Incident: The company released its 2024 semi-annual report on the evening of August 28. In the first half of 2024, the company achieved revenue of 2.728 billion yuan, a year-on-year increase of 109.07%; a gross profit margin of 43.04%, an increase of 13.63pct; achieved net profit to mother of 0.865 billion yuan, an increase of 204.52% year-on-year, and achieved rapid growth in revenue and profit in the first half of 2024.

Comment: Revenue and profit both achieved rapid growth in the 2nd quarter of 2024, gross margin continued to rise, AI computing power demand and related capital expenses rapidly increased, and the company's demand for high-speed optical modules increased significantly. On a quarterly basis, in the second quarter of 2024, the company achieved revenue of 1.615 billion yuan, a year-on-year increase of 129.23%; a gross profit margin of 43.76%, an increase of 18.29pct; realized net profit to mother of 0.541 billion yuan, an increase of 199.45%; and realized net profit without return to mother of 0.54 billion yuan, an increase of 203.22% year-on-year.

The first phase of the company's overseas factory in Thailand has been officially put into operation; it has increased investment in the development of new products for silicon optical modules and LPO optical modules. During the reporting period, the first phase of the company's factory in Thailand was officially put into operation. Currently, the second phase of the Thai factory is being accelerated and is expected to be completed and put into operation within 2024. In terms of R&D investment, the company invested 0.134 billion yuan in R&D in 2023, and has made many advances in new product fields such as high-speed optical modules, silicon optical modules, and LPO optical modules. The company continues to optimize and improve the process flow, improve production automation coverage, and further promote lean production management, so that the company can respond flexibly to production efficiency management of multiple varieties, small batches, and short delivery times, and shorten the production cycle. In the first half of 2024, the company sold only 3.27 million point-to-point modules, up 12.37% year on year; peer-to-point modules achieved operating revenue of 2.687 billion yuan, an increase of 112.99% year on year.

The acquisition of Alpine lays out silicon optical technology and lays out a strategic position for global optical communication silicon optical modules.

Alpine focuses on silicon photonics, PAM4, and coherent optical technology. Future silicon optical modules may rapidly increase penetration rates through cost advantages. The company completed the acquisition of the remaining shares in Alpine within 2023, and achieved 100% control, which helps the company achieve technology integration and industrial complementarity, enhance its competitive advantage in silicon optical module technology routes, and seize strategic opportunities in upgrading global optical modules to silicon optical technology.

Profit forecast: As an industry-leading manufacturer of high-speed optical modules, we are optimistic that the company will benefit from the demand for high-end optical modules brought by AIGC, and that silicon optical modules are expected to achieve rapid release as production equipment and materials gradually arrive in the next generation of technology upgrades. The company is expected to achieve operating income of 5.694/8.234/11.099 billion yuan in 2024-2026 and achieve net profit of 1.392/2.165/2.944 billion yuan, corresponding to EPS 1.96/3.05/4.15 yuan, maintaining a “buy” rating.

Risk warning: Demand from the digital communication and telecom side falls short of expectations, and business development falls short of the expected risk.