2Q24 results are in line with our expectations
Guangxun Technology released its 2024 mid-year report: 1H24 achieved revenue of 3.11 billion yuan, a year-on-year increase of 10.48%, and net profit to mother of 0.209 billion yuan, a year-on-year decrease of 12.64%. After deducting non-net profit of 0.207 billion yuan, a year-on-year decrease of 1.64%. Corresponding to the 2Q24 single quarter, the company's revenue was 1.819 billion yuan, up 17.61% year on year, up 40.89% month on month; net profit to mother was 0.131 billion yuan, down 3.99% year on year and up 69.53% month on month. The performance was in line with our and market expectations. The 2Q24 performance improved month-on-month, which we believe was mainly due to the continued increase in domestic digital communication demand and the acceleration of order delivery and fulfillment.
Financial concerns: 1) The 1H24 transmission business, data and access business achieved revenue of 1.575 billion yuan and 1.491 billion yuan, an increase of 0.5% and 21.2% over the previous year. The overall demand for transmission and access markets is relatively lackluster, and the AI boom has driven strong growth in demand for high-speed data products. 2) Gross profit margin: 2Q24 gross margin was 22.8%, up 1.3 ppt and 0.3 ppt from month to month. We judge that it is mainly due to the rapid evolution of products, and 400G optical modules account for an increase in the share of revenue. 3) Inventory: At the end of 1H24, the book value of inventory rose from 1.886 billion yuan at the end of 2023 to 2.987 billion yuan, of which the book value of raw materials increased by 161% compared to the end of 2023. We determine that it was mainly due to the company's advance strategic preparation of key materials based on on-hand orders and sales forecasts.
Development trends
Domestic AI capex is rising, and demand for high-speed digital optical modules is strong. Under the wave of AI computing power construction, the capital expenditure of domestic cloud vendors continued to rise after experiencing a downward cycle of 2021-1H23. In 2Q24, the capital expenses of leading domestic Internet vendors Ali and Tencent increased by 98.75% and 120.8%, respectively. Thanks to the continued increase in domestic intelligent computing investment, demand for high-speed optical modules has increased dramatically. As a supplier with a high domestic shipping share, Guangxun continues to release and deliver 400G optical modules, leading to a sharp rise in the company's data and access business revenue and gross margin. Looking ahead to 2H24-2025, we believe that demand for high-speed optical modules will remain high. As the shortage of upstream materials gradually eases and the company's production capacity and yield continue to increase, 400G+ optical module delivery is expected to accelerate, driving the company's performance to be further released.
Domestic and overseas production capacity is being expanded simultaneously. According to the company's announcement, the first phase of the Wuhan Optoelectronic Device Industrial Base has been put into operation. Equipment & personnel are gradually being put in place, production capacity and yield continue to rise, and 400G/800G high-speed product delivery capacity has been boosted. As an overseas production base, Pan Pacific Technology, a wholly-owned subsidiary located in Malaysia, already shipped products last year and continued to expand overseas production capacity this year to help the company develop overseas markets.
Profit forecasting and valuation
We keep our profit forecast for 2024 unchanged. Considering that domestic demand for 400G+ optical modules is expected to increase further next year, combined with the company's high-speed product production efficiency and yield improvements, and overseas market expansion, we raised our profit forecast for 2025 by 13.6% to 1.052 billion yuan. The current stock price corresponds to 28.9 times the 2024 price-earnings ratio and 21.8 times the 2025 price-earnings ratio. Maintaining an outperforming industry rating, considering the downward trend in the industry valuation center, we maintained a target price of 43 yuan, corresponding to 43.2 times the 2024 price-earnings ratio and 32.5 times the 2025 price-earnings ratio. There is 49% upside compared to the current stock price.
risks
Demand for transmission side, access side and digital optical modules falls short of expectations; there is a risk of shortage of upstream material supply.