Key investment points

The smartphone market is picking up, and revenue is growing rapidly. 24H1's revenue was approximately RMB 18.86 billion, an increase of about 32.1% over the same period last year. The increase in revenue is mainly due to an increase in revenue from mobile phone lenses and mobile camera modules based on the recovery in the smartphone market; at the same time, revenue from car lenses and vehicle modules has also increased due to industry growth and business expansion; in addition, as demand for VR pancake modules increased compared to the same period last year, revenue from VR related products increased markedly. The revenue from the optical components business was approximately RMB 5.48 billion, an increase of approximately 26.9% over the same period last year. The increase in revenue is mainly due to increased revenue from mobile phone lenses, car lenses, and VR related products. The revenue from the optoelectronic products business was approximately RMB 13.191 billion, an increase of approximately 35.5% over the same period last year. The increase in revenue is mainly due to the increase in revenue from mobile phone camera modules and automotive modules. The revenue from the optical instruments business was approximately RMB 0.189 billion, a decrease of about 15.8% compared with the same period last year.

The profitability of mobile lenses and mobile camera modules has increased. 24H1's gross profit was approximately RMB 3.247 billion, an increase of about 52.4% over the same period last year. The gross margin was about 17.2%, an increase of about 2.3 percentage points over the same period last year. The increase in gross margin is mainly due to improvements in the gross margin of mobile phone lenses and mobile phone camera modules. The gross margins of the optical components business, optoelectronic products business and optical instruments business were about 31.8%, 8.2% and 47.9%, respectively (same period last year: about 26.0%, 6.9% and 42.7%, respectively). 24H1's net profit was about RMB 1.111 billion, an increase of about 142.0% over the same period last year; the net profit margin was about 5.9% (same period last year: about 3.2%). The increase in net interest rate was mainly due to the increase in the profitability of mobile phone lenses and mobile phone camera modules. Profit during the period attributable to shareholders of 24H1 was approximately RMB 1.079 billion, an increase of about 147.1% over the same period last year. 24H1's basic profit per share was approximately RMB 99.0 percent, an increase of approximately 147.7% over the same period last year.

Continue to increase R&D investment in automotive and XR related businesses. In terms of R&D expenditure, 24H1's R&D expenditure was approximately RMB 1.468 billion, an increase of about 21.9% over the same period last year, accounting for about 7.8% of the company's revenue during the review period and 8.4% for the same period last year. The increase in absolute amounts is mainly due to the company's continued increase in R&D investment in automotive and XR related businesses. In terms of sales and distribution expenses, 24H1's sales and distribution expenses were approximately RMB 0.226 billion, a decrease of about 5.8% compared to the same period last year, accounting for about 1.2% of the company's revenue during the review period, compared to about 1.7% for the same period last year. The reduction in the absolute amount is mainly due to the company's increased control over expenses related to marketing activities. In terms of administrative expenses, 24H1's administrative expenses were approximately RMB 0.563 billion, an increase of about 23.0% over the same period last year, accounting for about 3.0% of the company's revenue during the review period and about 3.2% for the same period last year. The increase in the absolute amount is mainly due to an increase in the salaries of the company's administrative employees, an increase in information technology construction expenses, and an increase in the granting of restricted shares under the company's restricted share award program.

Shipments of optical components are growing strongly. In terms of the automotive lens business, 24H1's automotive lens shipments increased by about 13.1% compared to the same period last year to 53,234,000 pieces. Against the backdrop of continued growth in demand in the automotive camera market, the company is deeply involved in advantageous businesses and further consolidating its leading position in the high-end advanced driving assistance system (“ADAS”) sensor market. 24H1 completed the research and development of ADAS automotive lenses with automatic heating. The lens can quickly remove ice and fog, and has received targeted projects from car brand manufacturers. In addition, the company has also completed the development of a 3 million pixel side-view glass plastic hybrid ADAS vehicle lens. This product has further reduced the number of glass lenses and greatly reduced costs. In the emerging field of automotive optics, the company continues to explore market opportunities in the fields of lidar, head-up display (“HUD”) and smart car lights, strengthen product layout and patent layout, and continuously seek differentiated breakthroughs at the technical level.

In terms of lidar, the company has obtained a number of targeted projects for lidar products and has completed the development of long-range lidar modules. At the same time, the company has also completed the research and development of all-solid-state blindness lidar platform-based products, which have a large field of view and smaller size, and are being promoted globally. In addition, the company has achieved technological breakthroughs in mass production equipment for lidar transmitter and receiver modules, shortening the installation time of lidar. On the HUD side, the company successfully obtained targeted projects from domestic customers based on the core optical engine (“PGU”) developed independently based on chips from leading HUD manufacturers, and is expected to be mass-produced in the second half of 2024. In terms of smart car lights, the company actively grasped the market opportunities brought about by the rise of the small projection lamp market and completed the research and development of multi-channel projection light products. In terms of the emerging consumer optical business, with the gradual maturity of hardware and the continuous support of AI technology, multi-modal interaction scenarios have injected new impetus into the XR industry, and the development of the industry ecosystem has become more and more clear. During the review period, the company continued to deepen cooperation with leading global manufacturers on new display and interactive products and technology, promoted the definition and mass production of various differentiated display optics and sensor optics products, and continued to occupy a key position in the supply chain of leading customers. In the mobile phone lens business, benefiting from the recovery in global smartphone shipments, the company's mobile phone lens shipments increased by about 23.7% to 634,401,000 pieces compared to the same period last year, and continued to occupy the top position in the world in terms of market share. At the same time, the company actively uses its core competitiveness in “high specification, high quality and high added value” products to increase the average selling price of mobile phone lenses and improve the gross profit margin. For example, the company has achieved mass production of a variety of one-inch glass-plastic hybrid main camera mobile phone lenses, and has become a leader in large-image glass-plastic hybrid main camera mobile phone lenses in the industry. In terms of periscope mobile phone lenses, the company has achieved mass production of a variety of periscope mobile phone lenses with a large image surface. Such products can still maintain clear image quality and vivid colors when shooting at ultra-long distances. In addition, shipments of the company's dual-group focus periscope mobile phone lenses continue to increase, and has completed the development of various multi-group periscope mobile phone lenses to achieve integrated close-up and long-range shooting functions to help customers achieve excellent imaging goals.

