In 2022, the company achieved revenue of US$1,116 million (+39.7% YoY) and achieved net profit of US$84 million (+68.3% YoY), with a gross profit margin of 15.60% (+0.5pct YoY) and a net profit margin of 7.5% (-1.3pcts YoY). Overall, the company's 2022 performance exceeded expectations, benefiting from client A's share growth, increased value, and exchange earnings. We are optimistic about the company's strategic layout and market positioning. We expect the company's EPS to be 0.86/1.17/HK$1.62 in 2023-2025, maintaining the “buy” rating.

Benefiting from A client share growth, increased value, and exchange earnings, the company's 2022 performance exceeded expectations. The company achieved revenue of US$1,116 million for the full year of 2022, +39.7% year on year, of which 22H1 revenue was US$405 million and 22H2 was US$712 million (+75.9% year-on-year); net profit for the full year of '22 was US$84 million, +68.3% year on year, of which 22H1's net profit was US$31 million and 22H2 was US$53 million (+68.6% month-on-month); net profit in '22 after excluding exchange gains and losses was US$70 million and US$57 billion in '21, year-on-year +21.8%; 22-year gross margins and net interest rates were 15.6%/7.5%, respectively, +0.5/+1.3pcts year over year. In our opinion, the main reasons why the company's 2022 performance exceeded expectations are: (1) Increased share: the company is currently the top two suppliers of tablet front-camera modules+mobile phone front-camera modules for A customers. In '22, the company's front-camera share in the 14 series increased dramatically, which led to revenue growth (we estimate that it increased from about 30% of the 13 series to about 50% of the 14 series). (2) Front-camera module ASP upgrade: A shielded phase autofocus function (PDAF) was added to the front camera of the 14 series phones released in '22. We estimate that this led to an increase in ASP for the front camera module from $6 to around $8-8.5. (3) Exchange generates positive income:

Affected by the appreciation of the US dollar in '22, the company generated positive exchange earnings of $14 million. In terms of expenses, sales expenses and management expenses in '22 were 2.4/71.8 million US dollars, respectively, +21.3%/61.2%, compared to +21.3%/61.2%, mainly due to increased labor costs for sales staff and increased R&D expenses; in terms of capital expenditure, the company's capital expenditure in '22 was 93 million US dollars, far exceeding US$26 million in '21.

At this point, we are optimistic that the mobile phone share of Company A's customer will further increase and the number of parts will be expanded; at the same time, the company is currently actively deploying AR/VR business+expanding automotive lidar products horizontally, which is expected to further open up room for growth. (1) Customer A's traditional business: The company is the core supplier of mobile phones and tablet front-camera modules for customer A. Currently, it is the top two suppliers of tablet front-camera modules for customer A+ mobile phone front-camera modules. Looking ahead, we think the company is expected to benefit from a steady increase in front-camera share+material number expansion to open up growth space on the mobile phone side. Furthermore, the company is also expected to benefit from the expansion of the tablet product line. We expect customer A's traditional business revenue for 2023-2024 to be $12.16 billion, respectively. (2) AR/VR: As the main camera module supplier for customer A's smartphones and tablets, the company has been cooperating with customer A for many years. We think it may be expected to further become a camera module supplier for customer A's VR products in the future to achieve increased performance. We expect the AR/VR business to contribute approximately $0.4/160 million of revenue in 2023-2024, respectively. (3) In-vehicle business:

The company has rich experience in assembling and testing lens modules and optical components. Relying on Lixun Precision's manufacturing accumulation and resources, the company successfully entered the assembly, calibration and factory testing business of Sudeng Juchuang LiDAR. Using the “905nm+ MEMS” technology route, Suteng has won mass production orders from many passenger car companies. Its main product, the M series, has received fixed orders for more than 50 models from nearly 20 car companies including Toyota Motor Corporation, exceeding 10 million units.

We are optimistic that the company will achieve performance growth along with the rapid increase in shipping volume. We expect the company's lidar business revenue to reach about US$0.5/220 million respectively in 2023-2024.

Risk factors: The competitive pattern deteriorated; downstream demand fell short of expectations; customer A's mobile phone optical specifications were upgraded more slowly than expected; the company's new product yield was lower than expected; the gross margin of the company's new products was lower than expected; development in the ADAS field was slow; performance uncertainty brought about by changes in Sino-US relations exceeding expectations.

Profit prediction, valuation and rating: The company is the world's leading camera module supplier. It has been deeply involved in the industry for more than 20 years and is deeply tied to customer A's industry chain. At the current point, we are optimistic that the mobile phone share of Company A's customer will further increase and part number expansion. Furthermore, according to its announcement, the company is currently actively deploying AR/VR terminal business+expanding vehicle lidar products horizontally, which is expected to further open up room for growth. We are optimistic about the company's medium- to long-term growth logic, maintaining the company's 2023-2024 EPS forecast of HK$0.86/1.17, with an additional 2025 forecast of HK$1.62. As of March 24, 2023, the company's PE is 23x. Comparable to the company Shunyu Optical Technology (customers cover A customer and Android terminals, layout mobile phone camera modules, AR/VR camera modules, vehicle lidar, etc.), Lante Optics (customers cover customer A, Suteng Juchuang, etc., and layout upstream camera module products such as optical prisms, glass aspherical lenses and glass wafers. The products are used in mechanical products such as mobile phone periscope lenses, vehicle lidars, etc.), Yongxin Optics (providing automotive lidar optical components, etc.), Yongxin Optics (providing automotive lidar optical components, etc.) Rotating type, semi-solid state type , solid-state lidars, etc.), Crystal Optoelectronics (which has introduced customer A and expanded from the mobile phone optical business to automotive lidar, HUD, and AR/VR optical layout products, benefiting from the trend of intelligent automotive and AR/VR demand), the average PE value in 2023 was 32x (Wind's consistent expectations). Considering the valuation premium brought about by the subsequent high growth of the company's VR/AR and automotive lidar, we gave the company a target PE25x with a target share price of HK$22 to maintain the “buy” rating.