In the first half of 2022, the company achieved revenue of 9.41 billion yuan, + 9.3% year-on-year, and net profit of 350 million yuan,-62.0% compared with the same period last year. The revenue growth was mainly contributed by precision structures and optical products; the pressure on net profit was mainly due to weak downstream demand and reduced regulations in the mobile phone optical industry. Looking to the future, in the short term, it is expected that the optical lens phase will be under pressure, the company's glass-plastic hybrid project will continue to advance, optical modules will cut from the middle and low end to the middle and high end market, and the motor business will continue to grow; in the long run, based on the gradual layout of on-board optics / acoustics and AR/VR business of mobile phones, or contribute to the follow-up growth momentum, we estimate that EPS will be 0.710.81x0.93 yuan in 2022-2024, downgraded to "overweight" rating.

In the first half of 2022, the company achieved revenue of 9.41 billion yuan, + 9.3% year-on-year, and net profit of 350 million yuan,-62.0% compared with the same period last year. The company's revenue growth was mainly due to the contribution of precision structures and optical products, while the pressure on net profit was mainly due to weak downstream demand and reduced regulations in the mobile phone optics industry. In addition, the exchange loss of 47 million yuan also had a negative impact. In a single quarter, Q2 achieved operating income of 4.52 billion yuan, year-on-year + 4.6%, net profit of 145 million yuan, year-on-year-62.8%, gross profit of 18.3%, year-on-year-6.7pcts. In terms of gross profit margin, the company's gross profit margin in the first half of 2022 was 18.9%, year-on-year-9.2pcts, mainly due to the decline in ASP brought about by increased competition in the mobile optics industry and the off-season impact of North American customers. From the expense point of view, the company's R & D / management / sales expense rates in the first half of 2022 were respectively year-on-year from-2.65/+0.2/+0.56pct to 7.73% to 4.79% / 2.23%. Among them, the reduction of R & D expense rate is mainly due to the company's reduced investment in some traditional businesses, and we expect that the follow-up company will increase R & D investment in vehicle, VR/AR and other areas; the increase in management expense rate is mainly due to the increase in equity incentives and other expenses; and the increase in sales expense rate is mainly due to the company's increased sales promotion efforts in automotive and other areas.

Optical sector: driven by shipments of plastic lenses and modules, the company's optical business revenue in the first half of 2022 was + 24.7% year-on-year to 1.85 billion yuan. However, due to the decline in lens and module prices and inventory impairment, the company's optical sector gross profit margin in the second quarter was only-4.8%. In the first half of 2022, the company's optical business achieved revenue of 1.85 billion yuan (year-on-year + 24.7%). Of these, 22Q1/Q2 realized revenue of 9.2 million yuan and 14.9% respectively compared with the same period last year. The company's revenue growth was mainly due to the increase in shipments of plastic lenses and optical modules, of which the shipments of plastic lenses and modules in the second quarter were + 15% and + 116.6% respectively compared with the same period last year. (1) in terms of lens, on the mobile phone, demand was weak and prices were under pressure in the first half of the year due to the downgrading of mobile phone optical regulations, which affected the company's gross profit margin to a certain extent. The company continues to optimize internal operation control and promote the progress of mid-and high-end optical projects on Android at home and abroad. At present, the company is working with a number of mobile phone customers to promote the glass-plastic hybrid lens solution, 1G5P and 1G6P lenses continue to ship and deliver; on the car side, the company's product research and development and customer introduction are relatively smooth, in the semi-annual report performance presentation meeting, the company expects that there will be 2 or 3 designated projects in the car lens this year. The follow-up company will further promote the application of WLG glass lenses in vehicle, AR/VR, semiconductor production and testing, so as to make the optical lens business more diversified. (2) in terms of modules, at present, the company's high-end modules have begun to ship, while the VCM production line has started operation to verify shipments for customers in small batches. In terms of gross profit margin, according to the company's semi-annual performance exchange meeting, 2022Q2 optical plate gross profit margin fell to-4.8%, month-on-month / year-on-year decline 8.3/26.8pcts, the company said that the impact of inventory impairment on gross profit margin reached 15 percentage points. At present, the company is working to reduce inventory levels, but given the weak demand at the Android end this year, we expect the price of plastic lenses to continue to decline and the company's optical business may continue to be under pressure in the second half of the year.

Acoustics business: weak demand at the Android end is a drag on performance, with year-on-year revenue of + 1% 2022H1/2022Q2 6.4% respectively. In the first half of 2022, the share of the company's acoustics business in overseas clients increased steadily, with revenue of 4.14 billion yuan (+ 1% compared with the same period last year), of which 22Q1/Q2 realized revenue of 2.23 billion yuan, which was + 8.8%, respectively, compared with the same period last year. 6.4%, revenue pressure in the second quarter was mainly due to weak demand in the Android mobile phone market. In terms of gross profit margin, the gross margin of the company's acoustics business in the first half of the year was 27.1% (year-5.9pcts), of which the gross margin in the second quarter was 27.7% (year-0.7pct, month-on-month + 1.1pcts). In the first half of the year, the company continued to optimize product line management, through digital transformation and project system closed-loop management, continue to reduce costs and increase efficiency. In terms of mobile phone acoustics, while maintaining its mid-and high-end market position, the company has increased its market share in low-and middle-end mobile phones by introducing more cost-effective products. At present, the company's unique SLS superlinear loudspeaker has fully covered the Android market; the original NLC low frequency algorithm has been successfully promoted and applied, and the integrated solution of "software + hardware" and sound debugging has been recognized by Android customers. In terms of in-vehicle acoustics, the company has obtained a number of fixed-point projects, including overall acoustic solutions, local speakers and tuning, covering a wide range of customers, such as traditional car companies, new power and overseas mid-and high-end car brands. the company expects to get more fixed points in the second half of the year. We believe that under the pressure of smartphone demand, the company is actively expanding in-car acoustics, with a variety of project types and comprehensive customer structure, which is expected to contribute medium-and long-term growth momentum to the company's acoustics sector.

Risk factors: downstream demand fluctuations caused by the epidemic, exchange rate fluctuations, intensified competition in the industry, lower-than-expected optical business income and other risks.

Profit forecast, valuation and rating: the company is the world's leading supplier of electroacoustic devices, expanding the business of radio frequency structures and vibration motors based on the advantages of customers, and actively extending to the optical direction. Due to the pressure on consumer electronics demand caused by repeated 2022H1 outbreaks at home and abroad, we downgrade the company's 2022 EPS 2023 EPS forecast to HK $0.85, 0.95 and 1.09 (the original forecast was HK $1.43). Considering the company's multi-category expansion in consumer electronics acoustics + structure + optics and referring to the company's average PETTM 22x in the past three years, we will give 20 times PE in 2022, corresponding to a target price of HK $17. Downgrade to "overweight" rating.