Incident: The company released the 2023 Annual Report & 2024 First Quarter Report. In 2023, it achieved revenue of 8.53 billion yuan, a year-on-year decrease of 22.3%; net profit to mother was 64.716 million yuan, a year-on-year decrease of 71.5%; net profit after deducting non-return to mother was 23.67 million yuan, a year-on-year decrease of 101.4%. 2024Q1 achieved revenue of 1.92 billion yuan in a single quarter, down 9.5% year on year; net profit to mother was 6.066 million yuan, down 92.1% year on year; net profit without return to mother was 7.42 million yuan, down 110.9% year on year.
Market demand has declined, and short-term performance is under pressure. The pressure on annual results was mainly due to weak global economy, saturated domestic market demand, sluggish demand from overseas industries, customer demand for inventory removal and cost reduction, and a decline in market demand due to the “price for volume” trend in the market. By product, revenue from PON series products, AP series products, and DSL series products all declined, mainly due to a decrease in demand; the decline in revenue from the digital communication business was mainly due to a decrease in revenue from domestic parks and SMB switches and changes in revenue recognition methods in the CM model; the increase in revenue from other main businesses was mainly due to an increase in revenue from the automotive electronics business and set-top box business during the reporting period.
Profitability has declined, and there has been an increase on the expense side. The company's net profit in 2023 was 64.716 million yuan, down 71.5% year on year. The main reason is that the sensor sealing and testing business is still under high upfront profit pressure during the high investment period. The subsidiary Shandong Wenyuan was affected by the continued decline in industry demand and adjusted goodwill impairment preparations to reduce the company's current profit and loss. At the same time, the US dollar exchange rate appreciation in 2023 was lower than the same period last year due to the comprehensive impact of the year-on-year decrease in exchange earnings. The 24Q1 consolidated net margin was 0.1%, down 3.4pp year over year. There has been a certain increase on the cost side. The company's sales/management/financial expense ratios in 2023 were 1.9%/3.9%/0.2%, respectively, up 0.1/0.8/0.9pp year-on-year, respectively. The change in financial expense ratio was mainly due to a decrease in exchange earnings in 2023. The 2024Q1 sales/management/finance expense ratios were 1.8%/3.7%/0.4%, respectively, up 0.4/0/0.6pp year-on-year, respectively.
Actively improving the global production capacity layout, the digital communication market has promising prospects. The company is actively improving the global production capacity layout, speeding up the production capacity layout of overseas Vietnam, building a new growth pole for production capacity in North America. In 2023, the first phase of the Vietnam production base (self-built) was completed and put into operation, the second phase of the project was successfully capped, the selection of cooperative plants for the North American production project was initiated, and the cooperative factory was basically determined recently. According to IDC data, global Ethernet switch revenue increased 20.1% year over year in 2023. Among them, data center market revenue increased 13.6% year over year, and non-data center revenue increased 25.2% year over year. According to Dell'Oro Group, 800G switches will exceed 400G in 2025, and 400G and above switches will account for nearly 70% of data center switch sales in 2027. The company has been deeply involved in the Ethernet switch industry for many years, and has accumulated deep technical accumulation and intelligent manufacturing experience in the data center/non-data center field. The switch product structure is expected to be further optimized, and the switch scale is expected to usher in a new growth point.
Profit forecasting and investment advice. EPS is expected to be 0.35 yuan, 0.45 yuan, and 0.63 yuan respectively in 2024-2026, corresponding to 23, 18, and 13 times PE, respectively, maintaining the “holding” rating.
Risk warning: Risks such as downstream demand falling short of expectations, increased market competition, and rising prices of upstream raw materials.