Key points of investment

Incident: The company released its 2022 annual report and the first quarter report of 2023. The company achieved revenue of 568 million yuan in 2022, +3.48% year on year, and achieved net profit of 67 million yuan, -23.16% year on year, after deducting non-net profit of 52 million yuan, or 35.77% year on year. Q1 2023 achieved revenue of 97.845,800 yuan, -28.40% year on year, and net profit of 4.7922 million yuan returned to the mother, -79.79% year on year.

Multiple factors put pressure on performance, and gross margin remained at a high level: on the revenue side, lasers dragged down overall revenue. The laser business achieved revenue of 41.21 million yuan in 2022, -27.81% compared to the previous year. Mainly due to a decline in demand for downstream applications such as consumer electronics, and increased competition in the middle- and low-end nanosecond laser market, which affected the company's nanosecond laser prices. Furthermore, the epidemic had an adverse impact on the company's equipment delivery and inspection progress, causing revenue to be delayed. On the profit side, the company's expenses rate in 2022 was 38.91%, +5.24pct over the previous year. Among them, the sales and R&D expenses ratio increased faster, 16.35% and 14.99%, respectively, +2.33pct and +4.27pct, and the cost rate during Q1 2023 was 52.25%, +17.59pct over the previous year. The R&D expense ratio was as high as 22.42%, +10.19pct over the previous year. The large increase in the cost rate was the main factor affecting the net profit of Q1 in '22 and '23. The company's gross margin in '22 was 49.71%, -1.04pct year on year, and the gross margin of the company's laser business in '22 was -11.33pct year-on-year, which was the main reason for the decline in gross margin in '22. The company's gross margin picked up to a high level in Q23. The 23Q1 gross margin was 51.35%, +0.35pct year on year and +1.23pct month-on-month. The company's gross margin has always remained around 50%, and it is actively developing new fields by relying on high R&D expenses. Profitability is expected to pick up after the new business stabilizes in the future.

Emerging businesses such as pansemiconductors, new energy, and optical modules are steadily expanding, opening up new growth space: ① Silicon carbide equipment:

For third-generation semiconductor materials, the company already has silicon carbide wafer laser cutting equipment and launched silicon carbide laser annealing equipment. In 2022, the company officially launched silicon carbide ingot laser slicing technology. The process development, testing and verification have been completed, and it is currently in the market development stage. ② Micro LED equipment: The company launched the Micro LED series solutions, including laser peeling equipment, laser mass transfer equipment, laser repair equipment, and laser mass transfer equipment with high technical barriers has received the first order from leading customers. ③ Perovskite equipment: The company has achieved full coverage of P0-P4 laser equipment and delivered 100 MW laser equipment for production lines to leading customers in '22. ④ Lithium battery equipment: The company's self-developed laser cell blue film removal equipment has passed customer verification and received the first order from leading customers, and has developed battery reprocessing laser solutions, including cell laser film removal equipment, automatic cell coating equipment, and cell pole laser cleaning equipment. ⑤ Optical module laser applications: Optical modules are optoelectronic devices that perform optoelectronic and electro-optical conversion in optical communication systems. The application of new technologies such as artificial intelligence and autonomous driving has led to the continuous expansion of the optical module market. The company has developed various equipment such as double-sided laser grid processing equipment for tungsten and copper plates for optical modules, and 100 micron QR code & digital code processing equipment on the surface of COC chips. Some of the equipment is exclusively supplied for new processes. Customers include leading companies in the industry such as Finisar, Zhongji Xuchuang, Tianfu Communications, etc.

Investment suggestions: The company's gross margin is stable, actively developing new businesses, and optimistic about future sales of perovskite and micro LED equipment. We forecast that the company's revenue from 2023 to 2025 will be 699, 993 and 1,260 million yuan respectively, with year-on-year growth rates of 23.0%, 42.1% and 26.9% respectively; net profit of the parent mother will be 0.90, 1.49 and 213 million yuan respectively, with year-on-year growth rates of 33.2%, 65.8% and 43.4% respectively; and earnings per share of 0.87, 1.44 and 2.07 yuan respectively. Corresponding to the stock price on April 27, the dynamic PE from 2023 to 2025 is expected to be 47.5X, 28.7X, and 20X respectively, covering the first holdings increase - B recommendations.

Risk warning: Market competition in the laser industry intensifies; new business development falls short of expectations; new product development falls short of expectations.