Incident: On February 21, 2024, the company announced its 2023 performance report. In 2023, it achieved operating income of 339.11,400 yuan, a year-on-year decrease of 1.29%; net profit to mother of 41.884 million yuan, a year-on-year decrease of 28.34%; realized net profit after deduction of 36.6024 million yuan, a year-on-year decrease of 23.68%.
Short-term pressure on performance, telecom and data center demand slowed in stages: 2023Q4 achieved net profit of 10.6524 million yuan, a year-on-year decrease of 21.33%; the decline in 2023 performance was mainly due to: 1) demand on the overseas telecom side and traditional data center side gradually slowed during the reporting period, and revenue in the optical communication sector declined in stages; 2) downstream demand for industrial lasers recovered steadily, and businesses in emerging application fields continued to be developed. The commissioning of new key production facilities increased fixed costs such as depreciation and amortization, etc. Effective use of scale effects; 3) The company implemented a technology innovation strategy for high-performance precision optical components, accelerated the construction of core technologies for optoelectronic integration and testing, and continued to increase R&D investment1.
We believe that as demand in the downstream market picks up, the company's investment in emerging application fields gradually exerts scale effects, and future performance is expected to continue to improve.
The proposed acquisition of GouMax is vertically integrated into the industrial chain, and demand for AI computing power is strong; the company plans to acquire GouMax. Its customers are mainly customers in the optical communication industry such as optical devices and optical modules, and customers in the optical fiber sensing industry and scientific research and education institutions2, and plans to expand and improve the technical layout 3 in the field of optoelectronic test modules and instruments/equipment. Currently, Tengjing Technology's overseas customers are mainly Lumentum, Finisar, nLight, etc. As of 2023H1, the company's overseas sales account for about 19% 4. At the same time, 2023H1, the company pioneered the application of high-end optical module products in semiconductor equipment, biomedicine, etc., and sales orders increased. Currently, related products are being verified5; some of the company's precision optical component products in the field of optical communication can be used in high-speed optical modules such as 400G and 800G, and the specific demand situation follows fluctuations in customer orders. With the strong demand for computing power driven by the development of AI, the company continues to enrich and improve technologies and products in the field of optical communication to meet the upgrade needs of downstream customers for longer transmission distances and larger bandwidth capacity6. We believe that the company plans to acquire overseas companies and continuously vertically integrate the optical communication industry chain, which is expected to continue to increase the sales share of the company's overseas customers.
The layout of emerging business fields continues to expand, and various business layouts are progressing steadily: in 2023, the company will actively develop high-end optical module business in biomedical and semiconductor equipment, develop products such as lidar emission modules and fiber lasers; set up a holding subsidiary in Hefei to carry out functional crystal materials and device construction projects; set up a branch in Nanjing to develop AR nanoimprinted diffraction waveguide products. The above projects will broaden the business growth space and promote the company's future sustainable development7. We believe that the company continues to expand its upstream and downstream business areas, and the relevant holding subsidiaries have successively promoted product technology development or project construction, which is expected to increase the company's overall revenue scale and profitability in the future.
The company's shareholders and others proposed to repurchase shares and effectively advance the “improving quality, efficiency, and return” action plan: Mr. Yu Hongrui, the chairman and general manager of the company, proposed that the company use its own funds to repurchase some RMB common stock (A shares) shares already issued by the company, and effectively promote the “improving quality, efficiency, and valuing return” action plan. The share repurchase plan is used for employee stock ownership plans or share incentives, totaling RMB 10-20 million. Regarding the “Improve Quality, Increase Efficiency, and Value Return” action plan, the company will focus on main business operations, increase investment in R&D, deepen the technology moat, and explore new markets to comprehensively enhance the company's core competitiveness and profitability8. We believe that while focusing on improving performance, the company actively pays attention to investors' returns and gives back their trust, and is optimistic about establishing a good image of the company and improving long-term value in the future.
Profit forecast and investment rating: We predict that the company's net profit for 2023-2025 will be 0.42/0.56/0.72 billion yuan, and the current stock price is 71/53/41 times PE, respectively. Given that the company is a high-quality domestic manufacturer of optical components and optical fiber devices, future performance is expected to grow and maintain a “buy” rating.
Risk warning: risk of declining gross margin, risk of differentiated competition, risk of product certification, risk of major customer changes.