Incident: The company released its 2024 mid-year report. In the first half of 2024, the company achieved revenue of 0.385 billion yuan, a year-on-year increase of 5.2%, and achieved net profit to mother of 0.089 billion yuan, an increase of 11.0% over the same period; in the second quarter, it achieved operating income of 0.193 billion yuan, a year-on-year decrease of 0.7%, and achieved net profit to mother of 0.047 billion yuan, an increase of 3.7% year on year.

The increase in lens revenue shows resilience, and the raw materials business is under pressure in the short term. By product, the company's lens/materials/mirror/frame/other business revenue in the first half of 2023 was 3.20/0.31/0.025/0.005/0.003 billion yuan, respectively, +12%/-37%/-5%/+157%/+34% year-on-year, respectively. Among them: ① The lens business showed sufficient resilience in the context of relative pressure on the external environment, and revenue from the three major star products continued to grow rapidly. The revenue of PMC Super Bright and 1.71 series products increased 59% and 24% year-on-year, respectively; during the same period, myopia prevention and control Sales of the “Easy Control” series of products were 0.076 billion yuan, up 39% year on year. Among them, sales of Easy Control series products in the second quarter were 0.035 billion yuan, up 29% year on year. ② In terms of the raw materials business, due to the relative weakness of the lens industry as a whole and the high base in the early period, the company's raw material business revenue fell 37% year-on-year in the first half of 2024, causing a certain drag on revenue in the short term.

The product structure is continuously optimized, and the company's profitability continues to improve. The company's gross margin increased 2.7 pct year on year in the first half of 2024. Among them, the gross margin of the lens business increased by 2.2 pct year on year. It is estimated that the revenue share of high-margin products such as the three major star products and “easy control” myopia prevention and control products increased; the gross margin of the raw materials business increased by 0.5 pct during the same period.

The company's gross margin for the second quarter was 60.7%, up 3.6 pct year on year. Continuous optimization of the product structure led to a continued upward trend in gross margin; the company's expense ratio during the same period was 34.4%, a slight decrease of 0.4 pct from month to month. Against the backdrop of pressure from the external environment, the company's expenses were relatively cautious. In the second quarter, the company achieved a net interest rate of 24.2%, an increase of 1.0 pct over the previous year, and continued to increase in profitability.

Firmly adhere to the brand strategy and focus on improving the overall strength of the channel. On the brand side, the company adheres to the grand strategy of “seizing the number one brand of lenses in China”. In the first half of the year, it continued to raise the brand's voice by jointly launching the “China Astronaut Vision Guarantee Program” with China Aerospace and a joint name with Universal Pictures Super IP Minions. On the channel side, the company vigorously promoted the collaborative development of direct sales, distribution and medical channels. While digging deeper into the development potential of traditional offline channels, the company continued to develop medical channels and officially launched the medical channel brand “Good Doctor” in the first half of the year.

Based on industry demand trends, the company's lens and raw material business revenue growth rate is estimated to be 0.179/0.215/0.253 billion yuan in 2024-2026 (previously forecast net profit to mother for 2024-2026 was 0.19/0.23/0.27 billion yuan), giving DCF a target value of 34.50 yuan to maintain a “buy” rating.

Risk warning

The level of promotion of new products falls short of expectations; the increase in lens gross margin falls short of expectations; the risk of increased competition in the industry.