Incidents. The company released 24H1 results. 24H1 achieved revenue of 2.655 billion yuan, +43.21% year over year, net profit to mother 0.427 billion yuan, +140.48% year over year, and deducted non-net profit of 0.391 billion yuan, +253.43% year over year. Single Q2 achieved revenue of 1.31 billion yuan (YoY +34.05%, month-on-month -2.65%), net profit of 0.248 billion yuan (YoY +193.09%, month-on-month +38.92%), and deducted non-net profit of 0.221 billion yuan (YoY +361.28%, month-on-month +30.57%).

The optical components and thin film optical panel business drives growth. By business segment, 24H1's optical components, thin-film optical panels, reflective materials, automotive electronics, and semiconductor optics business achieved revenue of 1.245 billion yuan, 0.945 billion yuan, 0.184 billion yuan, 0.135 billion yuan, and 0.064 billion yuan respectively, with year-on-year increases of 54.46%, 38.47%, 35.47%, 2%, and 4.09%, respectively. Among them, the optical components and thin-film optical panel business is the main source of growth. It is expected that mass production of microprisms will advance in the second quarter and the increase in thin-film optical panel shipments.

Q2 Profitability levels increased significantly. The company's gross margin for Q2 was 31.30% (+4.68pcts y/y, +7.30pcts month-on-month) and net margin was 19.39% (+10.07pcts yoy, +5.60pcts month-on-month). The company expects the main reasons: 1) the profit margin of the thin-film optical panel business will increase year-on-month by increasing the share of high-value-added products, enriching product categories, and improving management efficiency; 2) early shipment of microprisms to improve gross profit margin; 3) effective control of various expenses, especially the reduction in R&D investment after mass production of microprisms.

By deepening cooperation with major North American customers, AI is expected to drive optical upgrades. The company has a comprehensive layout around major customers in North America: 1) in terms of coated filter products, the company has received direct cooperation opportunities with major customers to achieve supply chain breakthroughs; 2) the decline in quadruple reflective prism models in 24 years is expected to continue to provide performance support; 3) thin film optical panels will maintain steady growth through cost reduction and efficiency; 4) Benefiting from AI intelligent sensing, optical upgrades can be expected.

Mass production of strategic card position AR glasses and reflective waveguides is expected to break through. AR glasses are expected to become the best carrier for AI. Major overseas companies such as Meta have accelerated deployment. The company has technical layout for solutions such as diffractive light waveguides, reflected light waveguides, and Birdbath. Among them, in the field of reflected light waveguides, the company has large-scale mass production and manufacturing capabilities, which is expected to break through the problem of mass production of reflected light waveguides.

Profit forecast. We expect the company's 2024-2026 revenue to be 6.408 billion yuan/8.123 billion/ 9.134 billion yuan, respectively, and the net profit due to mother for 2024-2026 will be 0.89/1.176/1.389 billion yuan, respectively. The corresponding EPS will be 0.64/0.85/1.00 yuan/share, respectively. Considering comparable company valuation levels, the 24-year PE valuation range is 25-30x, corresponding to a reasonable value range of 16.00- 19.20 yuan, maintaining the “better than the market” rating.

Risk warning. Risk of fluctuations in downstream demand; risk of AR R&D falling short of expectations.