Key points of investment:

The company is a leading domestic high-power semiconductor laser chip leader. The company's main products are high-power semiconductor laser chips, which are used downstream in industrial and scientific research fields, and use this as the core to vertically expand devices, modules and direct semiconductor lasers, etc., and horizontally expand into the fields of lidar and optical communication. It is the first IDM company in China with mass production and manufacturing capabilities for VCSEL chips.

High-power semiconductor lasers are mainly used as pump sources for fiber lasers. Currently, the domestic replacement process is accelerating, driving demand for upstream domestic chips. According to estimates, under optimistic/neutral/pessimistic conditions, China's laser chip market size is 8.12/785/757 billion yuan in 2023, respectively, and will reach 17.37/16.78/1,618 billion yuan in 2026, respectively, with a 4-year CAGR of 27.9%. The company uses the IDM model to break through many aspects such as epitaxial growth. Compared with peers, the product has leading performance, and the domestic semiconductor laser chip market share was about 13.41% in 2020, so there is still plenty of room.

The company is expanding the field of lidar and optical chips horizontally, and VCSEL chips are expected to provide significant marginal increases in the future. Compared with traditional edge-emitting lasers, VCSEL has lower power consumption and better beam quality. Multi-junction VCSEL technology can effectively make up for the defect of low luminescence density and is expected to become the mainstream choice for automotive lidars. Currently, automotive lidar is in a period of industry growth. The CAGR is expected to exceed 100% by 2023-2030. The company's VCSEL chip can reach 8 nodes. It has reached cooperation with mainstream domestic automotive lidar manufacturers, which is expected to open up new long-term growth space. Furthermore, the company is also making steady progress in the field of optical communications.

Profit forecast, valuation analysis and investment suggestions: The company's net profit for 2023-25 is expected to be 0.37/1.43/241 million yuan, up -69.1%/288.6%/67.8% year-on-year, corresponding EPS is 0.21/0.81/1.36 yuan, and PE is 295.5/76.0/45.3 times. For the first time, coverage gives a “holds-A” rating.

Risk warning: risk of technology upgrade iteration; risk of R&D failure; risk of fluctuating production yield; risk of high customer concentration; risk of macroeconomic and industry fluctuations; risk of increased market competition;