Key points of investment

Incident: On the evening of October 28, 2024, the company released its 2024 three-quarter report. In the first three quarters of 2024, the company achieved revenue of 7.743 billion yuan, an increase of 9.22% over the previous year; net profit to mother was -0.046 billion yuan, a reduction of about 85.94% compared to the same period.

Profitability continued to improve in the third quarter, and business conditions were gradually optimized. In the first three quarters of the company, the company's gross sales margin was 9.53%, up 0.86 pct from the interim report. Net sales margin was -1.15%, up 0.75pct from month to month.

Although profits are still in a negative range, the gradual improvement in net interest rates shows that the company has achieved certain results in coping with cost pressure and optimizing business strategies. Looking at a single quarter in the third quarter of 2024, the company achieved total revenue of 2.808 billion yuan, a year-on-year decrease of 2.83%. Net profit attributable to mother was 0.019 billion yuan. Compared with -0.049 billion yuan in the same period last year, it turned a loss into a profit. Net profit attributable to mother after deducting non-recurring profit and loss was 0.004 billion yuan, compared to -0.071 billion yuan in the same period in 2023, which also achieved a significant increase. Gross sales margin for the third quarter was 11.03%, up 3.36 pct year on year and 0.83 pct month on month; net sales margin was 0.16%, up 2.3 pct year on year, up 0.69 pct month on month.

The automotive optics business continues to grow rapidly, helping the company achieve revenue growth. In the first three quarters of 2024, the optical industry's revenue reached 3.303 billion yuan, up 55.97% year on year, accounting for 42.66% of total revenue, up 12.78 percentage points year on year. Among them, the automotive optics business performed particularly well, with revenue reaching 1.61 billion yuan, an increase of 132.79% over the previous year. The automotive optics market has huge potential, thanks to the promotion of L3 and above autonomous driving technology and the accelerated penetration of ADAS functions. According to the company's Q3 report, the automotive camera market is expected to reach 35.5 billion US dollars by 2026, and is expected to be close to 50 billion US dollars in the future. In April 2024, the “Vehicle Optics Industrial Park” built by the company in Hefei was officially put into operation, producing 0.05 billion automotive lenses and video modules each year, laying a solid foundation for future development. At the same time, the mobile phone lens and video module market is showing signs of recovery. According to the Chinese Academy of Information and Communications Technology, in the first half of 2024, China's domestic mobile phone shipments reached 0.147 billion units, an increase of 13.2 pcts over the previous year.

Cooperation between overseas companies continues to deepen, demand in the mobile phone sector is picking up, and the company's future performance is expected to continue to grow. The layout of the automotive optics field continues to deepen. The company has not only stabilized its position as a major supplier of ADAS lenses, but also increased cooperation with leading international automotive safety solutions companies such as Mobileye and Nvidia, while continuing to expand its share in the European, American and Korean markets. In the mobile phone sector, the market showed a marked recovery as consumer confidence recovered and inventory conditions improved. According to Counterpoint Research's analysis, the global smartphone market is expected to continue to improve in the next few quarters, and the overall market is expected to grow by 4% in 2024. With its technical advantages in the field of optics and image modules, the company has further increased the proportion of high-pixel lenses, periscope lenses, and OIS optical image stabilization modules, providing solid support for the steady growth of future performance.

Profit forecast and investment proposal: The automotive optics business is expected to become the main line of the company's future growth. The performance is expected to reverse losses with the growth of automotive optics. The company is expected to achieve revenue of 10.667/12.479/13.653 billion yuan in 2024-2026, and net profit to mother of -0.013/0.287/0.475 billion yuan, corresponding to the market value on November 1, the 2025/2026 price-earnings ratio of 34/21 times, respectively, maintaining a “buy” rating.

Risk warning: Demand in the automotive industry falls short of expectations; demand in the consumer electronics industry falls short of expectations; the new product development process falls short of expected risks.