Incident: The company released its 2023 annual report. It achieved annual revenue of about 5.08 billion yuan, an increase of 16.01% over the same period of the previous year; realized net profit of 60 billion yuan to mother, an increase of 4.15% over the same period last year.
The performance was in line with expectations, and the gross margin of the core business sector increased significantly. 1) Revenue side: In 2023, against the backdrop of weak demand in the consumer electronics market, the company's revenue still increased by more than 16% year over year. Among them, the optical components and thin-film optical panel business increased by 21.1% and 17.8%, respectively. 2) Profit side: In 2023, the company's net profit to mother increased by more than 4% year-on-year. The company's gross margin was about 27.8%, up 0.9 pp year on year; among them, the gross margins of the optical components business and thin film optical panels increased 4.5 pp and 3.4 pp, respectively. The company's net interest rate was about 12.2%, down 1.4pp from the previous year, mainly due to increased R&D investment in developing new projects in line with major customers. The microprism project was only launched on a large scale in the second half of the year, and the profit side was dragged down in the first half of the year. 3) Expense side: The company's sales expense ratio is relatively stable, about 1.4%; the management expense ratio is about 7%, a year-on-year decrease of 1.2pp; the R&D expense ratio is about 8.4%, an increase of 0.7 pp over the previous year.
The trend of upgrading infrared cutoff filters has been revealed, which is expected to inject new growth momentum into the company's traditional business. According to industry chain research, in 2024, new domestic Android phones may use the spin-coating process of infrared cutoff filters on a large scale, and the penetration of spin-coated filters exceeds expectations. Compared with traditional filters, the price and gross margin of the upgraded filters have increased by a factor of 2. The company is currently one of the few manufacturers in China with experience in shipping spin-coated filters in large quantities. Driven by mobile phone head brands, the penetration rate of spin-coated filters in terminals is expected to continue to increase, which in turn will drive the revenue and profit level of the company's traditional business to rise.
After more than ten years of devotion, the AR business may usher in breakthrough progress. The company has dedicated more than ten years to research and development in the AR field, and has a layout in diffraction/reflection light waveguides, BB and other solutions. In 2023, the AR industry showed a trend of accelerated development. Many leading brands in the industry are also planning new AR products, which are expected to be launched one after another in 2024 and 2025. The company's introduction and mass production of optical waveguides and opto-mechanical products may have breakthrough progress. We are optimistic about the leading and driving effects of products released by leading players on the AR industry, and the company is expected to directly benefit as a supplier of core components for AR glasses.
Profit forecasting and investment advice. The company's net profit for 2024-2026 is estimated to be RMB 8.0, 9.7 billion and 1.14 billion yuan, respectively. We gave the company 32 times PE in 2024, corresponding to a target price of 18.56 yuan, covered for the first time, and gave it a “buy” rating.
Risk warning: downstream demand falls short of expectations; introduction, volume or fall short of expectations of new projects; industry competition increases risk.