Introduction to this report:

Profit forecasts were lowered, target prices were lowered, and the increase rating was maintained; performance fell short of expectations, and the lithium niobate business is still awaiting growth; Bayan completed commercial and commercial changes in April, and the light source module business contributed more.

Key points of investment:

Lower the profit forecast, lower the target price, and maintain the holdings increase rating. The 2024Q1 performance fell short of our expectations. For this reason, the net profit attributable to the parent company for 2024-2026 was RMB 0.42/1.24/163 million (-66.23%/-29.0%/-22.40% compared to the previous adjustment), corresponding to EPS of 0.17/0.50/0.65 yuan.

Considering that the thin-film lithium niobate chip developed by the company is expected to replace domestic production in the field of high-speed modulators and achieve high profit flexibility. Referring to industry valuations, we will give the company 100x in 2025, lower the target price to 50 yuan (previous value: 56 yuan), and maintain an increase in holdings rating.

The performance fell short of expectations, and the lithium niobate business is still awaiting growth. 2024Q1's revenue was 160 million yuan, up 3.38% year on year; net profit to mother was 6.49 million yuan, down 58.10% year on year. From an industry perspective, demand in the industrial laser market has recovered, price competition is slowing down, and gross margin is stabilizing.

However, at the same time, the company continues to invest in new products such as thin-film lithium niobate chips, and profit levels are under pressure when new products are still not sold to customers.

Bayan completed commercial and commercial changes in April, and the light source module business contributed more. The company completed the transfer of 52% of Bai'an Industrial's shares on April 3, 2024. Bai'an Industrial became the company's holding subsidiary, and the merger is expected to begin in April. Bayan is deeply tied to leading domestic lidar customers and signed a 2024-2026 performance commitment with the company. We believe that as the company lays out the lidar business horizontally through mergers and acquisitions, it is expected to better enter this market and contribute more to the fiber laser business.

Catalysts: thin-film lithium niobate demand emission; lidar light source module emission.

Risk warning: lidar business development falls short of expectations; competition for industrial laser devices intensifies