Introduction to this report:

Maintain profit forecasts and target prices, and maintain holdings growth ratings; performance is in line with expectations, and profit improvements are remarkable. The high-end optical chip business progressed, and the Thai subsidiary began production.

Key points of investment:

Maintain profit forecasts and target prices, and maintain an increase in holdings rating. The company announced the 2024 three-quarter report. The performance was outstanding and in line with expectations. We maintain 2024-2026 net profit of 0.051/0.12/0.215 billion yuan, and the corresponding EPS of 0.11\ 0.26\ 0.47. Maintain the target price of 15.60 yuan and maintain the holdings increase rating.

Performance was in line with expectations, and profit improved significantly. In the first three quarters of 2024, the company achieved revenue of 0.729 billion yuan, a year-on-year increase of 34.77%; net profit to mother was 0.036 billion yuan, which significantly reversed losses over the previous year.

Considering only the Q3 quarter, the company achieved revenue of 0.28 billion yuan, up 32.74% year on year and 11.5% month on month. Net profit to mother for the single quarter was 0.024 billion yuan, up 344.53% year over year.

Among them, the company's gross margin reached 29.08% in a single quarter, an increase of more than 5.3 percentage points over the previous quarter.

We believe that with the rapid increase in 400G/800G products of downstream digital communication customers, the company's AWG chip components, parallel optical components, and data center MPO jumpers are rapidly increasing, leading to a month-on-month increase in revenue volume. Furthermore, since the company has AWG chip manufacturing capabilities, it has significant scale effects, leading to a reduction in production costs and a continuous increase in profits. We predict that Q4 is expected to drive the company into a channel of continuous performance and profit growth as module orders from major North American customers in the industry are gradually settled in 2025.

The high-end optical chip business progressed, and the Thai subsidiary began production. Since the outbreak of AI in 2023, demand for CW DFB represented by silicon light and the supply of 100GEML required for 400G/800G main modules have been scarce, and domestic chips have ushered in opportunities for introduction. Taking CW light sources for silicon light as an example, the company has achieved commercial temperature 50mW, 70mW, 100mW, 200mW, and 900mW outputs, which are expected to be used in the field of ELSFP external light sources supporting 400G/800G silicon optical modules and CPO; high-speed EML companies are also rapidly developing them. In addition, the company has established a new subsidiary in Thailand, which mainly produces indoor optical cables and various passive active devices. It is expected that production capacity will be released one after another in Q4, which is also expected to contribute to business growth.

Catalysts: CW light sources are shipped in batches, AWG/MPO is in high demand

Risk warning: AI investment is slowing down, and optical chips are falling short of expectations