Key points of investment:

Incident: Changfei Optical released its 2024 semi-annual report: 24H1 achieved revenue of 5.348 billion yuan (-22.66%), net profit of 0.378 billion yuan (YoY -37.77%), net profit of 0.12 billion yuan (YoY -78.73%), gross profit margin 27.90% (+1.81pct), net profit margin 7.06% (YoY -1.71 pct); 24Q2 achieved revenue of 2.961 billion yuan (YoY) -20.40%, month-on-month +24.06%), net profit of 0.32 billion yuan (YoY -12.61%, month-on-month +452.19%), net profit net profit of 0.095 billion yuan (YoY -71.43%, month-on-month +290.83%), gross profit margin 28.79% (+2.14pct yoy, +1.99pct month-on-month), net profit margin 10.80% (YoY +0.96pct, month-on-month +8.37pct).

Short-term demand for optical fiber cables is under pressure, and digital communication products drive overall gross margins. By business: 1) The optical fiber and fiber prefabricated rod business achieved revenue of 1.279 billion yuan (YoY -31.37%); 2) the optical cable business achieved revenue of 1.93 billion yuan (-29.11% YoY); 3) the optical device and module business achieved revenue of 0.54 billion yuan (-39.90% YoY); 4) Other businesses achieved revenue of 1.599 billion yuan (YoY +11.75%).

Due to the rapid development of generative artificial intelligence at home and abroad, demand related to computing power data centers is being released at an accelerated pace.

New optical fiber products with high gross margins, such as high-end multi-mode optical fiber used within data centers and G.654.E optical fiber used for long-distance interconnection between data centers, are facing more development opportunities, and the rapid increase in revenue from related products has had a positive impact on the company's gross margin level.

The internationalization strategy has achieved remarkable results, maintaining more than 30% of overseas revenue. The company's 24H1 overseas business achieved revenue of 1.766 billion yuan, accounting for 33.03% of revenue. The company's optical cable production capacity in Mexico has now entered the trial production stage. The expansion of production capacity in Poland and Indonesia is progressing smoothly. The capacity layout for major global target markets is improving, and the delivery and refined operation capabilities of overseas production platforms have been further improved. In the first half of 2024, the company completed the acquisition of RFS Germany and RFS Suzhou, and achieved a breakthrough in the internationalization of cable products such as RF cables and leaking cables.

Profit forecast: We expect the company's revenue for 2024-2026 to be 13.174 billion yuan, 13.738 billion yuan, 14.339 billion yuan, net profit to mother of 1.002 billion yuan, 1.039 billion yuan, 1.168 billion yuan, and EPS of 1.32 yuan, 1.37 yuan, and 1.54 billion 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 20-22X, corresponding to a reasonable value range of 26.44-29.09 yuan, which is “superior to the market” rating.

Risk warning: Demand for optical fiber cables is declining, market competition is intensifying, and new business expansion falls short of expectations.