Optoelectronic products continue to deepen ecological cooperation. In the automotive module business, the company continues to deepen ecological cooperation with mainstream platform solution vendors such as Mobileye, Horizon, Qualcomm and Nvidia, and has successfully developed reference design solutions, becoming the preferred supplier for leading customers to develop autonomous driving technology. In the environmental sensing product line, the company continued to maintain the number one market share of 8 million pixel automotive modules in the world, and during the review period, it was fixed as a platform-based core project for leading European automakers. Furthermore, thanks to its deep accumulation in chip-on-board (“COB”) packaging technology, the company's 8 million pixel COB automotive module is favored and recognized by many domestic automobile manufacturer (“OEM”) customers, and the shipment volume is in an absolute leading position in the industry. In the smart cockpit product line, the company cooperates with leading customers to continuously innovate products and solutions, such as in-cabin wide-angle depth sensing solutions, to improve driving safety performance and enrich the driving experience. At the same time, the company works with core ecological business partners to build advanced intelligent cockpit solutions development capabilities. In the XR field, the company continues to provide leading customers with core products such as real-time positioning and mapping (“SLAM”) modules and high-definition perspective camera modules, and is actively developing the next generation of multi-sensor XR vision modules with better performance and more stable quality. The product solutions have been highly recognized by mainstream customers. At the same time, with the advantages of miniaturization and high-precision assembly, the company, as the first manufacturer in the industry, has mass-produced the smallest monochrome and color microlight-emitting diode (“microLED”) optical machines, thus deepening cooperation with leading XR customers and continuing to expand the influence of the company's miniaturized optical machines in the industry. In the field of robot vision, the company's robot navigation, obstacle avoidance and AI recognition camera modules and modules have begun to be widely used in the field of consumer robots, and have been mass-produced and shipped to mainstream customers. In addition, the company's self-developed biometric algorithm module has also been successfully shipped in batches to smart door lock head customers. In terms of the mobile camera module business, in the first half of 2024, as demand in the global smartphone market picked up, the company's mobile phone camera module shipments increased by about 13.5% compared to the same period last year to 289,013,000 pieces, continuing to maintain the number one market share in the world. At the same time, based on the deep accumulation of miniaturized packaging and high-precision optical assembly, along with the outstanding advantages of integrating mobile phone lenses, motors and mobile phone camera modules, the company's competitiveness in high-end products has been further strengthened, and its share has increased accordingly, thereby improving the product structure, average sales price and overall gross margin of the company's mobile phone camera modules. 24H1 has achieved mass production of a one-inch main camera long-stroke guide rod motor. This product not only ensures the camera's telephoto and close-focus resolution, but also helps make the camera ultra-thin. At the same time, the dual-group in-focus periscope mobile phone camera module has also been mass-produced. In addition, the company continues to achieve technological breakthroughs in core motion devices for main cameras and periscope cameras, and has completed the development of a 200 million pixel Periscope integrated mobile phone camera module equipped with a self-developed motor, a Periscope integrated mobile phone camera module equipped with a multi-folding prism and a self-developed motor, and a 1/2” main camera motor. Furthermore, the company has carried out in-depth intelligent chemical plant construction, made every effort to promote the operation of an international benchmark factory in Vietnam, built an international operation system, and further enhanced the level of high-end large-scale manufacturing, strengthened global supply capacity, and consolidated its leading position in the industry.

Continuous breakthroughs in optical instrument research and development innovation. In terms of the intelligent inspection equipment business, the company further focuses on the market demand for industrial intelligent equipment, medical equipment and equipment in emerging markets, giving full play to its advantages in optical imaging, precision mechanical design, and image processing algorithms, and continuously empowering advanced manufacturing. 24H1 has completed the research and development of a fifth-generation line for back-channel inspection of mobile phone lenses, which is more than 50% more efficient than the previous generation. The line body integrates functions such as spatial frequency response, stray light, low contrast defects, and automatic visual detection, and uses a high-precision optical system and self-developed AI model combined with traditional image algorithms to achieve high-precision detection of mobile phone lens defects and performance. Its comprehensive performance is in the leading position in the industry. In the microscope business, the company has made another breakthrough in R&D innovation. 24H1 successfully developed the first wide-band flat field large numerical aperture 40X water mirror. The objective lens has excellent performance both in terms of numerical aperture, resolution ability, and color difference correction, as well as in terms of extremely low autofluorescence and large field of view flatness. As the core component of a microscope, the objective lens greatly expands the application of wide-field, structured light, confocal, and super-resolution microscopy systems in the field of life science.

Investment advice

We expect the company to achieve revenue of 38.2/44.2/48.7 billion yuan in 2024/2025/2026, and realized net profit of 2.5/3.2/3.7 billion yuan respectively. The current stock price corresponding to 2024-2026 PE is 29 times, 22 times, and 20 times, respectively, covered for the first time, giving it a “buy” rating.

Risk Alerts

Downstream demand falls short of expectations risk, interest rate risk, foreign exchange risk, global trade friction risk.