In the first half of the year, operating income increased 32% year over year, and net profit to mother increased 147% year over year. The company announced the 2024 interim results announcement, with 1H24 revenue of 18.86 billion yuan (YoY 32.09%) and net profit of 1.079 billion yuan (YoY 147.08%); of these, revenue from optical components was 5.48 billion yuan (YoY 26.92%), accounting for 29.1%; revenue from optoelectronic products was 13.191 billion yuan (YoY 35.48%), accounting for 69.9%; and revenue from optical instruments was 0.189 billion yuan ( YoY -15.83%), accounting for 1.0%.

The gross margin increased by 2.3 pct in the first half of the year, benefiting from the improvement in the gross margin of mobile phone-related businesses. 1H24's overall gross profit margin was 17.2% (YoY 2.3pct). The increase was mainly due to improved gross margin of mobile phone lenses and mobile phone camera modules; among them, the gross profit margin of optical components was 31.8% (YoY 5.8pct), the gross profit margin of optoelectronic products was 8.2% (YoY1.3pct), and the gross profit margin of optical instruments was 47.9% (YoY 5.2 pct).

The smartphone market is gradually picking up, and the automotive and emerging optical fields continue to expand. 1H24 mobile phone-related revenue of 13.029 billion yuan (YoY 34.48%), accounting for 69.1%. The increase was mainly due to a recovery in the smartphone market and an increase in mobile phone lens and mobile camera module revenue; vehicle-related revenue of 2.877 billion yuan (YoY 16.43%), accounting for 15.3%. The increase was mainly due to industry growth and business expansion, which increased revenue from in-vehicle lenses and in-vehicle modules; VR/AR revenue of 0.992 billion yuan (YoY 111.35%), accounting for 0.992 billion yuan (YoY 111.35%) 5.3%. The increase was mainly due to the increase in demand for VR pancake modules compared to the same period last year, and revenue from VR related products increased significantly.

The market share of mobile phone lenses has maintained a leading position, and various high-end lenses have been mass-produced. In the first half of the year, mobile phone lens shipments were 0.634 billion units (YoY 23.7%), and mobile phone module shipments were 0.289 billion units (YoY 13.5%). The company continues to occupy the number one market share position in the world, using its core competitiveness in high-specification, high-quality and high-value-added products to increase the average selling price of mobile phone lenses and improve the gross profit margin. The company has achieved mass production of a variety of one-inch glass-plastic hybrid main camera mobile phone lenses and a variety of large-image periscope mobile phone lenses.

Vehicle lens shipments continue to grow, and high-end products resonate with emerging fields. Vehicle lens shipments in the first half of the year were 53.234 million pieces (YoY 13.1%). Against the backdrop of continued growth in demand in the automotive camera market, the company further consolidated its leading position in the high-end ADAS sensor market. In the first half of the year, the company completed research and development of ADAS vehicle lenses with automatic heating function and 3 million pixel side-view glass-plastic hybrid ADAS automotive lenses. Furthermore, the company continues to strengthen product layout and patent layout in fields such as lidar, head-up display, and smart car lights, and is continuously seeking differentiated breakthroughs at the technical level.

Investment advice: Maintain an “better than the market” rating. We are optimistic about the recovery in lens module performance brought about by the smartphone camera configuration upgrade, and we are optimistic about the company's rapid development in the field of automotive optics. Net profit due to mother in 2024-2026 is expected to be 2.348/2.793/3.313 billion yuan (previous value 2.288/2.687/3.231 billion yuan). The PE corresponding to the current stock price is 20.3/17.1/14.4 times, respectively, maintaining a “superior to market” rating.

Risk warning: downstream demand falls short of expectations; progress of new products falls short of expectations; risk of market competition, etc.