Event: the company disclosed its half-yearly report on August 9, 2021. In the first half of 2021, the company realized operating income of 75.8626 million yuan (+ 123.65%), net profit of 12.5762 million yuan (+ 378.99%), gross profit of 55.22% (+ 19.16pcts) and basic earnings per share of 0.126 yuan per share (+ 380.00%).

Main points of investment:

The company's performance in the first half of 2021 benefited from the volume of mass-produced products, and the operating efficiency improved significantly in the first half of 2021. During the reporting period in the first half of 2021, the company realized operating income of 75.8626 million yuan (+ 123.65%) and net profit of 12.5762 million yuan (+ 378.99%). As the company's performance loss in the first half of 2020 was mainly affected by the epidemic, excluding the loss factor, compared with comparable financial data in the first half of 2019. Operating income increased by 23.35% compared with the first half of 2019, and net profit increased by 112.80% compared with the same period in 2019, indicating that the company's performance was basically eliminated by the epidemic. Specific to all kinds of products of the company, military products include mass-produced products and R & D products, which are mainly optical guidance systems and optoelectronic professional testing equipment that have entered the stereotyped stage. the R & D products are mainly optical target and scene simulation system and laser countermeasure system. The sales amount of wholesale products is 45.1925 million yuan (due to the income of this part affected by the epidemic in the same period in the first half of 2020 was 0, an increase of 111.62% over the same period in 2019), and the sales amount of R & D products was 16.4292 million yuan (+ 204.15%, a decrease of 56.31% compared with the same period in 2019). Sales of civilian products totaled 11.2528 million yuan (- 57.60%, with no income in the first half of 2019), mainly due to the effective control of the epidemic in this period, and the sales of intelligent human temperature detection equipment decreased by 22.97 million compared with the same period last year. Other business income of 11.0137 million yuan (+ 455.81%, an increase of 342.58% over the same period in 2019), mainly due to the power testing products through the pilot acceptance, has achieved a certain scale of sales in the power system, sales increased by 9.0322 million yuan over the same period last year. The increase in revenue from wholesale products and the 54.38% increase in goods issued at the beginning of the period indicate that the company's product sales business is growing rapidly. It confirms our expectations in previous reports on the delivery of mainframe products and R & D progress of the overall unit downstream of the company's future batch products. The company's 2021 performance may have cross-cycle confirmation, which is expected to be realized to the future performance. During the reporting period of the first half of 2021, the company's expenses were relatively stable, totaling 31.534 million yuan (+ 6.03%) in the current period, and the absolute value of expenses increased, but the rates of sales expenses (9.24%,-1.40pcts) and management expenses (23.93%,-25.78pcts) decreased., It reflects the obvious improvement of the company's operating efficiency. The company has invested 12.2646 million yuan (+ 29.60%) in R & D, and has made progress in tackling key technical problems such as optical guidance, simulation and laser countermeasures. We noticed that all items of the company's inventory continued to grow on the basis of the high growth in the previous period: the company's inventory in the current period was 8987.30 yuan, an increase of 29.06% over the beginning of the period. raw materials, products and goods in stock increased by 13.88%, 33.30% and 20.49% respectively over the beginning of the period, and the contract debt was 17.6273 million yuan, an increase of 70.94% over the beginning of the period. The increase in inventory indicates that the company is well prepared for on-hand orders.

A number of military projects continue to advance and achieve results, and the industry position further consolidates the company's current five major businesses: optical guidance systems, optical target and scene simulation, optical special testing, laser countermeasures and civilian products, among which the optical guidance system business is the core basis for the company's stable revenue growth in the future. The company's optical guidance system is mainly divided into two types: optical imaging and non-imaging guidance. In the optical guidance products supporting military trade and the future national military models of a number of guidance products, the product performance is remarkable, and the maturity is improved. With the continuous optimization of a number of optical guidance products developed by the overall unit, they have entered the stage of small batch production; at the same time, in line with the needs of the overall unit and the military, actively participate in the demonstration and development of a number of key models, and realize engineering application. The company's key technologies effectively support the R & D, production and equipment of many key missile models. Foreign trade TV guidance, low-cost infrared guidance and laser guidance products have been carried out successfully with the overall unit range flight test. With the product stereotyping, we judge that the annual revenue of the business will grow rapidly, and the proportion of the company's wholesale products is expected to further increase during the "14th five-year Plan" period, the growth of mass-produced products will bring economies of scale, and profitability is expected to be enhanced.

