A good start in 2022
? YOFC reported a net profit of Rmb203.6m in 1Q22, up 141.0% yoy, with
revenue of Rmb2,981.7m, up 56.0% yoy.
? YOFC reported a gross margin of 20.0% in 1Q22, up 0.4ppt yoy.
? We maintain the view that YOFC is on the recovery track in terms of
fundamentals.
? Successful diversification and internationalization will also drive YOFC’s
medium-term growth.
? We reiterate our ADD rating, with a higher target price of HK$14.48 (based
on 12x 2022F P/E).
A good start in 2022
? YOFC’s 1Q22 revenue was Rmb2,981.7m, up 56.0% yoy, from Rmb1,911.9m in 1Q21,
accounting for 31.3% for our full-year forecast for 2022; and a net profit of Rmb203.6m
in 1Q22, up 141.0% yoy, accounting for 26.7% of our full-year net profit forecast for 2022. YOFC reported a gross margin of 20.0% in 1Q22, up 0.4pp yoy. The higher
profitability was due to a more favourable operating environment. The yoy revenue
growth in 1Q22 was due to an increase in sales volume and ASPs. In 2021, the average
prices remained low for the industry, and corporate profitability was under pressure.
YOFC’s 1Q22 results confirm our view that the industry, including YOFC, is back on the
recovery track.
Demand for optical communications expected to resume
? The continuous rise in network traffic supports the construction of telecommunication
networks. We maintain the view that optical communications companies will benefit from
resilient global demand for optical fibre, owing to the global 5G roll-out and resilient
demand from the DataCom segment. CRU estimated that global demand for optical fibre
reached 500fkm in 2021, resuming yoy growth. This was the first time optical fibre
reported yoy growth since 2H18. CRU estimated that global demand for optical fibre will
continue to grow in 2022 since the key regions, including China, the US, India and the
EU, are expected to report yoy growth of at least 6%. The key projects in China will drive
demand for optical fibre. We believe YOFC’s internationalization strategy will help it
benefit from the resumption of demand in both China and overseas markets. YOFC’s
overseas sales reached Rmb3,086m in 2021, accounting for over 30% of total revenue.
Positive diversification strategy effect
? YOFC’s revenue from other products and services in 2021 demonstrates the success
of its diversification strategy, which includes increasing R&D in high-end products (e.g.
active optical cable (AOC) products, multi-mode optical fibre and cable products), and
the development of optical transceiver and optical sub-assembly products (YOFC
acquired Sunstar Communication in early 2020). The Company is also looking for other
diversification opportunities, including undersea cable and semiconductor materials
(YOFC invested in Hangzhou Semiconductor Wafer in 2H20 and Tus Semiconductor in
1Q22).
Reiterate ADD
? We maintain the view that YOFC is on the recovery track in terms of fundamentals.
Successful diversification and internationalization will also drive YOFC’s medium-term
growth. We reiterate our ADD rating, with a higher target price of HK$14.48 (based on
12x 2022F P/E). .