Investment logic

The demand for cameras grew by more than 20% from 2019 to 2021: smartphone cameras are still one of the fastest growing fine molecular industries in the smartphone industry chain. From 2019 to 2021, three, four and five cameras will continue to infiltrate smartphones, and the demand for smartphone cameras is expected to reach 42.20,51.59 and 6.223 billion respectively, an increase of 20%, 22% and 21% respectively over the same period last year. Among them, movie shots and 3D cameras may begin to show volume. In the 5G era, the acquisition of information by smartphones will evolve from "2D+ static" to "3D + dynamic". Huawei Mate30 Pro adds movie lenses to the rear camera module for the first time, while using front and rear TOF lenses. It is estimated that shipments of TOF cameras will reach 170 million in 2019 and more than 400 million in 2020.

Filters and biometric filters are essential optical components for traditional cameras and 3D cameras: the company's main business is filter sets, and in 2018 most of its revenue comes from infrared cutoff filters (IRCF) for traditional cameras, while producing biometric filters for 3D cameras in small quantities. Benefiting from the strong demand downstream of the camera in 2019-2021, the company's IRCF business will maintain rapid growth, while biometric filters will usher in a period of rapid development from 0 to 1.

Filter shipments maintain high growth, market share continues to increase: at present, the company's customers include domestic first-line camera module manufacturers and major smartphone brands, and the company's IRCF market share is close to 20% in 2018. With the investment of the company's fund-raising project (300 million pieces of IRCF,1.2 100 million biometric filters), the company's industry market share will further increase, and we are optimistic about the steady and rapid growth of the company's filter business in the long run.

Profit forecast and investment advice

It is estimated that from 2019 to 2021, the company will achieve revenue of 7.57,10.36 and 1.358 billion yuan, and net profit of 1.66,2.23 and 280 million yuan, corresponding EPS of 0.82,1.10 and 139 million yuan respectively, and corresponding PE of 36.83,27.48,21.81 × respectively. The industry comparable company's average PE in 2019 is 25.5 ×, giving the company 35 × PE, with a target price of 38.5 yuan, covering the buy rating for the first time.

Risk

The penetration rate of three, four and five photos in smartphones is lower than expected; the price reduction of the company's filter products is higher than expected; the customer expansion of new products is not as expected; the risk of customer concentration; the risk of excessive accounts receivable; the risk of intensifying the trade war between China and the United States.