Revenue increased sharply year on year. Profit was affected by product structure and R&D investment. The company published its 24-year semi-annual report, achieving operating income of 0.12 billion yuan, an increase of 96% year on year, and net profit to mother of 10.75 million yuan, a decrease of 45% year on year. 2Q achieved revenue of 60.1 million yuan in a single quarter, up 127% year on year and basically flat month on month. Net profit to mother was 0.22 million yuan, down 97% year on year and 98% month on month.

The company's revenue growth was mainly due to the restoration of traditional 2.5G and 10G DFB orders in the telecom market, promotion of 10G EML on the customer side, and delivery of digital CW light sources; the decline in net profit was mainly due to a reduction in government subsidies, as well as an increase in R&D investment.

Telecom and Digital Communications have both recovered, and gross profit margins have declined

By product: 1) Telecom market revenue was 0.11 billion yuan, up 95% year on year; 2) Data center and other revenue was 9.22 million yuan, up 409% year on year. The consolidated gross margin was 33.4%, down 5.6 points year on year. Among them, the gross profit margin of the telecommunications market was 30%, down 8.9 points from the full year of last year, and the gross profit margin of data centers and others was 77.6%, down 6 points from the full year of last year. The company's product revenue is still dominated by the telecommunications business market, and medium- and low-rate products still account for a high share of revenue. As price competition continues to become more intense, and investment in production facilities and production costs increase, the gross margin level has declined.

R&D investment and R&D personnel grew rapidly, investing 22.05 million yuan in R&D of silicon light sources and high-speed EML products in the first half of the year, a sharp increase of 67% over the previous year, accounting for 18% of revenue. The number of R&D personnel increased from 77 in the same period last year to 103 in the middle of this year, and the proportion of R&D personnel increased from 13.77% to 19%. The company continues to invest in silicon light sources, EML and 50G PON related products: 1) 50mw/70mw CW light sources have mass production capacity and are currently in the yield optimization stage; 2) 100G EML and 100mw CW light sources are in the customer introduction stage; 3) 200G EML products are in the development stage.

A draft restricted stock incentive plan was issued to motivate employees, and the company also announced the draft restricted stock incentive plan. It plans to grant 0.5717 million shares of restricted stock to incentive recipients, accounting for 0.67% of the total share capital. The grant price for restricted shares is 66.06 yuan/share. The initial incentive was awarded to 176 people, accounting for about 32.47% of the company's total number of 542 employees. The performance assessment targets are not less than 0.22 billion yuan in revenue for 24 years, no less than 0.52 billion yuan for 24-25, and no less than 0.92 billion yuan for 24-26. The incentive plan will help motivate core employees and improve operational efficiency.

Profit forecasting and investment advice. Due to R&D investment and product structure, we lowered our forecast. The net profit due to mother for 2024-2026 is 0.05 billion yuan, 0.149 billion yuan, and 0.234 billion yuan, respectively (the original forecast was 0.105 billion yuan, 0.186 billion yuan, 0.287 billion yuan), maintaining the “gain” rating.

Risk warning: Downstream investment falls short of expectations; product prices fall short of expectations; customer development speed falls short of expectations; product structure and customer composition change; there is a risk of potential competition between some downstream manufacturers and companies.