Incident: On August 24, 2023, the company released its 23 annual report. 23H1 achieved operating income of 239 million yuan, +15.63% year on year; net profit of 29 million yuan, +9.60% year on year.

The performance is in line with market expectations. Looking at downstream applications, 23H1 semiconductors, life sciences, biometrics, AR/VR inspection, aerospace, and unmanned driving accounted for 33.78%, 32.35%, 10.36%, 8.31%, 5.49%, and 2.64%, respectively. Among them, demand in the semiconductor sector was strong, with revenue increasing 39.50% year on year, driving overall performance growth; AR/VR inspection revenue declined year on year, mainly due to weak downstream demand in 23H1 combined with insufficient technology drive in the industry, resulting in customer orders falling short of expectations. On a quarterly basis, 23Q2 revenue was 114 million yuan, +20.24% year on year, -8.77% month on month; net profit of return mother was 115 million yuan, +19.70% year on year, and +4.69% month on month.

The gross margin improved year over year, and the cost ratio for the period increased year over year. 1) Gross profit margin: 23H1 company's gross margin was 53.19%, year on year +2.49 pct; of which 2Q23 gross margin was 54.84%, year on year +4.28 pct, +3.17 pct; 2) Period expenses: 23H1 company period expenses: 23H1 company period expenses rate was 36.31%, +4.23 pct year on year.

Among them, the sales, management, R&D, and financial expenses rates were 4.65%, 19.58%, 13.90%, and -1.82%, respectively, compared to -0.43, +3.03, +1.76, and -0.13 pct, respectively.

Demand in the semiconductor sector is strong, so pay attention to the progress of consumer demand recovery. 1) Optical Components & Optical Lenses:

The downstream semiconductor industry has maintained a high level of prosperity, and the company has reached close cooperation with leading domestic and foreign manufacturers. As the company continues to release new production capacity and gradually introduce new products to customers, it is expected that performance will continue to increase; 2) Optical system: For AR/VR optical inspection equipment, the company has prepared inspection technology for comprehensive performance parameters of optical path devices, projection modules, and micro display modules used in AR/VR terminal products, and is actively developing new customers. Follow the progress of consumer demand recovery in the second half of the year.

Profit forecast: Considering weak downstream demand in the ARVR testing sector, net profit for 2023-25 was lowered to 0.70, 0.89 million yuan, and 114 million yuan (previous values were 0.76, 0.98 million yuan, and 137 million yuan respectively) to maintain the “increase in holdings” rating.

Risk warning: Technology upgrades and iterations fall short of expectations; downstream demand falls short of expectations; risk of exchange rate fluctuations.