The first half of 2024 was generally stable, and business gradually resumed. The company released its 2024 semi-annual report, achieving operating income of 3.11 billion yuan, a year-on-year increase of 10%; realized net profit of 0.21 billion yuan, a year-on-year decrease of 13%; and realized net profit without deduction of 0.21 billion yuan, a year-on-year decrease of 1%.

Looking at a single quarter, the company achieved revenue of 1.82 billion yuan in the second quarter, up 18% year on year and 41% month on month, showing a strong trend of recovering growth; net profit to mother was 0.13 billion yuan, down 4% year on year. As an important link in domestic computing power infrastructure, the company is actively expanding production and investing this year, putting costs first. The short-term profit growth rate is lower than the revenue growth rate.

By business, revenue from the transmission business in the first half of the year was 1.57 billion, up 0.5% year on year, and remained stable; revenue from the data and access business was 1.49 billion, up 21.2% year on year, achieving relatively rapid growth, and gross margin increased 1.58% over the first half of the year.

Projects under construction continued to grow, and new 400G/800G production capacity was gradually implemented. In the first half of 2024, the company continued to improve its overseas manufacturing and high-end digital communication product delivery capabilities, and completed the production capacity construction of an overseas manufacturing base and a high-end optoelectronic device industry base in the Wuhan Donghu Comprehensive Free Trade Zone. The new production capacity was mainly aimed at high-speed optical modules, including 400G/800G and 1.6T later. The number of projects under construction of the company continues to increase. As of 2024Q2, it has reached 0.62 billion yuan. After consolidation, the company's production capacity is expected to increase significantly from the current level.

One-stop product capabilities build core competitiveness. The company's products cover a full range of optical communication modules, passive optical devices and modules, optical waveguide integrated devices, optical fiber amplifiers. The company has various types of laser chips (FP, DFB, EML, VCSEL, etc.), detector chips (PD, APD) and SiP chip platforms; it also has packaging platforms such as COC, hybrid integration, planar optical waveguides, low-light devices, and MEMS devices. The company continued to invest in R&D in the first half of the year. R&D expenses increased 15% year-on-year, and the cost rate stabilized around 10%, continuing to build the company's core technical barriers.

The domestic market share is leading, benefiting from the development of domestic computing power and sufficient flexibility. According to Omdia's latest statistics, during the 2023Q2-2024Q1 cycle, Guangxun Technology's share of the global optical device market was 5.8%, ranking fourth in the world. The growth in AI computing power stimulates a surge in demand for digital communication products and will replace the digital economy as the driving force for the next stage of market development. Guangxun has a high share of large domestic cloud vendor customers and is expected to benefit deeply from the wave of domestic computing power infrastructure construction.

Risk warning: AI development falls short of expectations; production capacity climbing falls short of expectations; market competition intensifies.

Investment advice: Maintain profit forecasts and maintain a “better than the market” rating.

Maintaining the previous profit forecast, the company's net profit for 2024-2026 is expected to be 0.73/0.93/1.14 billion yuan, respectively, and the current stock price corresponding to PE is 31/24/20 times, respectively. Optimistic about the company's position in the industrial chain and the flexibility brought about by the development of domestic computing power, it maintains a “superior to the market” rating.