Fujing Technology is the world's leading nonlinear optical crystal company. LBO and BBO crystals have a global market share of more than 70%, covering the world's leading manufacturers of laser and optical communication devices. Benefiting from the revival of laser, optical communications and VR/AR industries, the company has actively expanded its production capacity to consolidate its competitive advantage. With its leading precision optical processing capability, the company has expanded its product line to the field of laser optical components, invested in the establishment of up-to-date photon generation ultra-precision optics, and continued to promote the domestic replacement of laser devices, which is expected to open the second growth curve.

We are optimistic about the long-term growth momentum of the company, giving the target market value 15 billion yuan, corresponding to the target price of 35 yuan, covering for the first time and giving a "buy" rating.

The revenue and net profit of the world's leading nonlinear optical crystal enterprises are growing steadily. Fujing Technology was funded by the Institute of physical structure of the Chinese Academy of Sciences in 1990. after more than 30 years of development, the company has become one of the few suppliers in the industry that can provide one-stop integrated services of "crystal + optical elements + laser devices". Customers cover the world's leading manufacturers, including coherence, spectral physics, fast, IPG, Ruike laser and big family laser and so on. In 2022, the company realized operating income of 768 million yuan, + 11.57% compared with the same period last year, and realized net profit of 226 million yuan, + 18.30% over the same period last year. Revenue maintained growth in the past nine years. The company's performance "evergreen" mainly includes: 1) high barriers to optical crystals, keeping a high level of profitability; 2) the company continues to enrich its product line, expanding from optical crystals to the field of optical components and laser devices, downstream applications have also expanded from the laser and optical communications industry to semiconductors, automotive electronics and consumer electronics.

LBO and BBO crystals have been fresh for a long time, and the company has a global market share of more than 70%. LBO and BBO crystals are still recognized as one of the best nonlinear optical crystals and have been used for a long time in the field of solid-state lasers. The shipments of UV nanosecond lasers and picosecond lasers in China have maintained rapid growth. According to the 2022 China Laser Industry Development report (quoted from the Caplin prospectus and Delong laser prospectus) by the Wuhan Literature and Information Center of the Chinese Academy of Sciences, about 27000 UV nanosecond lasers were shipped in 2021, and the CAGR reached 42.2% in 2014-2021. About 3300 domestic pico-femtosecond lasers were shipped in 2021, and the CAGR was as high as 108.6% from 2015 to 2021. Benefiting from the rapid development of solid-state lasers in China, we estimate that the global market for laser LBO and BBO crystals will reach 400 million yuan in 2026. According to the Fujing Technology announcement, the company ranks first in the market share of LBO and BBO crystals, with the market share of LBO/BBO crystals exceeding 80% and 70% respectively in 2021.

Optical components are widely used in a wide range of fields, and it is easy to give birth to "individual champion". Optical components have a wide range of applications and rich product lines. According to the statistics of China Optical Optoelectronics Industry Association, the market scale of optical components in China is 145.5 billion yuan in 2022. The optical components market presents a competitive pattern of differentiation, and we believe that manufacturers are easy to build a "moat" in the subdivision field and grow into a "single champion" in this field. From the accuracy and technical difficulty point of view, ultra-precision optical components for the optical components market "the apple of the eye", mainly used in semiconductors, life sciences and other high-tech industries, Frost Sullivan (quoted from the Maolai optical prospectus) in 2026 the global market size will reach 26.8 billion yuan, corresponding to 2022-2026 CAGR of 14%. From the perspective of competition, domestic precision optical enterprises have seized the opportunity of industrial transfer and gradually narrowed the gap with international manufacturers in key aspects such as product design, manufacturing and testing. According to Frost Sullivan data (quoted from the Maolai Optical prospectus), the market share in semiconductors and life sciences reached 6% and 12% respectively in 2021.

Led by crystals, ultra-precision optical components open the second growth curve. The company has the complete processing ability from raw material synthesis to coating, and has mastered all the mainstream optical crystal manufacturing methods, and all kinds of optical crystal product parameters are leading. With deep technology accumulation, the company has gradually expanded its product line to high-end optical components and laser devices, and downstream applications to optical communications, AR/VR, lidar, semiconductors, optical testing equipment and other fields. In order to meet the strategic layout needs of the company, the company invests in the establishment of expiration photons, focusing on the R & D and production of ultra-precision optical components with nanometer precision and complex opto-mechanical components. At the same time, the company is promoting the second phase of the D building construction project, after the completion of reconstruction and expansion, the company is expected to increase the construction area of nearly 40,000 square meters, tamping the competitive advantage in the field of high-end optics.

Risk factors: increased risk of market competition; risk of sharp rise in raw material costs; risk of loss of core technical personnel; risk of change in international environment and trade policy; risk of slower-than-expected production capacity construction; risk of substantial change in exchange rate; iteration of technology upgrading and risk of R & D failure.

Earnings forecast, valuation and rating: Fujing Technology is the world's leading nonlinear optical crystal company, and has become one of the few suppliers in the industry that can provide one-stop integrated services for "crystals + optical elements + laser devices". Benefiting from the pick-up in industries such as laser, optical communications and VR/AR, the company's revenue and net profit are expected to maintain rapid growth. At the same time, the company continues to promote domestic substitution in the field of high-end optical components, and in the field of ultra-precision optical components, the extension of the product line is expected to help the company's downstream applications continue to expand and open the second growth curve. Taking into account the stable customer demand for optical crystals and components, the acceleration of domestic replacement of high-end components, and the expected rapid growth in revenue and net profit, we predict that the company's annual EPS in 2023-24-25 will be 0.56 EPS 0.69 shock 0.86 yuan. Taking into account the company's industry status and development stage, we choose Maolai Optics, Tengjing Technology, Optical Library Technology and Yongxin Optics as comparable companies, with reference to the comparable company Wind consensus forecast 2023 PE average, combined with DCF valuation, give the company 2023 target market value of 15 billion yuan (corresponding to 2023 62 times PE), corresponding to the target price of 35 yuan, the first coverage, given the "buy" rating.