Introduction to this report:

A number of R&D projects between the company and the world's leading technology and consumer electronics companies are progressing smoothly, and we are optimistic that the smart glasses business will accelerate.

Key investment points:

Maintain an increase in holdings. We maintain our forecast for 2024-26 net profit of 0.409/0.492/0.575 billion yuan, a growth rate of 25.2/20.2/ 17%; maintain the target price of 15 yuan to maintain an increase in holdings.

Incident: The company disclosed a business development announcement. 1) As previously mentioned, several R&D projects of leading global technology and consumer electronics companies, including many leading US companies, are progressing smoothly. According to signed purchase orders, the company has successively received payments including R&D expenses and small test orders; 2) In terms of the design path of future XR products, the different needs of different customers are being verified step by step and mass production, including but not limited to the physical properties of raw materials, redevelopment of molds, product accuracy requirements, film formulation and performance, and special functional product customization, to Suitable for different future applications and consumption scenarios.

The first equity incentive plan since listing was released, demonstrating confidence in future development. 1) The company plans to grant about 11.926 million shares (2.8% of the total share capital) to 7 executives and 148 employees at 4.58 yuan/share; 2) unlock 33%/33%/34% year by year in three installments. The assessment conditions are that net profit to the mother increased by no less than 21/17/ 15% year-on-year in 2025-27 (excluding equity payment fees); 3) Purpose of equity incentives: commend qualified persons and give rewards to retain them for the Group's continued operation and development effectiveness; attract talents and enhance the competitiveness of qualified talents; Benefits and The Group's values are linked to motivate employees to achieve the Group's long-term development goals.

The active layout of the smart glasses business will accelerate the development of the beneficiary industry. 1) The company is a leading domestic lens enterprise, with core advantages such as product & channel advantages/technology research and development advantages/efficient C2M model. In 2019-23, revenue CAGR was 10.7%, net profit CAGR was 23.9%, gross margin increased from 33% to 37.4%, net margin increased from 10.5% to 18.4%, and H1 revenue/net profit increased by 17.5/ 31.6% respectively. The core business indicators showed excellent performance; 2) Promoting the construction of the Thai factory will strengthen the global competitiveness of lenses; 3) Establishing XR R&D and service The center provides support and services for potential precision optics businesses from the technical side and the market side, respectively, and strengthens the technical application research and development of products in XR optics; 4) AI smart glasses are the best hardware carrier for AI implementation. The industry has entered a period of rapid development, and the company will benefit first. In 2025, PE will be the first to benefit.

Risk warning: Customized lenses and private brands fall short of expectations, smart glasses lens business development falls short of expectations, industry competition intensifies, etc.