Introduction to this report:

The company's 23H1 performance was under slight pressure, mainly due to falling demand in the downstream optical communication and laser fields. The company's competitiveness continued to improve during the reporting period, and growth is expected to resume.

Key points of investment:

Maintain ratings to increase holdings. Considering that demand in the field of optical communication and lasers fell short of expectations, we lowered the company's 2023-2024 EPS forecast to 0.55 (-0.05) /0.65 (-0.02) yuan, and added the 2025 EPS forecast to 0.84 yuan. Considering the rise in the average market valuation level and the fact that the company is the world's largest LBO and BBO crystal manufacturer and component manufacturer, the company was given 55x PE in 2024. The target price was raised to 35.75 (+14.95) yuan, increasing the rating.

Short-term performance was under pressure and fell slightly short of expectations. The company 23H1 achieved operating income of 389 million yuan, -1.22% year-on-year, net profit of 110 million yuan, -7.28% of the same period; 23Q2 achieved operating income of 191 million yuan, -2.77%, -3.02% month-on-month, and net profit of 57 million yuan, -13.41%, and +8.51% month-on-month. By product, nonlinear optical crystal components 23H1 achieved revenue of 101 million yuan, or -3.33%; laser crystal components, 66 million yuan, or -2.36%; precision optical components, 118 million yuan, -10.36%; and laser devices, 89 million yuan, or +15.21%. The slight decline in performance was mainly due to a decline in demand in the downstream laser and optical communication fields.

The product line was further expanded to create a “crystal+optical component+laser device” one-stop service provider. The company has achieved mass production of novel prism-reflective gold-plated gratings used in 5G communication, and has entered the supply chain of leading international companies; self-developed sound and light devices, magneto-optic devices, etc. have been recognized by UV laser, fiber laser and other laser manufacturers and have achieved mass supply. The company's product line continues to be enriched, and its competitiveness continues to improve.

catalyst. The share of customers continues to expand; the introduction of new customers.

Risk warning. New product development fell short of expectations; downstream demand recovery fell short of expectations