Introduction to this report:

The performance is in line with expectations, and profitability is impressive; demand for 800G Ethernet is strong, and preparations are expected to welcome greater development opportunities.

Key points of investment:

The profit forecast was raised, the target price was lowered, and the holding increase rating was maintained. The company announced its 2024 mid-year report, and the results were in line with previous forecasts and market expectations. Considering the further increase in the company's profitability in the first half of the year, we raised the 2024-2026 net profit to be 2.313/5.147/6.147 billion yuan (previous value was 19.23/49.03/63.45), and the corresponding EPS was 3.26\ 7.26\ 8.67 yuan. Considering the industry's valuation of 19.24x in 2025, and considering the company's strong growth, the company was given 20x in 2025, and the target price was lowered to 145.20 yuan (previous value was 173 yuan), maintaining an increase in holdings rating.

The performance was in line with expectations, and the profitability was impressive. 2024H1 achieved revenue of 2.727 billion yuan, a year-on-year increase of 109.07%; net profit to mother was 0.865 billion yuan, and net profit for a single Q2 was 0.541 billion yuan, in line with the previous forecast range. It is worth noting that with the increase of 400G/800G and the results of the company's continuous cost reduction, the company's single Q2 gross margin reached 43.76%, and the net profit margin reached 33.48%. The data is very impressive.

Demand for 800G Ethernet is strong, and the expansion of spare material production welcomes development opportunities. Currently, the 800G demand framework for the entire industry has basically been formed in 2025. With the continuous application of Broadcom Tomahawk5 chips and NvidiaSpectrum series in large-scale networking, we believe that more cloud vendors will independently purchase 800G optical modules. As one of the few suppliers in the market that can achieve 800G mass production and shipment, the company is expected to usher in good development opportunities. According to financial reports, the company's inventory for the first half of 2024 was 2.235 billion yuan, a significant increase over 0.963 billion at the end of 2023, mainly due to a significant increase in raw materials required for preparation. In addition, the company's investment in projects under construction and projects related to the Thai factory has increased by 100 million. Corresponsively, the first phase of the company's Thailand project has already begun operation and production, and the second phase of the project will also bring more production capacity in 2025.

Catalyst: 800G achieved batch delivery, 1.6 T received orders;

Risk warning: Overseas AI investment falls short of expectations, and industry competition worsens.