The company's performance is in line with expectations

The company achieved revenue of 37.06 billion dollars (YOY -2.2%) and net profit of 739 million in the first three quarters, an increase of 309% over the previous year. Revenue for Q3 alone was 13.6 billion yuan (YOY -4.97%), net profit of 2.37 (YOY +48.4%). Q3 Gross margin and net profit margin declined 0.7PCT month-on-month. The company's performance is in line with market expectations. The main reason for the decline in revenue and the increase in profits is that the company divested its loss-making Android touch business this year. Excluding the annual Android touch business, the company's revenue increased 13.5% year-on-year in the first three quarters.

Revenue structure continues to be optimized, and operational efficiency is effectively improved

In the first three quarters of 2020, the company's lens business developed smoothly, with a year-on-year increase of 132 million units, a year-on-year increase of 29.28%. 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 a shipment volume of 553 million pieces, up 21.81% year on year, a significant increase in shipment volume. In the first three quarters of 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 was reduced by 16 days; the debt structure improved, solvency was further improved, and the balance ratio decreased by 2.6 percentage points.

The company recently announced that it plans to raise about 6.76 billion yuan to invest in high-pixel optical lens construction projects, 3D optical depth sensor construction projects, and high-pixel miniature camera module construction projects. After delivery, the project is expected to bring the company a revenue contribution of 19 billion yuan, and the company will accelerate its transformation into a leading enterprise focusing on optical racing tracks.

Risk warning: Downstream demand fell short of expectations, and company management improvements fell short of expectations.

Investment advice: Maintain a “buy” rating.

With the company's introduction of state-owned strategic capital and divestment of loss-making assets, we believe the company's strategy of continuing to focus on core businesses such as camera modules and optical lenses is progressing steadily. Although the 2020 pandemic had a direct negative impact on the company's downstream customers, we are still optimistic about the company's future long-term development opportunities as an optical leader. The net profit returned to the mother in 20-22 is estimated to be 1,03/139/1.69 billion. The price-earnings ratio corresponding to the current stock price is 40.1/29.5/24.3X, maintaining the “buy” rating.