Incident: The company released its 2023 semi-annual report. In the first half of 2023, it achieved revenue of 14.895 billion yuan, YoY +5.16%; net profit of 200 million yuan, YoY +15.59%; gross profit margin of 20.88%, down 0.22pct from the previous year. Looking at a single quarter, the company achieved revenue of 9.878 billion yuan, YoY +2.83% in a single quarter in 2023Q2; net profit of 162 million yuan, YoY +11.18%; gross profit margin of 19.50%, down 0.35 pct from the previous year. With the continuous consolidation and expansion of various businesses, performance growth has been steady.
Comment: Seize opportunities for steady development and insist on intensive R&D investment. In the first half of the year, the company steadily sought growth in the operator market and achieved double-digit growth on the profit side. At the same time, it maintained investment in the optical communication field and maintained its leading edge in technology. On the cost side, 2023H1's sales expenses were 962 million yuan, YoY +6.83%; management expenses were 169 million yuan, YoY +4.34%; the increase in sales and management expenses was mainly due to the expansion of business scale; financial expenses of 117 million yuan, YoY -23.87%, mainly due to the increase in financial cost exchange revenue; R&D expenses of 1,888 million yuan, YoY +10.05%. The company continued to invest in R&D to maintain innovation capabilities and develop new products with leading performance and meet demand.
The operator market is stable and growing, and the profit share of mobile optical cable collection has both increased. In the operator market, companies consolidated their share of key products. In the first half of the year, seven operator collection projects won the top two. Telecom integrated terminal collection and mobile server collection both won the bid with the highest overall ranking, demonstrating their leading position in the industry. Among mobile's ordinary optical cable collection in 23-24, the company ranked second with a winning bid share of 15.48%, achieving both an increase in profit and share. In other fields of the digital economy, the company is also actively expanding, with remarkable results. The company seized the opportunity of power grid intelligence and won the bid for the collection of various products from the State Grid; Xinchuang's computing power products broke through the fields of finance, party and government. The “Overall Layout Plan for Digital China Construction” in February of this year clarified the “2522” framework for digital China construction, accelerated the collaborative construction of 5G and gigabit optical networks, and was highly compatible with the company's main business. As an industry-leading enterprise, the company ushered in a new round of development opportunities.
The main optical communication industry maintains a leading edge, and the computing and storage business is growing rapidly. The company has complete optical communication industrialization capabilities from optical fibers, optical cables, chips to system equipment. In the first half of the year, it completed 3820 km ultra-long-distance optical transmission from Shanghai to Guangzhou, achieving the longest verification distance of the current network in the industry, demonstrating its leading position in technology; the company has built a Haioptical cable production base to expand marine optical communication and communication services, and the FitOcean solution has achieved a full range of self-research products, and has been initially applied. Furthermore, the company is seizing the computing power development opportunities brought by AI, the computing and storage business continues to grow, and commercialize its own high-end liquid-cooled servers. The ratio of cold plate liquid cooling is leading in the industry. The computing and storage business has grown at a compound rate of over 50% in recent years.
Profit forecast and investment suggestions: The company is a leading domestic manufacturer in the optical communication industry chain, and we are optimistic that the company will deeply benefit from the steady growth of the digital economy. The company is expected to achieve operating income of 364.50/427.98/49.907 billion yuan in 2023-2025; net profit of 537/7.37/1,021 million yuan; and EPS of 0.45/0.62/0.86 yuan/share, respectively, covered for the first time and given a “buy” rating.
Risk warning: R&D risk, exchange rate fluctuation risk, raw material price fluctuation risk.