Key points of investment:

Event: The company released its 24-year semi-annual report. 1) 24H1: Revenue 0.127 billion yuan, -10.39% year over year; net profit attributable to mother - 42.48 million yuan; deducted non-net profit - 72.73 million yuan. 24H1 gross profit margin 26.45% (-4.91 pcts year over year), net profit margin to mother -33.35% (-25.87 pcts year over year). The decline in profits is mainly due to insufficient output and delivery of scientific research modules; large increase in R&D expenses; competition and price pressure in the laser market; credit impairment and asset impairment. 2) 24Q2: Revenue of 74.87 million yuan, +44.62% year-on-year, +42.65% month-on-month; net profit to mother -23.03 million yuan; deducted non-net profit of -40.84 million yuan. 24Q2 gross profit margin 26.80% (YoY -8.93pcts, month-on-month +0.84pcts), net profit margin to mother -30.76% (YoY -7.37pcts, +6.30pcts month-on-month).

Revenue from the high-power bar business resumed growth. Looking at 24H1 by business: 1) High-power single-tube series: revenue 0.102 billion yuan, -20.54% year-on-year; gross profit margin 15.73%. 2) High-power bar series: revenue of 16.3354 million yuan, +39.54% year-on-year; gross profit margin 63.86%. 3) VCSEL chip series: revenue of 1.5886 million yuan, +59.23% YoY; gross profit margin 41.14%. Currently, the company's revenue source is still mainly domestic, with 24H1 accounting for 99.66% of domestic revenue. The company will continue to increase the domestic production substitution process in the future. At the same time, overseas markets will be further expanded. It is expected to provide strong support for increased profits and gross profit.

Build an optical chip IDM platform to fully open up multiple application fields such as power, sensing, and communication. 1) Power:

Over 100W single-tube chips have been developed, which is the world's highest power record; 50W optical chips have been shipped in large quantities, which is currently the highest mass-produced power. Released all-semiconductor laser wireless energy transmission chips and systems. 2) Sensing: The company has VCSEL, EEL and 1550nm fiber laser pump sources for lidar. 3) Communications: The company launched 100G EML, 50G VCSEL, 100mW CW optical chips.

Continue to increase investment in R&D and actively repurchase shares. 24H1's R&D expenses were 62.2 million yuan, +13.56% YoY, 48.84% YoY, +10.30pcts; Sales Expense Ratio 4.27%, YoY -1.31pcts; Management Expense Ratio 16.46%, +4.15pcts YoY; Financial Expense Ratio -4.10%, YoY -1.48pcts. 24H1 has repurchased 0.8467 million shares, accounting for 0.48%. The transaction price was 32.78-39.21 yuan/share, and the total disbursed capital was 30.2727 million.

Profit forecast. We estimate that the company's revenue for 24-26 will be 0.31, 0.405, and 0.522 billion yuan, respectively; net profit to mother will be -0.058, 0.027, 0.078 billion yuan, and EPS of -0.33, 0.15, and 0.44 yuan respectively.

We believe that as the leading IDM laser chip leader in China, Changguang Huaxin's future performance is expected to resume rapid growth along with the expansion of new business fields such as power, communications, and sensing. Referring to comparable company valuations, the company was given a 2024 dynamic PS range of 17-20x, corresponding to a reasonable value range of 31.66-35.17 yuan, which is “superior to the market” rating.

Risk warning. Market competition increases risks, technological upgrading and iterative risks, and macroeconomic risks.