Incidents:

1) The company plans to invest in the construction of the “Optical Communication High Speed Module and Optical Device Project (Phase I)” through Zhaochi OptoLink, a subsidiary of the wholly-owned subsidiary Zhaochi Ruigu Communications Co., Ltd., and build an optical module and optical device manufacturing production line. The project covers 100G and below, 200G, 400G, 800G and other high-speed optical modules.

The proposed investment amount for the first phase of the project is no more than 0.5 billion yuan. The construction period for the first phase is 3 years. After the first phase of construction is completed, it will have the capacity to produce 50 million high-speed optical modules per year.

2) The company plans to invest in the construction of the “0.1 billion optical communication semiconductor laser chip project with an annual output of 0.1 billion (Phase I)” and build a gallium arsenide and indium phosphide compound semiconductor laser wafer manufacturing production line through Megachi Semiconductor or its subsidiary. The main applications are VCSEL laser chips and optical communication semiconductor laser chips in the field of optical chip technology. The proposed investment amount for the first phase of the project is not more than 0.5 billion yuan, and the construction period for the first phase is 3 years.

The optical communication industry chain is expected to become another growth point after the entire LED industry chain. Since 2023, the company has achieved vertical integration of optical communication devices and modules through the acquisition of Zhaochi Ruigu and the optical module team. The construction of these two projects is conducive to further deepening the company's strategic layout in the field of optical communications:

On the one hand, expanding the production scale of optical communication module devices, accelerating technology upgrades (below 100G → 200G/400G/800G and above), and expanding the application field (telecom market start-up → breakthrough in the digital communication field); on the other hand, based on the leading position of Megachi Semiconductor in the LED industry, following full spectrum technical coverage, it is gradually expanding to the core raw material chip chip in the optical communication field, which is conducive to the company's overall industrial upgrading, further opening up the vertical integration of optical chips and terminal modules to promote the development of the company's industrial chain in the field of optical communication.

Investment suggestions: The company's TV ODM business is growing steadily overseas; the chip product structure upgrade gradually establishes the leading position of the subsidiary Megachi Semiconductor in the industry from scale to value; the packaging sector focuses on the backlight field to reduce technical costs and ushered in new growth, and the expansion of the COB product point spacing range helps expand the application field. With the company's further expansion into the field of optical communications, Zhaochi is gradually transforming from a terminal manufacturer to a technology-based group enterprise. The net profit for 24-26 is estimated to be 1.85/2.33/2.69 billion yuan (maintaining the previous value), corresponding to 14.2x/11.2x/9.7x, maintaining a “buy” rating.

Risk warning: risk of fluctuations in raw material prices; risk of operating overseas companies; risk of participating companies' performance promises; risk of business development falling short of expectations; risk of iteration of new technology; risk of project construction falling short of expectations.