The optical target and scene simulation business has developed a series of four-generation products, some of which are better than similar foreign products. during the reporting period, the company undertook the military large-scale optoelectronic environment simulation system for the first time, indicating that the company has the ability to undertake system-level projects. it has further established and promoted the company's industry status in the field of system simulation.

At present, the optoelectronic special test equipment business has completed more than 10 supporting tasks for key types of missiles, providing reliable optoelectronic testing equipment support for many types of weapon systems. The company has the ability to serialize and modularize the optoelectronic special test equipment, and applies the company's core technology to long-distance detection and other directions, and continues to develop in the direction of "miniaturization, generalization, serialization and modularization" of optoelectronic special test equipment. The optoelectronic special test equipment mainly provides testing technical support and equipment support for missile shaping, batch production, storage and launch. a number of optoelectronic special test products have been mass produced, and many models have been gradually finalized during the "14th five-year Plan". The actual combat exercise increases the demand for guided missiles, and the demand for storage and testing is also expected to increase at the same time, and the company's business income is expected to restore growth.

The business of the laser countermeasure system has developed from the optical system to the whole machine. Based on the research and development of the miniaturized control system of the laser system, the miniaturized vehicle laser system, the portable laser system and the airborne laser system have been developed successively. It is the first time in China to realize the imaging, capture, tracking and aiming of the moving target on the moving platform, and complete the accurate damage.

Civil products business transforms advanced military technology to other fields. Combined with its own R & D advantages and market demand in the field of optoelectronics, products are developed in civil fields such as electric power detection, forest fire prevention and so on. The sales amount reached 11.2528 million yuan (- 57.60%) during the reporting period, mainly due to the effective control of the epidemic situation in this period. the sales of intelligent detection equipment for human body temperature decreased by 22.97 million yuan compared with the same period last year. At the same time, other business income was 11.0137 million yuan (+ 455.81%, an increase of 442.58% over the same period in 2019). This is mainly due to the fact that the electric power testing products have been sold on a certain scale in the power system after passing the pilot acceptance. Sales increased by 9.0322 million yuan over the same period last year. Civil products and other businesses are growing rapidly after deducting the impact of the epidemic, and revenue is expected to grow rapidly.

The company successfully implements stock incentives to improve the enthusiasm of employees.

The company completed the implementation of the 2020 restricted stock incentive plan, in which 31 incentive targets (accounting for 8.73% of the company's total employees) were granted 800000 restricted shares for the first time, accounting for about 0.80% of the company's share capital, with a grant price of 14.8 yuan per share. This plan will further enhance staff cohesion and team stability, fully mobilize the enthusiasm and creativity of employees, so as to improve business efficiency and bring higher business performance and intrinsic value to the company.

Investment suggestion

We believe that 1) the company has been deeply ploughing the field of precision guided weapons for many years, and is a qualified supplier to many central military enterprises, such as aerospace science and technology, aerospace science and technology, and so on, and its business covers many positions in the industrial chain of precision guided weapon systems. under the background of the whole army vigorously carrying out actual combat training and the rapid development of weapons and equipment construction, the procurement demand of missiles as consumptive weapons may increase rapidly in the future. Promote the rapid growth of the company's demand for supporting products around missile weapon systems. 2) in addition to the field of precision guided weapons, the company has also begun to expand into other military fields, especially the aviation field, which will also contribute to the growth of the company's military business income. 3) the company implements a restricted stock incentive plan to fully mobilize the enthusiasm and creativity of employees. 4) most of the company's optical guidance systems and optoelectronic professional test equipment are in the finalization stage, and some products have been mass-produced, although the overall unit development tasks and delivery plans have been adjusted backward in 2020, resulting in a significant decline in performance, however, business revenue is expected to be realized across cycles, and the company's future performance is expected to show compensatory growth.

Based on the above point of view, we estimate that the operating income of the company from 2021 to 2023 will be 278 million yuan, 414 million yuan and 607 million yuan respectively, the net profit will be 71 million yuan, 110 million yuan and 158 million yuan respectively, and the EPS will be 0.71 yuan, 1.10 yuan and 1.58 yuan respectively. We maintain a "buy" rating with a target price of 51.60 yuan, corresponding to 73 times, 47 times and 33 times PE of projected earnings for 2021-2023.

Risk tips: the progress of military research and development is not as expected, the continuous expansion of civilian products is not as expected, the procurement demand of military customers is volatile, and the progress of raising investment in projects under construction is not as expected.