The company is an industry-leading provider of optical module solutions and services. The company was founded in 2008 and has been focusing on the R&D, manufacturing and sales of optical modules since its establishment. The company is an enterprise that delivers 100G, 200G, 400G, and 800G high-speed optical modules in a small number of batches in the domestic data center market, and has mastered high-speed optical device chip packaging and optical device packaging. The company is one of the first domestic manufacturers to enter the overseas customer supplier system. Currently, the company has established good cooperative relationships with mainstream global communication equipment manufacturers and Internet vendors. The company's overseas business revenue share continues to rise, reaching 83.8% in 2023.

The company has established good cooperation with mainstream manufacturers and has released 800G and 1.6T high-speed products, leading the low-power industry. The company has been deeply involved in the field of optical modules since its establishment, and is one of the few domestic manufacturers with the ability to deliver high-speed optical module products in batches. The company released 800G optical module products as early as 2021. After years of development and investment, the latest 800G optical module products include an 800G OSFP DR8 module based on a thin-film lithium niobate (TFLN) modulator and a 5-nm DSP chip with integrated TIA. The power consumption of this optical module is only 11.2W, which is in a leading position in the industry, setting a new standard for 800G optical modules. As demand for 800G optical modules increases in 2025, the company is expected to reach more customers with product performance. On the 1.6T side, the company continued to invest in research and development, and showcased its 1.6T optical module products at the OFC conference in March 2023. The company's 1.6T 4×FR2 optical module uses an OSFP-XD package and has a 4×SN connector. The electrical interface uses a 16×100Gbps signal, while the optical side uses a 4×400G FR2 signal. Each 400GFR2 interface uses two wavelengths of 1291 nm and 1311 nm, and requires fewer modulators and lasers, thereby reducing power consumption. These modules can support transmission distances of up to 2 km and can be used for 1.6T point-to-point connections or 2×800G or 4×400G fan-out applications. The company is expected to gain more market share with 1.6T batch shipments.

The company has an in-depth layout of LPO products, which are expected to be used in short-range interconnection scenarios. The company has a deep presence in the field of LPO technology and is one of the founding members of LPO MSA. The company showcased 800G LPO optical modules at OFC 2023, supporting different single-mode and multi-mode applications. Multi-mode products include 800GLPO using VCSEL lasers. Single-mode products can be based on different technologies such as silicon light, EML, and thin-film lithium niobate modulators. All modules can use OSFP or QSFP-DD different package formats. Additionally, at the OFC 2024 exhibition, the company showcased the industry's first linearly driven pluggable optical device based on a single channel 200G operating rate, showing that LPO and LRO solutions can be an option for higher data rate applications using a single wavelength of 200G. At the same time, the company has launched second-generation 800G and 400G LPO products based on 100g/LANE technology for single-mode applications. At present, the company's first and second generation 8x100G LPO optical modules have entered mass production. In the future, as downstream customers' requirements for cost and power consumption continue to rise, the company's LPO products are expected to be used on a large scale in short-range interconnection scenarios.

The company's profitability is industry-leading, and raising capital to expand production lays the foundation for growth. The company's gross margin and net margin levels are in a leading position in the industry. On the one hand, the company's business focus is high. Since 2019, the company's peer-to-point optical modules have accounted for more than 94% of revenue, and the increase in the share of high-margin products has helped increase gross margin. On the other hand, the continuous improvement of cost control capabilities and the continuous optimization of our own processes and yield also contribute to the increase in gross margin. In terms of production capacity, the first phase of the company's Thai factory was officially put into operation in the first half of 2023, and production capacity continues to increase. The second phase of the Thai factory is under construction at an accelerated pace and is expected to be completed and put into operation in 2024. Furthermore, in May 2024, the company released the “Chengdu Xinyisheng Communication Technology Co., Ltd. plan to issue convertible corporate bonds to unspecified targets”. According to the company's feasibility analysis report, it is expected that the company will raise capital to invest in the optical module production line construction project, which will increase the production capacity of only 2.95 million high-speed optical modules per year, laying the foundation for the company's performance growth.

Investment advice: The company is a leading provider of optical module solutions and services in the industry. It is expected that it will continue to benefit from strong demand for optical modules brought about by AI construction, and the company is expected to usher in rapid growth on the revenue and profit side. We expect the company's 24-26 revenue to be 75.64 /131.59 /17.184 billion yuan, respectively, up 144.2%/74.0%/30.6% year on year; net profit to mother will be 20.99 /35.21 /4.542 billion yuan, respectively, up 205.0%/67.7%/29.0% year on year. The first coverage gives a “Recommended” rating.

Risk warning: Demand for high-speed optical modules falls short of expectations, competition within the optical module industry intensifies, and the risk of technology upgrades.