Core views

In the first three quarters of 2024, the company achieved operating income of 17.31 billion yuan, an increase of 146% over the previous year; net profit to mother was 3.75 billion yuan, an increase of 190% over the previous year. The company's gross margin is stable and its profitability is strong. The gross margin for the first three quarters was 33.32%, up 1.57pct year on year, and the net margin was 22.36%, up 3.69pct year on year. Since the big artificial intelligence model represented by Chatgpt was introduced, demand for computing power has grown rapidly, and high-speed optical modules such as 400G/800G/1.6T are the main products in the industry. As a leading company in the industry, the company's performance has shown rapid growth for many consecutive quarters, and the competitiveness of the industry is at the forefront. The company is in a leading position in silicon technology, and at the same time lays out CPO and other technologies ahead of schedule, which is expected to gain a first-mover advantage.

occurrences

The company released its financial report for the third quarter of 2024. In the first three quarters of 2024, the company achieved operating income of 17.31 billion yuan, an increase of 146.26% over the previous year; realized net profit of 37.0.5 billion yuan, an increase of 189.59% over the previous year, and realized net profit without deduction of 3.718 billion yuan, an increase of 198.77% over the previous year.

Brief review

1. Performance continues to grow rapidly, and the leading position in the industry is stable.

In the first three quarters of 2024, the company achieved operating income of 17.31 billion yuan, a year-on-year increase of 146.26%; realized net profit of 3.75 billion yuan, an increase of 189.59% over the previous year, and achieved net profit of 3.718 billion yuan after deduction, an increase of 198.77% over the previous year. Looking at a single quarter, 24Q3 achieved revenue of 6.51 billion yuan, up 115.25% year on year and 9.37% month on month; realized net profit of 1.39 billion yuan, up 104.40% year on year and 3. 34% month on month, and achieved net profit of 1.385 billion yuan after deduction, up 109.43% year on year and 3.14% month on month.

We believe that since the big artificial intelligence model represented by Chatgpt was introduced, demand for computing power has grown rapidly, and high-speed optical modules such as 400G/800G/1.6T are the main products in the industry. As a leading company in the industry, the company's performance has shown rapid growth for many consecutive quarters, and the competitiveness of the industry is at the forefront. The company is in a leading position in the layout of cutting-edge technologies in industries such as 1.6T, silicon light, and CPO, and is expected to continue to consolidate its advantages and maintain strong competitiveness.

2. Gross margin is stable, and exchange affects net profit.

In the first three quarters of 2024, the company's gross margin was 33.32%, up 1.57pct year on year, and the net margin was 22.36%, up 3.69pct year on year. In 24Q3, the company's gross profit margin was 33.64%, up 0.20pct from month to month. In terms of expenses, the company's sales/management/R&D expenses in the first three quarters were 0.78%/2.72%/4.29%, respectively, a year-on-year decrease of 0.37/1.4/2.41 pct. In terms of financial expenses, there was a month-on-month increase of 0.113 billion yuan in the third quarter, mainly affected by exchange rate fluctuations, which led to an increase in exchange losses.

3. Demand for 800G continues to exceed expectations, leading the silicon light technology industry

The total capital expenditure of the four major cloud giants of 2024Q3, Google, Microsoft, Amazon, and Meta was 58.86 billion US dollars, up 59% year over year and 11% month on month, and they continue to be optimistic about future capital expenditure guidelines. The rapid development of AIGC has brought about explosive demand for computing power. The network plays an increasingly important role in the overall AI data center, and can significantly improve the efficiency of computing power. Demand for 800G optical modules remains strong and is expected to maintain a high growth rate in 2025. With the gradual release of Nvidia's Blackwell GPU production capacity, the demand for network hardware such as the supporting 1.6T optical module is expected to increase rapidly. Silicon photonic technology has significant advantages. Currently, digital optical modules are the main downstream application scenario. Overseas tech giants such as Nvidia, Intel, TSMC, and Broadcom are deploying silicon photonic technology, and the industry is expected to achieve rapid development. The company is in a leading position in silicon technology, and at the same time lays out CPO and other technologies ahead of schedule, which is expected to gain a first-mover advantage.

4. Profit forecast and investment advice: The company is a leading company in the global optical module industry. It benefits from the highest demand for AI with the strongest certainty, and its overall share is in a leading position in the world. The company has maintained deep cooperative relationships with North American cloud vendors, carried out research and development in response to customer needs, and achieved a first-mover advantage and high market share. While consolidating its leading position in the digital communication market, the company also performed well in the telecommunications market and related markets. The company actively lays out cutting-edge fields, including 1.6T, silicon light, LPO, and CPO. It has strong market competitiveness and is expected to gain a first-mover advantage. The rapid development of AIGC technology, represented by ChatGPT, is expected to significantly drive demand for network side light modules. Meanwhile, 1.6T optical modules are expected to accelerate industrialization, and demand can be expected in 2025 and beyond. We expect the company's revenue for 2024-2026 to be 25.377 billion yuan, 39.551 billion yuan, and 49.196 billion yuan, respectively, and net profit to mother will be 52.5.5 billion yuan, 9.734 billion yuan, and 12.852 billion yuan respectively. The current market value corresponds to PE 30X, 16X, and 12X, maintaining a “buy” rating.

Risk analysis

AI development falls short of expectations. For example, if there are no popular AI applications, the continued demand for computing power hardware such as optical modules will have an impact; the impact of exchange rate fluctuations exceeds expectations; the North American economic recession is gradually increasing, and there is a risk that the capital expenses of cloud vendors will fall short of expectations; the market demand for high-speed digital optical modules falls short of expectations; midstream competition in the optical communications industry has accumulated, and if competition intensifies, it will have a great impact on the price of optical modules; the lack of cores will affect the normal delivery of optical module products by the company; Due to changes in the international environment, the company is a leader in the global optical module industry. If the supply chain is limited, there is a risk that its performance will be greatly affected; CPO will have a negative impact on the optical module industry.