This report is read as follows:

Performance is lower than expected, profitability is under pressure; production capacity in Thailand is progressing smoothly, waiting for large-scale application of thin film materials.

Main points of investment:

Downgrade profit forecast, raise target price, and maintain overweight rating. The company announced that the overall performance was lower than expected, and we lowered the 2023-2025 net profit attributable to the parent company to 0.98 (- 31.94%) / 1.44 (- 33.34%) / 2.11 (- 33.28%) million yuan, corresponding to EPS0.40/0.59/0.86 yuan. However, we have observed that the time point of the application of thin film lithium niobate technology in the industry has been clear, and it is expected that the follow-up customer progress will be accelerated, giving 100x PE in 2024, raising the target price to 59 yuan (the previous value is 46.77 yuan) and maintaining the overweight rating.

Performance is lower than expected and profitability is under pressure. The company announced its results in mid-2023, with revenue of 338 million yuan in the first half of the year, an increase of 7.51% over the same period last year, and a net profit of 31 million yuan, down 45.22% from the same period last year. In terms of business, the 25% increase in revenue from fiber laser devices shows that the demand side of the industry has recovered, but the gross profit margin has decreased by about 7% compared with the same period last year. In addition, the company has increased its investment in research and development compared with the same period last year. Research and development expenses increased by about 40% year-on-year, and the proportion of the cost rate has increased.

Thailand production capacity is progressing smoothly, waiting for the large-scale application of thin film materials. The company announces the progress of its Thai subsidiary. At present, it has completed industrial and commercial registration, purchased about 80,000 square meters of land, and obtained BOI certificates, which is expected to help overseas customers produce optical communications, Lidar and other related devices in the future. In addition, thin film lithium niobate is widely used in digital communication and backbone network, and we expect to achieve technical application in 400G backbone network and overseas Ethernet 1.6T module.

Catalyst: the company obtains further orders; the company's main business continues to pick up? Risk hint: the progress of industrialization is not as expected, and the recovery of the main industry is expected.