Crystal Optoelectronics is a leading domestic optical enterprise. Its business focuses on camera filters, thin film optical panels, automotive electronics, reflective materials, etc. After more than 20 years of development, the company currently has microprism and HUD businesses that provide clear growth momentum in the medium term. It has long-term card position advantages on AR optical waveguide tracks and has good investment value. First coverage, giving a buy rating.
Key points to support ratings
The microprism business was launched for the first time in 2023, and will continue to benefit from the increase in the installation rate of periscope cameras. Periscope cameras have the advantages of high optical zoom+lightness, building the differentiated competitiveness of smartphones. Microprisms are the core components of periscope cameras. In September 2023, the Apple iPhone 15 series was equipped with a periscope camera for the first time. Through a quadruple reflective microprism, the thickness and size of the lens module were reduced, which is expected to drive a new trend of periscope cameras. Microprisms are difficult to process, and the requirements for suppliers are high. The company is the main supplier of periscope microprisms to major customers, and is also a supplier of Android microprisms. The installation rate of periscope cameras is expected to continue to increase in the future, and the company will benefit greatly.
The AR-HUD mass production leader has technical advantages and is expected to grow rapidly as the penetration rate increases. ARHUD products have characteristics such as good driving experience and effective integration with intelligent driving, which is an important guarantee for car companies' differentiation. The domestic passenger car HUD penetration rate has increased rapidly. It is 9.8% in 2023, and is expected to exceed 30% in 2025. Among them, AR-HUD has even greater potential. The company has optical design advantages and strong product competitiveness. According to Gaogong Smart Auto, the company has the largest domestic AR-HUD shipment volume in 2023. It has successfully mass-produced models such as the Hongqi EHS9, Changan Deep Blue SL03, and S7, and is the first local HUD Tier 1 manufacturer to expand overseas car companies. We believe that the company's automotive business has gone through the hardest time for consumer electronics companies to get on the car, and is expected to grow rapidly with the industry in the future.
AR optical waveguides are expected to become a new position for the company's leapfrog development, with card position advantages. AR glasses are expected to target smartphones as next-generation computing platforms. They have unique values such as larger screens, a first perspective, and free hands, and have a large long-term market space. Optical waveguides are a key component in the implementation of AR glasses, but in the face of difficulties where the technology is not mature enough, various technology paths are being upgraded before mass production. The company has had technology reserves in the metaverse direction for more than ten years, and has a layout in technologies such as Birdbath, diffractive light waveguide, and geometric optical waveguide. Using training in the microprism project, the company has obvious advantages in geometric optical waveguide cards, which is expected to help the company become a core supplier in the metaverse era.
The traditional business foundation is stable, and growth is expected to be steady. Filters: The company is a global leader in mobile phone filters. The market space/competition is relatively stable. The product will be upgraded to absorbent reflective filters, and the company's revenue in this business is expected to grow steadily. Thin-film optical panels: Major customers drive the business's revenue and gross margin to increase rapidly, and will continue to grow reasonably in the future. Reflective materials: Our subsidiary Night Vision has broken through the business barriers of high-end reflective materials such as microprisms, and we expect to benefit from domestic alternatives and steady growth.
valuations
We expect the company to achieve earnings of 0.43 yuan/0.58 yuan/0.72 yuan in 2023-2025, corresponding to a price-earnings ratio of 28.9 times/21.5 times/17.4 times. First coverage, giving a buy rating.
The main risks faced by ratings
The risk of macroeconomic fluctuations, the risk of major customer dependency, the risk of strategic transformation of organizational capabilities, exchange rate risk, and the risk of AR glasses landing time lower than expected.