Event: IDC released the top ten insights into China's AR/VR market in 2024. The relevant report indicates that in 2023, the Chinese AR market is expected to ship 240,000 units per year, an increase of 133.9% over the previous year. Among them, 35,000 units of integrated AR are expected to be shipped, and 205,000 units of split AR (currently most products need to be connected to a smartphone) are expected to be shipped. AR shipments are expected to continue to grow rapidly in 2024, and the growth rate is expected to reach 101.0%.

Split AR will continue to be the mainstream of the AR category, but it is worth noting that with the release of Qualcomm AR special chips and the advancement of optical waveguide technology, mainstream manufacturers will successively release or iterate integrated AR glasses. It is expected that 60,000 units will be shipped throughout 2024, an increase of 68.5%.

The bottom of consumer electronics demand is expected to recover, and the company's main business is stable overall: in the first three quarters of 2023, the company achieved revenue of 1,808 million yuan, +0.93% year on year, net profit of 155 million yuan, +0.18% year on year, after deducting 133 million yuan in non-net profit, -9.33% YoY, gross profit margin 18.59%, +2.73 pct year on year. The overall consumer electronics boom was under pressure this year, and the company's steady performance showed operational resilience.

The company has a forward-looking layout in the XR field, and products produced for the B/C side have been shipped in batches: for AR/VR/MR and other fields, the company has laid out more than 20 related patents. In the industrial chain, Ryowell is a leading industrial-grade AR glasses company, and has participated in Longjing Optoelectronics, which is the core component of consumer-grade AR glasses. The industrial-grade AR glasses produced for Raywell were shipped in May 2022. The consumer AR glasses “INMO GO” produced by the company for Imaging Technology went on sale in September 2023.

Bone conduction space can be expected, and AI opens up long-term imagination for intelligent hardware: The company has rich technical reserves in the field of OWS headsets, including more than 60 patents for bone conduction products, and produced related products earlier in China. The company is the first company in the industry to deploy smart products such as smart speakers and smart headsets. It has invested in the AI field for many years and has applied for many patents such as voice interaction, gesture recognition interaction, and AI intelligent interaction.

At the same time, the company's headphones, speakers, and XR products will have interfaces to various generative AI, which can be connected to large generative AI models according to customer needs. Long-term AI+ intelligent hardware will have broad room for imagination.

Investment advice: The company's main business is steady, and future XR+AI space can be expected. We expect the company's 2023/2024/2025 net profit to be 1.773/2.16/273 million yuan, EPS is 0.53/0.64/0.81 yuan/share, corresponding PE is 39.49/32.78/25.93 times, covered for the first time, giving it an “increase in wealth” rating.

Risk warning: Consumer electronics demand recovery falls short of expectations; AR industrialization falls short of expectations; AI hardware demand falls short of expectations.