incident. Ofi Optical published its report for the third quarter of 2020. In the first three quarters of 2020, the company achieved operating income of 37.059 billion yuan, a year-on-year decrease of -2.20%; it achieved net profit of 739 million yuan to the mother, an increase of 309.21% over the previous year. In the third quarter of 2020, the company achieved operating income of 13.595 billion yuan, a year-on-year decrease of -4.97%; it achieved net profit of 237 million yuan to the mother, an increase of 48.44% over the previous year.

Shipments of lenses, 3D modules, and camera modules all increased at a high year-on-year rate. From January to September 2020, the company's revenue was 37.059 billion yuan, a year-on-year decrease of 2.20%. Excluding the influence of the independent development of the Android touch business, the year-on-year increase was 13.52% (revenue excluding caliber in January-September 2019 was 32.645 billion yuan). Among them, the lens business developed smoothly, with a shipment volume of 132 million units, an increase of 29.28% over the previous year, the capacity utilization rate continued to increase, and the overall yield remained at the leading level of the industry; the 3D module business continued to grow, with shipments of 79 million pieces, up 38.96% year on year, and market penetration and shipment volume increased significantly; the camera module business maintained rapid growth, with shipments of 553 million pieces, an increase of 21.81% over the previous year, and the shipment volume increased dramatically.

Increased gross margin and improved operations. From January to September 2020, the company's overall gross margin increased by 0.84 percentage points, and the profit level increased markedly; the company's expenses fell and management efficiency improved, with interest expenses falling 19.60% year-on-year; the company continuously strengthened inventory management, and the number of inventory turnover days decreased by 16 days; the debt structure improved, solvency was further improved, and the balance ratio decreased by 2.6 percentage points.

Integration of vertical industries in the field of optics. In December 2017, the company set up a subsidiary, Nanchang Opticon Precision Optical Products Co., Ltd., to officially enter the optical lens industry; in October of the following year, the company acquired 100% of Fuji Tianjin's shares and related lens patents, further improving the company's layout in the field of optical lenses.

Since officially entering the lens industry in 2017, the production capacity of the company's mobile phone lenses has continued to expand, and shipments have been rising month by month. As of September 24, 2020, the production and sales rate of the company's mobile phone lenses has reached more than 95%, and the production capacity has basically been running at full capacity.

Profit forecasts and investment recommendations. We expect the EPS from 2020 to 2022 at 0.60, 0.75, and 0.99 yuan respectively. Based on the valuation situation of comparable companies, Ou Fei Guang was given a PE valuation of 40-45 times in 2020. The corresponding reasonable value range was 24.00-27.00 yuan, giving it a “superior to the market” rating.

Risk warning. The impact of global macroeconomics on consumer electronics; the risk that 5G commercialization is slow; the risk that the development of intelligent and driver-assisted technologies for automobiles falls short of expectations.