Incident: Firefight Communications released its 2024 semi-annual report: 24H1 achieved revenue of 13.849 billion yuan (YoY -7.02%), net profit of 0.217 billion yuan (YoY +8.68%), net profit of 0.214 billion yuan (YoY +8.71%), gross profit margin 21.33% (YoY +0.45pct), net profit margin 1.57% (YoY +0.23pct); 24Q2 achieved revenue of 8.791 billion yuan (YoY- 11.01%, +73.77% month-on-month), net profit of 0.176 billion yuan (YoY +8.16%, month-on-month +323.33%), net profit of 0.172 billion yuan (YoY +8.32%, month-on-month +311.45%), gross profit margin 19.32% (-0.18pct YoY, -5.51pct month-on-month), net profit margin 2.00% (YoY +0.35pct, month-on-month +1.18pct).
By product: Communications system equipment achieved revenue of 11.1 billion yuan, accounting for 80.15% of revenue, and gross margin of 20.93%; optical fiber cables achieved revenue of 2.297 billion yuan, accounting for 16.58% of revenue and 21.93% of gross margin; data network products achieved revenue of 0.244 billion yuan, accounting for 1.76% of revenue and 20.16% of gross margin. By region, domestic business achieved revenue of 10.489 billion yuan, accounting for 75.74% of revenue and gross margin of 18.98%; foreign business achieved revenue of 3.36 billion yuan, accounting for 24.26% of revenue and 28.69% of gross margin. By business: 1) Optical communication business: The company won the bid for China Unicom's ROADM400G OTN collection project in the first half of the year, stabilizing its position as the core supplier of 400G OTN networks; together with Pengcheng Laboratory, Optical Quanzhong, and Innovation Center, released an ultra-high-capacity real-time transmission system based on air core optical fiber, achieving a maximum transmission capacity of over 270 Tbit/s for single-fiber bidirectional transmission at the same wavelength. 2) Information technology business: servers achieve large-scale layout in the new financial field and expand financial market advantages; continue to be deeply involved in rail transit, digital government and other fields, and win bids for many large-scale informatization projects to promote the digital transformation and upgrading of thousands of industries
Expense control is targeted, and the R&D cost rate has dropped significantly. 24H1's sales, management, and R&D expenses rates were 7.11%, 1.21%, and 11.48%, respectively. The R&D expense ratio declined significantly, mainly due to the company optimizing the R&D project structure and focusing on key R&D areas; in addition, the financial expenses were 0.264 billion yuan, an increase of 125.50% year on year, mainly due to the year-on-year increase in exchange losses.
Status of key subsidiaries: 24H1 Sky lost 0.344 billion yuan (23H1 lost 0.301 billion yuan), and Fiberfire lost 7.0674 million yuan (23H1 lost 24.0111 million yuan).
Profit forecast and investment suggestions: We expect the company's net profit to be 0.686 billion yuan, 0.891 billion yuan, 1.04 billion yuan for 24-26, and EPS of 0.58 yuan, 0.75 yuan, and 0.88 yuan, respectively. Referring to the company's historical valuation and the average valuation level of comparable companies, the company was given a 2024 dynamic PE range of 35-40X, corresponding to a reasonable value range of 20.25-23.14 yuan, which is “superior to the market” rating.
Risk warning: 400G backbone network construction falls short of expectations; network visualization and AI industry demand falls short of expectations.