Incidents:
On April 21 and April 23, 2024, Tianfu Communications released the 2023 Annual Report and 2024 Quarterly Report respectively: in 2023, the company achieved operating income of 1,939 billion yuan, an increase of 62.04% over the previous year; realized net profit attributable to shareholders of listed companies of 730 million yuan, an increase of 81.14% year on year. In the first quarter of 2024, the company achieved operating income of 732 million yuan, an increase of 154.95% year on year; net profit attributable to shareholders of listed companies was 279 million yuan, an increase of 202.68% year on year.
Opinions:
Demand for high-speed optical device products is growing rapidly, and the company's performance has increased dramatically. In 2023, thanks to the development of artificial intelligence AI technology and increased demand for computing power, global data center construction led to a continuous steady increase in demand for high-speed optical device products. At the same time, the company continues to upgrade its information system and automation, reduce costs and increase efficiency at its Jiangxi production base, and the capacity utilization rate of high-speed products has improved markedly. For the full year of 2023, the company achieved operating income of 1,939 million yuan, an increase of 62.04% year on year; net profit attributable to shareholders of listed companies was 730 million yuan, an increase of 81.14% year on year. In the first quarter of 2024, also benefiting from the development of AI technology and the increase in demand for computing power, the company's performance was high, achieving operating income of 732 million yuan, an increase of 154.95% year on year; net profit attributable to shareholders of listed companies was 279 million yuan, an increase of 202.68% year on year.
Long-term R&D investment maintains technological advantages and increases the company's profitability. Since its launch, the company has maintained a high level of investment in R&D, continued to deepen the company's R&D design and process development capabilities in terms of overall passive device solutions and advanced optical packaging manufacturing, and maintained the company's technological leadership in segmented fields for a long time. At the same time, it also provided strong support for customers to develop new products at a high speed, helping customers accelerate the successful conversion of new products at a high rate. In 2023, the company's gross margin of optical communication devices was 54.26%, an increase of 2.62 percentage points over the previous year. Among them, the gross margin of optical passive devices was 60.25%, up 5.24 percentage points year on year; the gross margin of optical active devices was 44.77%, up 8.02 percentage points year on year.
Accelerate the international industrial layout and meet the growing demand under the AI wave. The company actively promotes the global industrial layout and gradually improves the global network layout with Suzhou as its headquarters in China, Singapore as overseas headquarters, and Jiangxi and Thailand as mass production bases to meet the needs of different domestic and overseas customers. In the context of the rapid development of AI technology and the accelerated growth in demand for computing power, the company's international industrial layout is expected to lay a solid production capacity foundation for the company's continuous and steady performance growth.
Profit forecast and investment rating: Against the backdrop of continued rapid growth in computing power demand, the company's demand for high-speed optical device products continues to grow steadily, while the company accelerates its international industrial layout to guarantee continued performance growth. We expect the company to achieve operating income of 3,649 billion yuan, 5.207 billion yuan, and 7.114 billion yuan respectively in 2024-2026, and net profit to mother of 1,211 billion yuan, 1,724 billion yuan, and 2,489 billion yuan. The PE corresponding to the current stock price is 53.2, 37.3, and 25.9 times, respectively. The first coverage gives a “buy” rating.
Risk warning: Optical communication device market demand falls short of expectations; optical communication device product prices fall; industry competition intensifies; risk of exchange rate fluctuations; adverse changes in the macro environment; and the cited data sources publish erroneous data.