Incidents:
On March 29, 2024, the company released its 2023 annual report. In 2023, the company achieved operating income of 13.353 billion yuan, a year-on-year decrease of 3.45%; realized net profit of 1.297 billion yuan, a year-on-year increase of 11.18%; realized net profit of 730 million yuan without return to mother, a year-on-year decrease of 25.67%; and achieved basic earnings per share of 1.71 yuan, an increase of 11.04% year on year.
Facing market pressure, Q4 net profit increased sharply in the single quarter:
In 2023, the global communications industry faced the challenge of short-term demand pressure. The company faced market pressure, consolidated its leading market position through measures such as optimizing product structure, strengthening cost control, and continuing market development, and ensured a stable level of profit. In 2023, the company achieved operating income of 13.353 billion yuan, a year-on-year decrease of 3.45%; realized net profit to mother of 1,297 billion yuan, an increase of 11.18% over the previous year. The gross margin level increased from 23.45% in 2022 to 24.50% in 2023, up 1.05 pcts year over year. Due to the company's business expansion in overseas markets and diversified fields, related sales expenses and management expenses increased. In 2023, sales expenses increased 21.45% year on year, and management expenses increased 34.58% year on year. In the Q4 quarter, the company achieved operating income of 3.323 billion yuan, down 7.37% year on year and up 6.72% month on month; realized net profit of 417 million yuan, up 42.96% year on year and 52.37% month on month, achieving a significant increase.
Benefiting from improved efficiency and product structure optimization, the gross margin of optical fiber cable products has increased:
By sector, in terms of optical fiber and optical fiber prefabricated rod business, short-term market demand is under pressure. On the one hand, the company ensures the profit level of mature products through efficiency improvements and process optimization, and on the other hand, continues to maintain R&D investment and marketing intensity for new products and technologies, and continuously optimizes the product structure. In 2023, we achieved revenue of 3.173 billion yuan, a year-on-year decrease of 16.83%; achieved a gross profit margin of 53.15%, an increase of 5.62 pcts year-on-year.
In the optical cable sector, the company has further consolidated its leading position in the domestic market, improved its overseas production capacity layout, and increased its market share and brand awareness. At the same time, the company's communication network engineering business is also progressing steadily. In 2023, we achieved revenue of 5.358 billion yuan, a slight decrease of 7.61% year on year; achieved gross profit margin of 17.80%, an increase of 2.55 pcts year on year.
In terms of optical devices and modules, the subsidiary Bochuang Technology completed integration with Changxinsheng, maintained its leading edge in the domestic telecommunications market, and continued to make progress in the field of high-speed optical modules used in the data center market. In 2023, we achieved revenue of 1,470 billion yuan, a slight increase of 2.43% year on year; achieved gross profit margin of 14.09%, a slight decrease of 1.61 pct year on year.
The upward trend in industry prosperity has not changed, and the number of high-specification optical fiber cable products collected has increased dramatically:
According to Mobile's announcement, in July 2023, China Mobile announced the 2023-2024 ordinary optical cable collection results. The overall tender volume was 108.2 million core kilometers, down from 143 million core kilometers in 2021-2022, but comparable to the pre-2021 tender volume; the unit price limit is 70.47 yuan/core kilometer, which is an increase from 68.93 yuan/core km from 2021 to 2022. In this collection, the company ranked first with a bid share of 19.36%. According to Mobile's announcement, in October 2023, China Mobile announced the 2023-2024 G.654E fiber optic cable product collection results. The estimated procurement scale is about 1,227,900 core kilometers, a significant increase compared to 332,400 core kilometers in 2022, but the unit price has declined. In this collection, the company ranked first with 40% bid share. As a new generation of optical fiber, the ultra-low attenuation and ultra-broadband characteristics of G.654.E fiber have significant advantages in long-distance transmission and high-bandwidth applications, which is conducive to large-scale commercial use of 400G in China. We believe that the upward trend in industry prosperity will not change, and the increase in the procurement share of G.654E high-specification optical fiber optic cable products will help optical fiber cable companies optimize their product structure, which in turn will lead to an increase in profitability.
Investment advice:
We expect the company's revenue from 2024 to 2026 to be RMB 156.25/173.94/19.186 billion yuan, and net profit to mother of RMB 1,547/17.17/RMB 1,890 billion, respectively, and corresponding EPS of 2.04/2.27/2.49 yuan, respectively.
We gave the company 17 times PE in 2024, corresponding to a target price of 34.68 yuan, maintaining a “buy-A” investment rating.
Risk warning: changes in industry policies, rising raw material prices, increased market competition, technological upgrading, risk of overseas business falling short of expectations.