Incident: Recently, several major manufacturers announced that they will soon release new AI smart glasses. It has also been revealed that Xiaomi will launch a new generation of AI glasses. Currently, Mingyue Lens sells the smart glasses Sasky at the Xiaomi Youpin flagship store. This product can wake up Siri and Xiao Ai's classmates by voice, and has functions such as answering phone calls, navigation, and relaxing with music.

Expanding the AI concept to meet the trend of smart glasses

As tech giants such as Baidu and Xiaomi released AI glasses one after another, the smart glasses market gradually heated up and became a hot area of concern for the industry. The company is actively developing the smart glasses market. With its deep accumulation in optics and display technology, it has the advantage of entering the AI and AR glasses market. The company has now made a full layout in terms of smart glasses, and Xiaomi is also in initial contact and communication. The smart glasses launched by the company on the Xiaomi Youpin platform have voice assistant functions, which can achieve application scenarios such as navigation and answering phone calls, significantly improving the user experience.

At the same time, the company's market positioning is accurate, focuses on the mass mid-range market, targets mass consumers through friendly prices, and takes the lead in category expansion and popularization.

Product iteration and steady improvement in Q3 performance

Mingyue Lens released its 2024 third quarter report. 2024Q1-3 achieved operating income of 0.583 billion yuan, up 3.61% year on year; net profit to mother 0.137 billion yuan, up 11.91% year on year; net profit after deducting 0.117 billion yuan to mother, up 9.88% year on year. 24Q3 achieved operating income of 0.198 billion yuan, up 0.64% year on year; net profit to mother 0.048 billion yuan, up 13.57% year on year; net profit after deducting 0.042 billion yuan, up 15.22% year on year.

In terms of profitability, 24Q1-3's gross margin was 59.30%, up 1.39 pct year on year; 24Q3 company's gross margin was 59.10%, down 1.10 pct year on year. The net interest rate of the 24Q1-3 company was 24.84%, up 1.17pct year on year; the net interest rate of the 24Q3 company was 25.66%, up 2.13pct year on year, and profitability continued to increase. Among them, revenue from star products such as MPG Super Bright series increased by 50.60% year on year, sales of the Easy Control Pro series increased by 34.20% year on year, and the growth momentum of core products was strong.

In terms of period expenses, the 24Q1-3 company's cost rate for the period was 33.99%, up 2.70pct year on year, and the sales/management/R&D/finance expenses ratio was 18.93%/11.08%/3.94%/0.04%, respectively, and -1.05/+1.17/+0.93/+1.66pct, respectively. The 24Q3 company's expense ratio was 32.92%, down 2.06 pct year on year, and the sales/management/R&D/finance expenses ratio was 18.58%/10.12%/4.18%/0.04%, respectively, -4.42/-0.39/+1.28/+1.47pct, respectively. The company's sales rate was further reduced, and its ability to control costs was good; R&D expenses increased 45.00% year-on-year in 24Q3, and investment in R&D continued to increase.

Investment advice: While maintaining the advantages of original channels and product development, the company actively promotes product structure optimization and upgrading, increasing brand communication and expanding social media channels. Its myopia prevention and control products are expected to become a new performance growth point. We expect Mingyue Lens's 2024-2026 revenue to be 0.797, 0.904, and 1.012 billion yuan, up 6.50%, 13.42%, and 11.90% year on year; net profit to mother will be 0.175, 0.214, 0.247 billion yuan, up 11.25%, 21.84%, and 15.55% year over year, corresponding PE of 37.4x, 30.7x, 26.6x, for 24 years, with a target price of 41.75 yuan to maintain Buy-A's investment ratings.

Risk warning: risk of large fluctuations in raw material prices; risk of new product promotion falling short of expectations; risk of repeated epidemics.