, and demand for GPUs for training and inference and their internet networks is growing rapidly. 800G and 1.6T optical modules directly benefit from the core components of AI data center optical interconnection. The total capital expenditure of 2023Q4 overseas cloud giants (Microsoft, Amazon, Apple, Meta, Google) increased 4.81% year over year to US$44.164 billion; according to Factset's unanimous expectations, the total capital expenditure in 2024 will increase 27.2% year over year to US$193.83 billion. According to Lightcounting's forecast, the global market size of optical modules may continue to grow at a CAGR of 11% from 2022 to 2027, and is expected to surpass $20 billion in 2027.

The company vigorously expands overseas business and has a comprehensive layout of cutting-edge technology. The company has successfully launched the industry's latest 800G/1.6T optical module products based on single-wave 200G optical devices, a high-speed optical module product portfolio covering technical solutions such as VCSEL/EML, silicon light, and thin-film lithium phosphate; launched 400G and 800G ZR/ZR+ coherent optical module products, and 400G/800G optical modules based on LPO solutions. The company is one of the few domestic enterprises with the ability to deliver 100G, 400G and 800G optical modules in batches, and has mastered high-speed optical device chip packaging and optical device packaging.

Profit forecast, valuation and rating: Xinyisheng is an industry-leading high-end optical module company. The 800G/1.6T high-speed optical module will bring potential high performance growth to the company in the future. We raised the company's 24-25 net profit forecast to 1.663 billion/2,446 billion yuan (adjusted ratio is +42%/+60%), and the net profit forecast for the new 26 years is 3,544 billion yuan, corresponding to the current PE valuation of 38X/26X/18X. Considering that the company's high-end optical module products are being rapidly introduced to leading customers, it is expected to continue to contribute to the company's performance and maintain a “buy” rating.

Risk warning: risk of technological upgrading; risk of market competition; risk caused by trade disputes