Event: The company released its performance report for the third quarter of 2023. In the first three quarters of 2023, the company achieved revenue of 628 million yuan, a year-on-year decrease of 22.14%; realized net profit of 111 million yuan, a year-on-year decrease of 49.88%; and realized net profit of 85 million yuan, a year-on-year decrease of 56.03%. On a quarterly basis, the company achieved revenue of 200 million yuan in Q3 of 2023, a year-on-year decrease of 21.65%, a year-on-year decrease of 22.66%; realized net profit of 34 million yuan, a year-on-year increase of 14.22%, a year-on-year decrease of 29.11%; and realized a net profit of 126 million yuan, an increase of 18.81% year-on-year and a decrease of 32.88% month-on-month.

Demand is weak and Q3 performance is under pressure, and Q4 may usher in a repair inflection point: Q3 2023, the company's performance is under pressure, mainly due to the fact that Q3 consumer electronics demand did not meet expectations. The decline in demand for mobile phone CIS chips and the lengthening inventory removal cycle of upstream CIS chip manufacturers led to a decrease in the company's packaged product shipments and a decline in sales scale.

In Q3 of 2023, the company's gross margin was 35.86%, a year-on-year decrease of 1.51pcts and a decrease of 4.85pct over the previous year; net profit margin was 17.46%, an increase of 5.33pcts year-on-year, a year-on-year decrease of 1.57 pcts. Cost side: The sales, management, R&D, and financial expenses in Q3 of 2023 were 1.01%/10.16%/16.93%/-14.09%, respectively. The changes over the same period were -0.02/-0.32/-1.95/-5.90pcts, respectively. In Q3 2023, the company's overall cost rate declined, and the effect of cost reduction and efficiency was remarkable. We believe that as CIS chip manufacturers actively promote inventory removal, the Q4 inventory level is expected to return to a healthy level. At the same time, benefiting from the intensive release of new products by mobile phone brands, combined with Q4 Double Eleven and year-end shopping festival promotions, consumer electronics demand is picking up at an accelerated pace, and the company's performance is expected to reach an inflection point in Q4.

Continuously innovate advanced packaging technology capabilities and further expand downstream application markets: The company has independently developed ultra-thin wafer-level chip size packaging technology, silicon through-hole packaging technology, fan-out packaging technology, system-level packaging technology, and packaging technology used in automotive electronics, etc., which are widely used in image sensor chips, environmental sensing chips, medical electronic devices, microelectromechanical systems, biometric chips, radio frequency identification chips, automotive electronics and many other products. The company continues to focus on the development and service of advanced packaging technology, and continuously consolidates and enhances its leading edge through continuous technological innovation. The company continues to expand the micro optical device business and increase the scale of mass production and commercial applications. The company's technical reserves are becoming more and more diversified, and the application fields are wider.

1. In the field of optics, the company continues to expand the micro optical device business and increase the scale of mass production and commercial applications; 2. In the field of automotive electronics, the company continues to improve the process level and mass production capacity of vehicle standard STACK packaging technology, optimize production efficiency, and expand its technological leadership and business scale in the automotive CIS field. The company has built a vehicle grade 12 inch wafer-level TSV sealing and testing production line, and has passed vehicle manufacturer certification. The company has achieved large-scale mass production in the automotive smart lighting market, and is actively expanding domestic and overseas markets and customers. The company is actively expanding domestic and overseas markets and customers. TSV packaging technology and mass production capacity in the field are in a significant leading position; 3. In the field of mobile phones and security, the company further consolidates the market share of packaging products in applications such as smart phones and digital security surveillance; actively lays out and expands new application markets, and vigorously promotes project development and market expansion in application fields such as MEMS, Filters, and AR/VR.

The synergistic effects of overseas mergers and acquisitions are showing, and automotive gallium nitride plus optical devices can be expected in the future: According to Yole data, it is expected that by 2028, the total shipment volume of in-vehicle cameras will reach 402 million, 360° surround view cameras, ADAS (advanced driving assistance) cameras, DMS (driver monitoring systems), and in-cabin (in-cabin) cameras for OMS (driver monitoring systems), and OMS (passenger monitoring systems) will grow rapidly. The company actively lays out high-power gallium nitride technology for vehicles, further deepens equity cooperation with Israel's ViSiC company, and actively cooperates with internationally renowned automobile manufacturers to jointly develop high-power main drive inverter modules of 800V and above to provide power device products with higher conversion efficiency, smaller module size and higher reliability for new electric vehicles. The project is progressing smoothly. The company continues to carry out international mergers and acquisitions and actively promotes the expansion of the industrial chain. The company further increased its investment in Anteryon in the Netherlands, strengthened the complementary integration of business and technology, promoted the continued growth of Anteryon's optical design and hybrid optical lens business, and enhanced the process and mass production capacity of Crystal Square Optoelectronics's wafer-level miniature optical device manufacturing technology.

Lower the profit forecast and maintain the “buy” rating: Since the recovery in consumer electronics demand fell short of expectations, Q3 performance was put under pressure, so the profit forecast was lowered, but considering the release and sales of new models, consumer electronics demand has gradually picked up. We are optimistic that the company's mobile phone and security business is expected to grow rapidly. At the same time, the company's continued expansion in the automotive sector will also provide strong support for future performance growth and profit recovery. It is estimated that the company's net profit from 2023-2025 will be 175 million yuan, 322 million yuan, and 426 million yuan, respectively. EPS is 0.27 million yuan /share, 0.49 yuan/share, and 0.65 yuan/share, PE is 83X, 45X, and 34X respectively, maintaining the “buy” rating.

Risk warning: risk of industry fluctuations; risk of technology industrialization; risk of rising costs; downside risk of global industrial chain restructuring; risk of exchange rate fluctuations.