Incident: The company publishes its annual report for the year 23 and the quarterly report for '24. Revenue for the full year of '23 was 710 million yuan (+10.50%), net profit of 60 million yuan (-49.38%), net profit after non-return to mother of 0.39 million yuan (-48.17%), gross profit margin of 34.47% (-2.55pcts). Profit side pressure was mainly due to European geopolitical conflicts affecting overseas business. Demand in the optical communication market declined, insufficient demand in the industrial laser industry, and fierce competition in the domestic market led to a year-on-year decline in fiber laser device prices. 24Q1 revenue of 160 million yuan (+3.38%), net profit to mother of 0.06 billion yuan (-58.10%), net profit after deducting non-return to mother of 0.03 billion yuan (-58.91%), gross profit margin of 34.54% (+0.07pcts).
Revenue from various products continues to grow. In '23, the company's fiber laser device revenue was 427 million yuan (+24.25%), and the gross profit margin was 29.81% (-4.60pcts). The main reason was that the company actively expanded domestic and foreign markets through technological innovation, the launch of new products, and the increase in fiber laser device orders and market share, and production and sales. The revenue for optical communication devices was 204 million yuan (-6.52%), and the gross profit margin was 45.18% (+6.49pcts), mainly due to a decline in downstream demand in the optical communication market. The revenue of the lithium niobate modulator was 45 million yuan (-8.17%), and the gross profit margin was 19.73%.
Cost control is good, and R&D investment has increased rapidly. In '23, the company increased investment in research and development of new products and processes, such as thin-film lithium niobate high-speed modulator chips and devices, and lidar light source modules for autonomous vehicles. R&D expenses reached 124 million yuan, an increase of 23.99% over the previous year. Sales expense ratio 1.71% (-0.47pcts), management expense ratio 12.15% (+0.01pcts), financial expense ratio -1.96% (+1.52pcts).
Thin-film lithium niobate is gaining momentum, and lidar is expected to open a second growth curve. In the field of lithium niobate modulators, the company is focusing on developing thin-film lithium niobate coherent and incoherent modulator products of 800 Gbps and above. Some of the new products are in the customer verification and small-batch production and shipment stages. At OFC2024, the company showcased a variety of thin-film lithium niobate products, including 800 Gbps DR8 modulator chips, which can meet the current needs of data centers and AI clusters for high bandwidth and low latency, and provide a fast and stable data transmission experience. In the field of lidar, the company provides a full range of optical fiber components for 1550nm lidar companies at home and abroad, and has independently developed a 1550nm emission light source module based on an erbium-ytterbium co-doped fiber amplifier. We believe that the continued expansion of thin-film lithium niobate and lidar businesses is expected to lead to a second curve.
Profit forecast. As a thin-film lithium niobate leader, Optical Bank Technology has broad development prospects. Considering that the company's thin-film lithium niobate technology is in a leading position in the world, there is broad scope for future application; the lidar business layout is accelerating, and the company's performance is expected to enter a period of accelerated growth next year. We estimate that in 2024-2026, the company's revenue will be 934, 1,298, and 1,705 million yuan, respectively; net profit to mother will be 1.05, 1.43, and 186 million yuan, respectively; EPS will be 0.42 yuan, 0.57 yuan, and 0.74 yuan respectively. In terms of PE valuation, referring to the average valuation level of comparable companies, the company was given a 2024 dynamic PE range of 110-120X, corresponding to a reasonable value range of 46.20-50.40 yuan; in terms of segmental valuation, the corresponding reasonable value range was 37.28-47.47 yuan; combining the two valuation methods, the final reasonable value range was 46.20-47.47 yuan; “superior to the market” rating.
Risk warning. The boom in the laser industry fell short of expectations, the price competition for optical communication devices exceeded expectations, and the progress of the lithium niobate business fell short of expectations.