Incident: The company released its 2024 semi-annual report on the evening of August 25. In the first half of 2024, the company achieved revenue of 10.799 billion yuan, up 169.70% year on year; gross profit margin of 33.13%, up 2.74 pct year on year; achieved net profit of 2.358 billion yuan, up 284.26% year on year; achieved net profit without return to mother of 2.333 billion yuan, an increase of 300.07% year on year, and achieved rapid growth in revenue and profit in the first half of 2024.

Comment: Revenue and profit both achieved rapid growth in the 2nd quarter of 2024. The rapid increase in AI computing power demand and related capital expenses led to a significant increase in demand for high-speed optical modules such as 800G, and the company's gross margin continued to rise. On a quarterly basis, in the second quarter of 2024, the company achieved revenue of 5.956 billion yuan, up 174.88% year on year; gross profit margin of 33.44%, up 2.34pct year on year; realized net profit of 1.349 billion yuan, up 270.82% year on year; realized net profit without return to mother of 1.343 billion yuan, an increase of 283.05% year on year. The company invested 0.527 billion yuan in 24H1 R&D, accounting for 4.88% of overall revenue.

AIGC's large models and applications continue to be iteratively upgraded, driving the company's share of high-end optical module products such as 800G to increase significantly, and the product structure is continuously optimized. In 2023, the company actively promoted R&D in the field of 800G high-speed optical modules, and 800G products have been delivered in batches; at the same time, the company actively verified the feasibility of the 1.6T OSFP-XD solution to seize the strategic high ground for next-generation technology. The company is making steady progress in the field of silicon optical products, and several high-speed silicon optical products have been introduced to key customers; the company is actively developing and developing in the fields of CPO technology and 3D packaging technology. 2024H1's optical communication transceiver modules achieved revenue of 10.403 billion yuan, an increase of 164.95% over the previous year. Of these, only 4.6 million optical modules were sold overseas, achieving revenue of 9.45 billion yuan. During the reporting period, the company's key customers increased capital expenditure on AI computing power infrastructure, driving a significant increase in demand for 800G/400G optical modules and increasing the revenue share of the company's high-speed optical module products. The company's Tongling Xuchuang high-end optical module production base project has been completed.

In 2025, the global optical module industry is expected to usher in rapid expansion in the penetration rate of the two major new technology products, silicon light and 1.6T. As global AI companies continue to launch large-scale AI models and iterative upgrades, the global demand for high-speed optical modules is expected to maintain a rapid growth trend. It is expected that high-end optical module products in the form of silicon light and 1.6T technology will usher in opportunities for rapid increase in penetration rate by 2025.

Profit forecast and investment suggestions: As a leading global optical module company, we are optimistic that the company will benefit from the AIGC era, which will drive the boom in data center construction and the rapid increase in demand for high-speed optical modules.

The company is expected to achieve revenue of 25.799/37.578/46.352 billion yuan from 24-26, net profit to mother of 5.793/8.526/10.542 billion yuan, EPS 5.17/7.60/9.40 yuan/share, maintaining a “buy” rating.

Risk warning: Demand from the digital communication and telecom side falls short of expectations, and business development falls short of the expected risk.