Factors such as weakening demand, increasing research and development, impairment and other factors lead to losses.

The company released its annual report for 23 years, with operating income of 330 million yuan in the first half of the year, a decrease of 23% over the same period last year, and a net profit of 17.72 million yuan, compared with a profit of 32.89 million yuan in the same period last year, which is basically consistent with the company's previous performance forecast. 2Q23 achieved an operating income of 181 million yuan in a single quarter, down 22% from the same period last year, while its net profit was a loss of 14.53 million yuan, compared with a profit of 10.05 million yuan in the same period last year. The main reasons for the decline are as follows: 1) affected by the macro environment, industry development and other factors, the decline in relevant market demand leads to a decrease in operating income compared with the same period last year, and the price reduction of some products leads to a decrease in gross profit margin. 2) the company continues to carry out R & D and technological innovation, the corresponding R & D materials, R & D equipment depreciation and other expenses increase compared with the same period last year, and the R & D expense rate is at a high level in the industry. 3) the company made provision for impairment of related assets according to the principle of prudence, and the impairment of assets and credit impairment increased by 5.69 million yuan compared with the same period last year.

In terms of products: 1) the revenue of optical chips and devices was 150 million yuan, down 24% from the same period last year, of which AWG, PLC and DFB all declined in varying degrees; 2) the revenue of indoor optical cable products was 87.03 million yuan, down 24% from the same period last year; 3) the revenue of cable materials products was 83 million yuan, down 25% from the same period last year. In addition, from a sub-regional point of view, domestic income is 255 million yuan, down 20% from the same period last year, and overseas income is 65.01 million yuan, down 36% from the same period last year.

In the first half of the year, the comprehensive gross profit margin was 18.5%, down 6.2 percentage points from the same period last year, while the comprehensive gross profit margin of 2Q23 in a single quarter was 17%, both year-on-year and month-on-month.

We will continue to increase research and development, including 49.28 million yuan in research and development of 400G/800G 's AWG and directional light components in the first half of the year, an increase of 26 percent over the same period last year, accounting for 15 percent of revenue. The company focuses on AWG, parallel optical modules, CW high-power lasers and other chips and components for 400G/800G optical modules, and key technologies such as ultra-wideband dense wavelength division multiplexing (AWG) for coherent communications, and has now achieved customer verification and small batch shipments.

In terms of high-speed chips, 50G PON EML and PAM4 100G EML are under development; 25G1286nm DFB laser sample delivery customer verification.

To participate in the acquisition of AOI of the United States

At the end of July, the company announced that it intends to invest in Yuhan Optoelectronics to participate in the acquisition of the Chinese assets and related businesses of American Applied Optoelectronics (AOI), that is, the "Optical Communication Module and equipment Division of AOI". The company intends to invest 150 million to 200 million yuan in Yuhan Optoelectronics according to Yuhan Optoelectronics's post-investment valuation of 1.1 billion yuan, and obtain a stake of no more than 30%. The purpose of this investment is to promote the development of the company's business.

Profit forecast and investment advice

To maintain the forecast, the company's net profit from 2023 to 2025 is expected to be 66.09 million yuan, 91.41 million yuan and 118 million yuan respectively, an increase of 3%, 38% and 29% respectively over the same period last year, corresponding to a price-to-earnings ratio of 88 times, 63 times and 49 times for 2023-2025, respectively. Maintain the "overweight" rating.

Risk hints: iterative risk of technology upgrading; risk of R & D failure; risk of brain drain of key technologies; failure to recover demand for optical chips in the second half of the year; uncertainty of investment in Yuhan Optoelectronics.