The company's revenue and net profit declined slightly in the first three quarters of 2023 compared with the same period last year, which is in line with market expectations. We believe that the slowdown in demand from overseas customers and the company's continued expansion of new areas have led to a significant year-on-year increase in expenses. Looking to the future, we believe that with the continuous expansion of the company's laser product line and the gradual pick-up in overseas market demand, the company's performance is expected to stabilize and pick up. The company has become one of the few suppliers in the industry that can provide customers with one-stop integrated services of "crystal + optical elements + laser devices". At present, the construction of new production capacity is being promoted in an orderly manner to meet the downstream demand. At the same time, the company's subsidiary photon has carried out two capital increases and share increases since its establishment at the end of 2022, demonstrating the company's confidence in ultra-precision optical technology research and development and business development. We are optimistic about the long-term growth momentum of the company, giving the company 62 times PE in 2023, maintaining the target price of 35 yuan and maintaining the "buy" rating.

The company's revenue fell slightly in the first three quarters of 2023, and the expense side suppressed homing net profit. On October 27, the company released its results for the third quarter of 2023: revenue in the first three quarters of the company was 596 million yuan (year-on-year-1.67%) and net profit was 164 million yuan (year-on-year-12.47%). The performance is in line with market expectations. Among them, 23Q3 achieved revenue of 207 million yuan (year-on-year-2.52%) and net profit of 53 million yuan (year-on-year-21.55%).

We believe that 23Q3's revenue continues to be affected by overseas interest rate increases and other adverse factors, and overseas market demand is suppressed; the decline in the company's homing net profit compared with the same period last year is mainly due to: 1) the company has increased its distribution of optical communications, semiconductors, biomedicine and other new application areas, and sales expenses have increased by 52% compared with the same period last year. 2) due to the fluctuation of the exchange rate of the US dollar, the financial expenses of 23Q3 have increased significantly compared with the same period last year.

The production capacity is relatively close to saturation, and the construction project of the second phase of the D building is being carried out in an orderly manner. The company's existing plant construction area of about 45000 square meters, due to the continuous improvement of downstream demand in recent years, the company's product line continues to expand, production capacity is relatively saturated. In order to meet the company's long-term development needs, the company plans to promote the second phase of the D building construction project, the idle production workshop C building and auxiliary experimental building will be demolished and rebuilt. After the completion of reconstruction and expansion, the company is expected to increase the construction area by nearly 40,000 square meters. At present, the company has signed the "Construction contract" and will start construction as soon as possible, the company expects the construction period of 2 years. With the continuous expansion of the product line, the company will release new production capacity in an orderly manner, strongly support the company's long-term development, and consolidate its competitive advantage in the field of high-end optics.

Photon continues to increase its capital and shares, and ultra-precision optics opens the second growth curve. In December 2022, the company invested 80 million yuan to set up expiration photons, which focused on the R & D and production of ultra-precision optical elements and complex optomechanical components with nanometer precision. Committed to semiconductor, biomedical and other cutting-edge high-end optical applications to provide excellent quality optical component solutions, to build China's ultra-precision optical leading enterprises. According to the company announcement, since 2023, through the introduction of employee stock ownership platform and Shenzhen Yuanzhi spark private equity fund, the registered capital will increase to 175 million yuan. We believe that photon's two capital increases and share expansion demonstrate the company's confidence in the technology research and development and business development of ultra-precision optics, and the ultra-precision optics business is expected to open the company's second growth curve.

Risk factors: increased risk of market competition; risk of sharp rise in raw material costs; risk of loss of core technical personnel; risk of change in international environment and trade policy; risk of slower-than-expected production capacity construction; risk of substantial change in exchange rate; iteration of technology upgrading and risk of R & D failure.

Investment suggestion: Fujing Technology is the world's leading nonlinear optical crystal company, and has become one of the few suppliers in the industry that can provide "crystal + optical elements + laser devices" one-stop integrated services. The company continues to promote domestic substitution in the field of high-end optical components, is currently orderly promoting the construction of the second phase D building to alleviate the capacity bottleneck, and will provide a full range of components services for customers in the laser industry in the future. At the same time, the establishment of the company photon power ultra-precision optics, two capital increases since 2023 show that the company is full of confidence in its own technological capabilities and business development, entering the field of ultra-precision optics is expected to help semiconductors and biomedical and other cutting-edge areas to promote domestic substitution. Taking into account the stable customer demand for optical crystals and components, the acceleration of domestic replacement of high-end components, and the steady growth of revenue and net profit, we maintain the company's annual EPS forecast of 0.56 EPS in 2023-24-25. With reference to the current average valuation level of comparable companies (Maolai Optics, Tengjing Technology, = Optical Library Technology and Yongxin Optics are expected to be 85 times PE in 2023), considering that the company's ultra-precision optical business is still in the product development stage and overseas customer demand is still under pressure, we carefully give the company 62 times PE in 2023, maintaining the target price of 35 yuan and maintaining the "buy" rating.