1H24's performance is in line with expectations, and demand for 800G and 1.6T is expected to increase. According to the company's 2024 semi-annual report, 1H24's revenue was 10.799 billion yuan, up 169.70% year on year; net profit to mother was 2.358 billion yuan, up 284.26% year on year; net profit without return to mother was 2.333 billion yuan, up 300.07% year on year, in line with previous performance forecasts (21.0-2.45 billion yuan).

Among them, the company's revenue for the 2Q24 single quarter was 5.956 billion yuan, up 174.88% year on year; net profit to mother was 1.349 billion yuan, up 270.82% year on year; net profit after deducting non-return to mother was 1.343 billion yuan, up 283.05% year on year. Considering that global demand for 800G and 1.6T optical modules is expected to rise rapidly, we have raised our performance expectations. The company's net profit for 2024 to 2026 is 51.23/92.65/122.58 billion yuan (previous value: 50.99/81.11/99.37) billion yuan, respectively. Comparable to the company's 2024 Wind, the average PE value is 32x. Considering the company's leading position in the optical module industry, the corresponding target price is 164.51 yuan (previous value: 191.00 yuan) , maintaining a “buy” rating.

Demand for AI continues to be released. According to the company's semi-annual report, 1H24's optical communication transceiver module and device revenue segment revenue was 10.52 billion yuan, up 162.73% year on year. Key customers further increased capital expenditure and increased investment in computing power infrastructure. Demand for 400G and 800G optical modules increased significantly, and technology iteration of optical modules to 800G and above was accelerated. 1H24's shipments and revenue of high-end products such as 400G and 800G increased significantly; 1H24's automotive optoelectronics segment revenue was 0.279 billion yuan.

1H24 Comprehensive gross margin continues to be optimized, and cost control is good

The consolidated gross margin of 1H24 was 33.1%, up 2.7 pct year on year. Among them, the Q2 consolidated gross margin for the single quarter was 33.4%, up 0.7 pct from month to month. We believe it is mainly a reflection of the optimization of the company's revenue structure and scale effect. Expenses are well controlled. In 1H24, the company's sales/management/R&D expenses rates were 0.83%/2.84%/4.86%, respectively, down 0.26/1.83/3.20pct year-on-year, respectively. We judge that it was mainly due to the dilution of expenses due to rapid growth in the company's revenue. The amount of accounts receivable at the end of 1H24 was $3.982 billion, up 54.27% from the end of 2023.

AI is expected to bring positive changes to the optical module industry for a long time, and the company is expected to continue to benefit. We believe that AI is expected to start a new growth cycle in the optical module industry and bring positive changes to the industry in the long term: 1) Greater market demand: in the AI era, large-scale GPU clusters will continue to drive the rapid growth in demand for high-speed optical modules on the AI inference side; 2) Shorter iteration cycle: Driven by rapid GPU iteration, the optical module upgrade cycle is expected to reverse the previous gradual slowdown Trends stimulate the accelerated release of customer demand from downstream cloud companies; 3) Stable market position of leading manufacturers: As AIDC increases the reliability requirements for optical modules and shortens the iteration cycle, we believe that leading manufacturers in the optical module industry have a stable market position.

As a leading global digital optical module manufacturer, the company is expected to continue to benefit from the opportunities of this AI era.

Risk warning: Global demand for high-speed optical modules falls short of expectations; the price of high-speed optical modules has dropped sharply.