Introduction to this report:
The profit forecast was updated, the target price was lowered, and the increase in holdings rating was maintained; performance was in line with expectations, and digital communication volume led to an increase in profit; production capacity construction in the free trade zone was achieved, and large-scale delivery capacity was increased.
Key points of investment:
Update profit forecasts, lower target prices, and maintain an increase in holdings rating. The company announced its 2024 mid-year report. The results were in line with expectations, the outlook for various businesses was positive, and the Q2 results were in line with expectations. Considering the strong demand in the industry, it will still take time for the company's production capacity and yield to rise. We lowered 2024 but increased our 2025 results. The net profit due to mother for 2024-2026 was 0.84/1.467/1.905 billion yuan (previous value was 0.95/1.211/1.512 billion yuan), and the corresponding EPS was 1.06\ 1.85\ 2.40 yuan.
Considering comparable valuations in the same industry, the company was given 25x PE in 2025, and the target price was lowered to 46.25 yuan (previous value was 50.08 yuan), maintaining an increase in holdings rating.
The performance was in line with expectations, and digital communication volume led to an improvement in profits. 2024H1 achieved revenue of 3.109 billion yuan, a year-on-year increase of 10.48%; net profit to mother was 0.2 billion yuan, in line with market expectations.
Among them, the company achieved revenue of 1.819 billion yuan in Q2, an increase of 40.9% over the previous quarter. Looking at the revenue structure for the first half of the year, digital communication and connectivity revenue was 1.49 billion yuan, up 21.20% year on year, while gross margin increased by about 1.58 percentage points over the same period; transmission business revenue was 1.575 billion yuan, which was roughly the same as the previous year. At the net interest rate level, the company's Q1 was only 6.02%, and the single Q2 was about 6.75%, an increase of nearly 1 percentage point. We believe that as Q2 domestic cloud factories complete tenders one after another, the rapid increase in orders and deliveries is beginning to be reflected in financial statements. At the same time, with the increase in 400G/800G high-speed product deliveries, the company's profitability has also continued to strengthen.
Production capacity construction in the free trade zone has been achieved, and large-scale delivery capacity has been increased. In the first half of 2024, the company continued to improve the delivery capacity of overseas manufacturing and high-end dredging products, and successfully completed the production capacity construction of overseas manufacturing bases and high-end optoelectronics industrial bases in the Wuhan Donghu Comprehensive Free Trade Zone. At the same time, the core materials ordered by the company at the beginning of the year were also in place one after another in Q2. We believe that the company's quarterly delivery capacity will gradually be quickly released in Q3 and Q4.
Catalysts: Iteration of domestic AI chips and intelligent computing networks, rapid increase in optical module shipments. Risk warning: domestic AI investment falls short of expectations; industry competition intensifies.