In the reverse acquisition of the company last year, Optics successfully cut into the lower reaches of the "Optical Defense + Optoelectronic Industry chain" and will be renamed "China Optics" in the future. China Optical military products have ushered in a period of high prosperity since 2018 and will continue until at least 2020. The company's civilian products have entered Huawei's P30 Pro supply chain and will benefit from the increase in high-end mobile phone shipments in the future. At present, the company is the only listed company in the optoelectronic plate of the Arms equipment Group.

Optics cuts into "optical defense + downstream of optoelectronic industry chain" in reverse takeover. China Optics Group is code-named weapon 508 Factory. In history, Lida Optoelectronics is a civilian product enterprise cultivated by China Optics. After the completion of this reverse merger, it has entered the military field with high gross margin and high growth. The military products of China Optics include light weapons series night vision sight (low light, infrared), tank armor series observation sight, dual-use monitoring products, and so on. At present, 6 models of the listed products are exclusive products, accounting for 100% of the market share. In terms of civil products, the field of optical projection has the design, R & D and production capacity of the whole projection machine, and covers two mainstream technical solutions: DLP and 3LCD.

Military products have entered a period of rapid growth, and their bearing is very high this year and next. The middle optical military products are mainly night vision sight goggles, which belong to optoelectronic reconnaissance equipment. Its main advantages are high imaging resolution and clear target image. At present, there are visible light, low light, infrared, laser and optoelectronic integrated reconnaissance instruments. In mid-2018, Optics benefited from a substantial increase in military orders, with revenue of 1.671 billion yuan (+ 107.65%) and net profit of 90.4561 million yuan (+ 298.83%). We judge that there are three reasons for the release of military products: first, there has been a compensatory release of orders delayed by the military reform; second, new models of listed units have entered the period of batch delivery; and third, increased demand for training, exercises, and operations of defense departments at home and abroad. Increase procurement. Looking forward to the two years after the 13th five-year Plan, we judge that the implementation of compensatory orders and the equipment procurement arrangements that are tight before and after each five-year plan will continue, and the demand for training, exercises, and operations will also be extremely strong. The company's military revenue growth this year and next will be very considerable. According to the announcement, medium optical low-light products are now equipped with a number of models of products, infrared products have been used in the military's new main combat equipment. According to estimates, the total market capacity of China's military infrared market is more than 30 billion yuan.

The civilian product "Optical Lens + Projector" has both interesting points, and the breakthrough of P30 Pro technology opens the space for growth. Lida Optoelectronics is the most complete enterprise with complete optical components in the global projection display field, and it is the domestic leader in the level of optical thin film equipment and large-scale production capacity. Of the 600 million yuan sales revenue of the parent company of China Optics in 2018, the sales revenue of independent brand projectors accounted for about 100 million. At present, the gross margin level of projectors sold in optics is low, about 3%. We believe that the company will increase gross profit margin in three ways: first, to increase the structure of ODM products; second, to make laser projectors; and third, to develop core components. According to IDC, the compound growth rate of China's projector market will reach 15.5%, or more than 9 million units, by 2023. In addition, the company has been equipped with Huawei P30 Pro periscope camera. We expect to ship a total of 20 million P30 units in 2019, with an annual revenue space of about 30 million. As a leading company in the smartphone field, Huawei's technological breakthrough will become standard in the industry in the future. We predict that about 380 million smartphones will be shipped in China in 2019, and the company's periscope camera prism business will have an annual market space of about 600 million yuan.

Equity incentive to mobilize the enthusiasm of employees, Armament Group Optoelectronic plate the only listing platform. The company completed the restricted stock grant in April this year, awarding 1.767 million restricted shares at a price of 5.65 yuan per share to the company's executives, core marketing and technical backbones. The implementation of equity incentive plan will fully mobilize the enthusiasm of management and core staff, and at the same time help to stabilize and attract talents. Weaponry Group's optoelectronic assets also include Wuhan Changjiang Optoelectronics, Hubei Huazhong Optoelectronics, Hunan South China Optoelectronics and Chengdu Guangming Optoelectronics. The income of this part of optoelectronic assets in 2018 is about 2 billion yuan, and the profit is hundreds of millions of yuan. As the only listing platform of optoelectronic plate, Lida Optoelectronics has a certain space for integration.

Profit forecast and investment rating. It is predicted that the company's revenue from 2019 to 2021 will be 3.31 billion yuan, 3.876 billion yuan and 4.876 billion yuan, and the net profit will be 219 million yuan, 263 million yuan and 341 million yuan respectively, an increase of 31.37%, 20.35% and 29.28% respectively over the same period last year. EPS will be 0.83,1.00,1.29 yuan respectively, corresponding to 28X/23X/18X, which will be covered for the first time and given a "highly recommended" rating.

Risk hint: the expansion of the new civilian market is not as expected, and the revenue of military orders is not as expected.