Key points of investment

Incident: On the evening of August 30, 2024, the company released its 2024 interim report. 2024H1 achieved revenue of 0.428 billion yuan, a year-on-year increase of 9.62%; net profit to mother was 0.1 billion yuan, a decrease of 14.07% over the same period last year.

The 24H1 optical component business grew significantly, making up for the decline in the optical microscope business and achieving a year-on-year increase in overall revenue. With 2024Q2, the company achieved revenue of 0.212 billion yuan, up 4.86% year on year, down 1.62% month on month, and net profit to mother 0.054 billion yuan, down 21.13% year on year and 18.58% month on month. The year-on-year decline in 2024H1 net profit of 14.07% was mainly affected by a sharp decrease in exchange earnings compared to the same period last year and a sharp increase in R&D investment. By business, the optical microscope business achieved revenue of 0.163 billion yuan in the first half of the year, -12.78%, mainly affected by macroeconomic fluctuations; the optical component business achieved revenue of 0.254 billion yuan, +30.95% compared with the same period last year, mainly due to the rapid recovery of the bar code scanning business and large-scale mass production of lidar products. In terms of profitability, 2024H1's gross sales margin was 38.93%, -1.36pct year on year, 23.25%, year-on-year -6.41pct, 24Q2 gross sales margin of 40.17% in a single quarter, +2.46pct month-on-month, and 25.43% month-on-month. In terms of expenses, the company continues to optimize the production management system, and production cost control is strong. The 2024H1 sales expense ratio and management expense ratio were 4.71% and 4.32% respectively, a year-on-year decrease of 0.56 pct and 0.98 pct, respectively.

The “dual engine” strategy guides the company's growth and accelerates the development process of new high-end microscope products. Based on the initial results of the “2+2” business, the company proposed and implemented a “dual engine” strategy for high-end microscopes and optical components. In the first half of 2024, the revenue share of high-end optical microscopes increased. 1) Continued launch of new high-end microscopes: The company has accelerated the development of high-end microscopes and launched various new microscopes with a unit price of 0.2-3 million, such as NSR950, NCF1000, and NIB1000. 2) Industry-university-research resonance, and the high-end microscope ecosystem is getting better: The company joined hands with the School of Life Science and Technology of Shanghai Jiao Tong University and the School of Basic Medicine to establish the “Industry-Education-Research and Innovation Integration Demonstration Center” and “High-end Domestic Microscope Industry-University-Research Demonstration Center” respectively to jointly build an innovation-driven development ecosystem to continuously expand the influence of the company's high-end microscope brand.

Barcode scanning, lidar, and medical optics have blossomed at multiple points, further opening up room for long-term growth. 1) Barcode scanning and machine vision: In terms of barcode scanning, the module business provided by the company to the field giants Zebra and Honeywell is progressing smoothly. Gradual batch shipments began in the second half of 2024. In addition, several component products have already been shipped; machine vision products are expected to benefit from the future development of AI/intelligent manufacturing/warehousing and logistics fields, leading to increased demand. 2) Lidar: In the first half of the year, the automotive and lidar business achieved revenue of nearly 70 million yuan, an increase of 120% over the previous year. The company's automotive front lens sales were steady, and several AR-HUD project targets were secured. At the same time, it continued to maintain in-depth cooperation with well-known companies in the lidar field such as Hesai, Tudatong, Valeo, and Innoviz.

3) Medical optics: The endoscopic lenses and optical components developed and produced have covered more than 70% of major domestic endoscope manufacturers. At the same time, the company has further expanded the emerging market for embedded microscopy systems to achieve mass sales of high-end embedded microsystems used in blood morphology analysis. The company invested in the establishment of the joint venture S-FIDA in Japan and is progressing smoothly, which is conducive to broadening the industrial layout after completion of the project.

Profit forecast and investment proposal: We believe that the company's high-end optical microscope business is expected to expand at an accelerated pace, while medical optics, autonomous driving and bar code machine vision will blossom, injecting growth momentum into the company's optical component business. The company is expected to achieve revenue of 1.026/1.35/1.799 billion yuan in 24-26, achieve net profit of 0.26/0.344/0.479 billion yuan, and maintain a “buy” rating of 21/16/12 times PE corresponding to the market value on September 2, respectively.

Risk warning: Downstream demand falls short of expectations, risk of exchange rate fluctuations, and new product development falls short of expectations.