Incident: The company released its 23 annual report and 24 quarterly report. Revenue for the full year of '23 was 1,939 million yuan (+62.04%), net profit of 730 million yuan (+81.14%), net profit after deducting non-return to mother of 720 million yuan (+ 97.42%), and gross profit margin of 54.30% (+2.68pcts), mainly due to increased shipments of optical active devices. 24Q1 revenue of 732 million yuan (+154.95%), net profit of 279 million yuan (+202.68%), net profit after deduction of 269 million yuan (+215.07%), gross profit margin of 55.51% (+4.09pcts), mainly due to the development of AI technology and the increase in computing power demand. Global data center construction has driven a continuous steady increase in demand for high-speed optical device products. In particular, demand for high-speed products has increased rapidly, leading to a year-on-year increase in the company's revenue.
In '23, the optical active device business and overseas region's revenue share increased rapidly. In '23, the company's revenue for optical passive devices was 1,183 billion yuan (+23.28%), gross profit margin of 60.25% (+5.24pcts); revenue from optical active devices was 746 million yuan (+242.52%), gross profit margin of 44.77% (+8.02pcts), and the revenue share increased to 38.48% (+20.28pcts), mainly benefiting from the company's forward-looking layout and years of R&D investment, leading to an increase in active device shipments. In addition, the company continued to promote overseas layout, with overseas revenue of 1,592 billion yuan (+131.25%) in 23 years, gross profit margin of 54.71% (+2.97%), and the revenue share increased to 82.14% (+24.58pcts).
Continuous investment in R&D and stable expenses. In 23 years, the company has continued to strengthen pre-research on new technologies in high-speed products to help customers achieve large-scale batch delivery of high-speed products. In '23, the company spent 143 million yuan on R&D (+16.74%), accounting for 7.39% of revenue. Sales expense ratio 0.94% (-0.56pcts), management expense ratio 4.26% (-0.97pcts), financial expense ratio -3.04% (-1.36pcts).
Focus on core business and actively promote overseas layout and capacity construction. 1) In '23, the company focused on core business to promote growth, strict quality, and delivery of 400G and 800G optical device products for multiple customers. At OFC2024, the company showcased 1.6T/800G optical module supporting optical engine products and solutions to help photonic integration. 2) In '23, the company accelerated the construction of the overseas Singapore headquarters platform and production base in Thailand, and collaborated with more customers to plan the global multi-plant capacity supply. The first phase of the production base plant built in Thailand is expected to begin trial production in May '24. In addition, the company continued to upgrade its information system and automation, cut costs and increase efficiency at the Jiangxi production base, and the capacity utilization rate increased markedly in 23 years.
Profit forecast. We believe that as the demand for AI computing power increases, the demand for high-speed optical modules at home and abroad will be boosted, and the optical communication industry is expected to maintain rapid long-term development. Tianfu Communications is in a leading position in the competitive landscape of the industry, and business revenue is expected to maintain steady growth. We expect the company's 2024-2026 net profit to be 1,446, 21.91 billion yuan, and 2,993 billion yuan, and EPS of 3.66, 5.55, and 7.58 yuan, respectively. Referring to the company's historical valuation and the average valuation level of comparable companies, the company was given a 2024 PE range of 40-45X, corresponding to a reasonable value range of 146.40-164.70 yuan, which is “superior to the market” rating.
Risk warning. Industry demand is picking up and uncertainty, downstream manufacturers are expanding upstream, and industry competition is intensifying.