Main points of investment

The content of the incident: on August 28, the company disclosed that in its semi-annual report of 2022, 2022H1 achieved operating income of 170 million yuan, down 16.1% from the same period last year, and realized net profit of 27 million belonging to the parent company, down 34.2% from the same period.

Under the combined effect of the epidemic and the weakening demand of the main application industries downstream, the performance of 22H1 Company has declined greatly.

In the first half of 2022, the company's performance declined; during the reporting period, the company's operating income fell 16.1% compared with the same period last year, its net profit fell 34.2% from the same period last year, and its net profit after deduction fell 35.0% from the same period last year. At the same time, according to the single quarter of 2022Q2, Q2 achieved operating income of 90 million yuan, down 23.2% from the same period last year, and home net profit of 14 million yuan, down 31.9% from the same period last year; compared with 2022Q1, revenue fell 6.5% year-on-year, and home net profit fell 36.6% from the same period last year. Q2 quarter growth has not significantly improved. As for the reasons for the decline in the company's 2022H1 performance, we tend to think that the epidemic situation and the weakening consumer electronics demand in the main application industries of the company's products may be the main influencing factors. 1) Shenzhen and Changzhou, where the company operates, were respectively affected by the epidemic in Shenzhen and Shanghai in the first half of the year, and normal supply and production activities are expected to be inevitably affected. 2) the company mainly applies consumer electronics downstream, while AAC Technologies Holdings Inc., the company's biggest customer in 2021, is also a consumer electronics industry chain company. Since 2022, consumer electronics shipments have continued to be revised downwards. Take smartphones as an example, data from Cina show that overall mobile phone shipments in the domestic market fell 21.7% in the first half of this year compared with the same period last year, and the weakening demand in the consumer electronics industry is expected to significantly affect the company's current business expansion.

Although the company faced an unfavorable business environment in the first half of the year, it still invested steadily in R & D, laying the foundation for the next stage of re-growth; during the reporting period, the company made breakthroughs in applied R & D in many emerging fields. In the first half of 2022, against the backdrop of 16.1% decline in revenue from the same period last year, the company's R & D investment maintained a year-on-year increase of 6.14% to 27.16 million yuan. With continuous and stable R & D investment, the company made a breakthrough in product application expansion in biomedical, new energy and other fields during the reporting period; 1) in biomedicine, medical business customers and in-hand orders increased compared with the same period last year; the "intrusive Medical Application" project developed new laser micro-welding equipment, upgraded femtosecond stent cutting equipment and polishing equipment, and completed the core manufacturing process of intrusive medical devices. Build a joint photoacoustic imaging laboratory to promote the clinical transformation of related products; 2) in terms of new energy, the "Energy Saving and Emission reduction Application Research Institute" project focuses on the laser process needs of the new energy industry and gives full play to the advantages of ultrafast lasers and other core components to develop core processes and core products.

The restricted equity incentive scheme has been implemented in 2022, which is expected to demonstrate the company's confidence in development. The company disclosed the draft restricted equity incentive plan in March 2022 and completed its first grant in April. According to the content of the restricted equity incentive scheme, the company has established performance constraints for equity grant; compared with 2020, the growth rate of operating income from 2022 to 2023 is not less than 30%, 60% and 90% respectively. In simple translation, the trigger constraint for equity incentives in 2022 is not less than 12.7% higher than the same period in 2021, and 100% of equity incentives in 2022 is not less than 21.4% higher than the same period in 2021. We tend to think that in the context of the adverse business environment in 2022, the implementation of equity incentives may demonstrate the confidence of the management of the company.

Investment advice: under the combined influence of the impact of the epidemic and the slowdown in demand in the major downstream application industries, the company's performance declined to a certain extent in the first half of the year; considering that more than half of the 22 years have passed, even if the demand of the major downstream consumer electronics industry gradually recovers and its transmission to mid-stream equipment manufacturers such as the company may take time, under the background that the volume of emerging business has not yet started for the time being, we slightly lowered the company's profit forecast for 2022. However, in the medium and long term, the company's sustained and stable R & D investment, and its emerging applications are making more progress and breakthroughs, we still tend to think that the company's long-term investment value is higher. Taken together, we maintain the over-An investment rating and forecast earnings per share of 0.44, 0.53 and 0.69 yuan per share from 2022 to 2024, respectively.

Risk hints: 1, product competitive price reduction exceeds expectations, 2, demand impact caused by economic slowdown and epidemic situation, 3, major customer dependence risk, 4, actual controller control stability risk, 5, core technical personnel loss risk and so on.