Key points of investment

Mingyue Lens reveals 2024H1 results

2024H1 achieved operating income of 0.385 billion yuan (+5.21%), net profit of 0.089 billion yuan (+11.04%), net profit of 0.076 billion yuan after deduction (+7.12%); 24Q2 achieved revenue of 0.193 billion yuan (-0.72%) and net profit to mother of 0.047 billion yuan (+3.74%). Affected by the macro and consumer environment, the company's raw materials and export business dragged down revenue growth, but the product upgrade trend continued to increase profitability.

Easy Control & Star products continued to grow rapidly, and raw materials and export business dragged down growth by business: 1) Defocus: 2024H1's sales of “Easy Control” series products were about 76.1016 million yuan, +38.86% year over year, of which 24Q2 sales were 35.02 million yuan in a single quarter, +28.56% year over year. The company's defocus lens products continue to grow rapidly. 2) Lenses: 2024H1's lens business achieved revenue of 0.32 billion yuan, +12.08% year over year. If the adverse effects of overseas business were excluded, the company's lens business was +13.98% year over year. The company is determined to upgrade its products. Among them, PMC Super Bright's revenue was +58.82% year over year, 1.71 series revenue was +24.40% year over year, and the three star products accounted for 55.79% of the company's regular lens revenue. 3) Other businesses: The raw materials business 2024H1 achieved revenue of 0.031 billion yuan, or -36.77%, mainly to absorb last year's high base; the mirror business 2024H1 achieved revenue of 0.025 billion yuan, -5.31% year over year; frame business contributed 0.005 billion yuan, +156.63% year over year; other products achieved revenue of 0.003 billion yuan, +33.79% year over year.

Regions & Channels: 1) Subregion: 2024H1's domestic sales achieved revenue of 0.369 billion yuan, +6.33% year-on-year. Domestic sales showed resilience against the backdrop of a weak recovery in the overall consumption environment. Overseas business revenue was 0.016 billion yuan, -15.02% year-on-year, and the share of revenue fell to 4.22%. 2) Channel division: 2024H1's direct sales channel achieved revenue of 0.213 billion yuan, -5.08% year over year, and distribution channel revenue of 0.138 billion yuan, +23.69% year over year. As of 2024H1, the company has 2,396 direct sales customers (including medical channels) and 28 “Mingyue” brand distribution customers, and the customer structure continues to be optimized.

Gross margin increased further, and cost investment increased year-on-year

Gross profit margin: 2024H1's gross margin was 59.40%, +2.72pct year on year. Among them, the 24Q2 single quarter gross margin was 60.72%, +3.56pct year on year. The company firmly withdrew from the price war and continued to promote product structure optimization and upgrading, driving a further increase in gross margin year over year. Looking at specific products, the gross margin of 2024H1's lens/raw materials business was 63.48%/27.10%, respectively, +2.17/ +0.52 pct compared to the same period. In the future, as the company's share of sales of defocus lenses & star products will increase further, I am optimistic that the company's gross margin will be further optimized.

Net interest rate & expense ratio: 2024H1's net interest rate to mother was 23.11%, +1.21pct year on year, of which 24Q2 single quarter net interest rate was 24.24%, +1.04pct year on year, and +2.26pct month-on-month. The 2024H1 company's sales/management+R&D/finance expenses ratio was 19.11%/15.41%/0.03%, respectively, +0.75/ +2.73/ +1.76pct.

The 2024Q2 company's quarterly sales/management+R&D/finance expenses ratio was 19.54%/14.90%/-0.06%, respectively, +1.98/ +2.72/ +1.49pct year-on-year, respectively. In order to strengthen the promotion of functional products such as brand upgrades and easy control, the company's marketing investment increased year-on-year, but the proportion of benefiting functional products increased, etc., and profitability still increased.

The power of Mingyue Easy Control products has been further verified, and the company continues to promote the brand upgrade and high-end brand upgrade to hold a 24-month clinical report release and seminar in May 2024. The report shows that in the second year of wearing a mirror, 72% of the subjects wearing the Mingyue Easy Control Pro effectively delayed the deepening of myopia, while eye axis growth was also significantly delayed by 61%. At the same time, 97% of the subjects were able to adapt to the lenses within 1 day, and 77% were able to adapt immediately. Several core indicators rank among the highest in the industry, and Mingyue defocus lens product strength has been further verified. In April 2024, the company announced that it had reached an exclusive cooperation in the field of lenses with Germany's leading brand of photography and optics. The two sides will cooperate in depth in brand operation, technology research and development, accurate imaging, optical design, precision manufacturing, marketing, etc., to help the company enter the high-end and ultra-high-end lens market, and continue to advance the high-end of the company's brands and products.

Profit forecasting and valuation

The company is a leading domestic lens brand. The product, brand and channel strength are all industry-leading, and there is plenty of room for subsequent development on the high growth track of card position defocus lenses. We expect the company to achieve revenue of 0.802, 0.896, and 1.034 billion yuan in 2024-2026, +7.17%, +11.61%, and +15.47%; net profit to mother of 0.176, 0.203, 0.243 billion yuan, +11.88%, +15.21%, and corresponding PE is 29X, 25X, and 21X, respectively, maintaining the “increase” rating.

Risk warning

New product expansion falls short of expectations, channel development falls short of expectations, and industry competition intensifies.