The company released its three-quarter report for 2023. 2023Q1-Q3 achieved revenue of 515 million yuan, yoy +32.56%, net profit of 79 million yuan, yoy +13.41%, gross profit margin of 41.28%, yoy+9.60pct; 2023Q3, achieved revenue of 160 million yuan, yoy +15.35%, net profit margin of 26 million yuan, yoy -21.75%, gross profit margin of 49.00%, yoy+16.68pct.

It also shows that the influence of long light in aerospace is weakening, and high-end gratings are being replaced. 2023Q3, the company's revenue growth rate was 15.35% year on year, and the growth rate declined month on month. We expect the main reason is that Changguang Aerospace's merger in early August 2022 will have an impact on the 2023Q3 year-on-year growth rate; at the same time, the net investment income of 2023Q3 was 9.334 million yuan, compared to the same period last year, 31 million yuan, a significant decrease over the previous year, reducing the company's current net profit. 2023H1, grating sensing business revenue of 87 million yuan, yoy -9.91%, gross profit margin of 40.74%, yoy+4.08pct. The year-on-year decline in sales revenue is related to weak demand for general grating products, while the increase in gross margin mainly benefited from the increase in the company's high-end grating sales volume, and the logic of domestic substitution was realized.

A listed company under the Changchun Institute of Optoelectronics of the Chinese Academy of Sciences, leading the national defense optoelectronic measurement and control technology. The company's main business is R&D, production and sales of products such as optoelectronic measurement and control instruments and equipment, new medical instruments, optical materials, grating encoders, and high-performance carbon fiber composite products. The company's leading products are optoelectronic latitude and longitude meter opto-mechanical subsystems, aerospace/aerospace camera optomechanical subsystems, novel radar antenna holders, precision turntables, military and civilian medical testing instruments, grating encoders, missile rockets and space structural parts, and K9 optical glass. In terms of technology implementation and product production, the company is in a leading position in the upgrading and upgrading of domestic defense optoelectronic measurement and control instruments and equipment. It is a leader in the same industry and has a high market share.

Yu Heng Optics is the leading high-end in China, and there is a trend of domestic substitution. Yu Heng Optics, a holding subsidiary, is a leading enterprise in the domestic encoder field. It is the only company recognized by the state as a pilot test base for encoder engineering. In 2021, it achieved revenue of 208 million yuan, an increase of 25.40% over the previous year. In 2022, it fell 13.9% year over year to 179 million yuan. Net profit in 2022 was 124.479 million yuan, down 8.5% year on year. The decline in performance in 2022 was mainly affected by the pandemic. In the field of high-end angle encoders and absolute scales, the company has performed excellently. This is mainly due to the combined influence of various factors such as national demand, market demand, and the international situation. These factors have led to a sharp increase in domestic demand for high-end sensors. Yu Heng Optics is a core supplier of grating encoders for high-end machine tools in China. It meets the requirements for use in high-end machine tools in China. The price has a 20%-30% advantage compared to Heidenhan, the leading encoder, and has great potential for development under the trend of domestic substitution. In addition, grating scales have good application scenarios in the semiconductor and robot fields, and the company's competitiveness is outstanding.

Investment advice: Considering that the company's business development expectations are slightly lower, we have adjusted the company's profit forecast and predicted that the company's net profit from 2023-2025 will reach 1.29/1.84/260 million yuan. The corresponding valuations are 60x/42x/30x, respectively. Considering the steady growth of the company's core business and the layout of new fields in recent years, we maintain the “recommended” rating.

Risk warning: policy risk; market risk; raw material price fluctuation risk.