Event: the company released its mid-year report of 2023. In the first half of 2023, revenue reached 1.784 billion yuan, an increase of 64.16 percent over the same period last year, and a net profit of 258 million yuan, an increase of 129.03 percent over the same period last year. Benefiting from the substantial improvement in various business lines, the performance is better than previously expected by the market.

Main points of investment

Domestic demand recovered significantly, with revenue growing by 64% in the first half of 2023: revenue from the two main businesses of infrared thermal imaging and microwave radio frequency increased significantly, and 2023H1 achieved an operating income of 1.784 billion yuan, an increase of 64.16% over the same period last year. Driven by the growth of operating income and the decrease in the proportion of R & D investment in income, 2023H1 achieved a net profit of 258 million yuan, an increase of 129.03% over the same period last year. Mainly due to the resumption of supply of military products with high gross margin, 2023H1's gross profit margin was 49.79%, an increase of 2.60pct over the same period in 2022. In terms of domestic and foreign market expansion, due to the normal delivery phase of a number of delayed projects in the field of special equipment in 2023H1, the company achieved domestic main business income of 1.103 billion yuan, an increase of 100.99% over the same period last year. Overseas main business income reached 647 million yuan, an increase of 21.88% over the same period last year, and continued to expand overseas markets.

The expense side is gradually improving, and profitability is steadily improving: 2023H1's sales rate is 5.10%, down 0.85pct from the same period last year. The R & D rate was 17.05%, a decrease of 4.54pct compared with the same period last year. The management fee is 9.59%, an increase of 0.89pct over the same period last year, mainly due to the increase in equity incentive fees. The financial rate is 0.83%, which is mainly due to the charge of interest on convertible bonds.

Issuing 1.565 billion yuan of convertible bonds is expected to further enhance the company's R & D capability: the company will issue 1.565 billion yuan of convertible bonds on December 30, 2022, which will be used for the construction of photoelectric infrared thermal imaging machine project and photoelectric sensor research and development pilot platform. 720 million yuan has been used, which is expected to further boost the company's market competitiveness in the infrared and optoelectronic fields.

The core supplier of non-refrigeration products will benefit from the volume of new models: as the leader of uncooled infrared in China, the company covers the whole industry chain from chips, detectors, movement modules to thermal imagers. In view of the continuous progress of military modernization, the company has benefited from the batch production of relevant models. In terms of infrared technology, the expansion of 8 μ m series of products has completed the initial development of 1280 × 1024 and 640 × 512 new products; in terms of microwave business, the company has completed the design of the if chip of the satellite Internet broadband terminal supported by a certain ministry and a central enterprise group, and is carrying out the first round of taping, and the double business line is expected to open a new space for special business.

Profit forecast and investment rating: based on the company's leading position in the infrared industry and taking into account the pace of downstream equipment volume, we will adjust the 2023-2025 net profit to 5.32 (original value 5.06) / 7.74 (original value 6.54) / 9.93 (original value 814) million, corresponding to PE is 42-29-22 times, maintaining the "buy" rating.

Risk tips: 1) downstream demand and order fluctuations; 2) the company's profit is lower than expected.