Incidents. The company released a three-quarter performance forecast. It is expected to achieve net profit of 0.158-0.168 billion yuan in the first three quarters, +72%-83% year-on-year, and 0.151-0.161 billion yuan in non-net profit deducted from mother, and +100%-114% year-on-year.

Q3 alone is expected to achieve net profit of 0.109-0.119 billion yuan, core 0.114 billion yuan (+63% YoY, +470% month-on-month), deducted non-net profit of 0.104-0.114 billion yuan, and pivot 0.109 billion yuan (+70% YoY, +419% month-on-month).

It is expected that the microprism sinking model will drive a high increase in Q3 performance. We expect the company's high Q3 performance to be mainly driven by the increase in models corresponding to periscope lenses used by customers. At the end of the second quarter of this year, the company began a new round of mass production climbing for microprisms. The microprism industrial base production expansion project reached the scheduled state of use and put into use in July '24. By mid-September, both production lines of microprisms were mass-produced and shipped at full capacity.

There is broad room for growth in the automotive, optical communication, and smartphone markets with glass aspherical lenses. The company's glass aspherical lenses are mainly used in the automotive field, optical communication field and other imaging fields. Benefiting from intelligent driving, demand for high-definition in-vehicle cameras and lidars is growing, and demand for optical modules driven by AI computing power is growing, and there is broad room for growth. At the same time, glass-molded aspherical lenses are expected to be used in smartphone glass-plastic hybrid lenses. The company actively promotes early pre-research and sample delivery of aspherical lenses in the consumer electronics sector, which is expected to open up the consumer market.

The glass wafer waits for the AR terminal to explode. The glass substrate used in AR optical waveguide components needs to be made of high-quality glass wafers. The company is one of the few companies in the world with the ability to mass-produce glass wafers with a refractive index of 2.0 and 12 inches. Glass wafers produced through high-precision medium- to large-size ultra-thin wafer processing technology are used in AR/VR optical waveguides, and have entered the supply chain systems of Corning Group, DigiLens, Magic Leap, etc.

Investment advice. We expect the company's 2024-2026 operating income to be 1.049 billion yuan/1.441 billion/ 1.768 billion yuan, and the 2024-2026 net profit to mother will be 0.26/0.374/0.462 billion yuan, respectively, and the corresponding EPS will be 0.65/0.93/1.15 yuan/share, respectively. Considering comparable company valuation levels, the 25-year PE valuation range is 20-25x, corresponding to a reasonable value range of 18.60- At 23.25 yuan, the first coverage gave it an “superior to the market” rating.

Risk warning. Risk of fluctuations in downstream demand, risk of technology iterations falling short of expectations.