Event: On April 27, Mulai Optics released its report for the first quarter of 2024. In 2024, the company achieved revenue of 111 million yuan, a year-on-year decrease of 11.32%; net profit to mother was 0.04 billion yuan, a year-on-year decrease of 69.36%; net profit after deducting non-return to mother was 0.2 billion yuan, a year-on-year decrease of 82.91%.

Client product adjustments put pressure on the company's performance in the short term. By downstream application, in the first quarter of 2024, the company's semiconductor revenue accounted for 51.23%; life science accounted for 19.73%; biometrics accounted for 9.80%; driverless cars accounted for 4.06%; AR/VR testing accounted for 2.20%; aerospace accounted for 1.78%; and other fields accounted for 11.20%. Among them, major customers in the life sciences sector have upgraded their products, and demand for original optical devices has declined. In addition, major customers in the AR/VR field have adjusted their projects, and demand for test equipment has declined.

In terms of profit, the company's gross margin fell 2.19% year on year, while the company's expenses increased by 12.46% year on year. Among them, sales expenses increased 18.41% and management expenses increased 17.11% year on year.

The semiconductor sector is progressing smoothly, and its share of revenue continues to rise. The company's precision optical devices and optical systems are widely used in lithography machines and semiconductor inspection equipment. In 2023, the company's revenue from the semiconductor sector accounted for 37.05%, and in the first quarter of 2024, the company's revenue from the semiconductor sector accounted for 51.23%, and the share continued to rise. According to the 2023 annual report, the company's lithography system optical device processing and coating technology has completed small-batch trial production and entered the industrialization promotion stage; the company's wafer surface defect detection technology has entered the small-batch trial production stage.

Products are widely used, and downstream demand continues to grow. In addition to semiconductors, the company's products are also widely used in other downstream fields. 1) Life science applications, the company's products are mainly used in equipment such as genetic sequencers and oral scanners. 2) In the ARVR field, the company's optical test modules and equipment are mainly used to test the optical parameters and performance of AR/VR wearable device products. 3) The company's products can also be used in many fields such as unmanned driving, aerospace, biometrics, etc. As demand from the downstream market continues to grow, the company is expected to continue to benefit.

Investment advice. With the gradual growth of the company's semiconductor business and driven by downstream demand, we expect the company to achieve revenue of 54/6.5/750 million yuan in 24-26, net profit of 0.6/0.7/0.9 billion yuan, and maintain a “buy” rating of 83/73/58 times PE corresponding to the market value on April 29, respectively.

Risk warning: Downstream demand falls short of expectations; industry competition increases risk; company's new business development falls short of expected risk, etc.