Incident: Mulai Optics released its 2024 Q3 quarterly report. 2024Q1-Q3 achieved revenue of 0.375 billion yuan, a year-on-year increase of 4.33%; realized net profit of 0.024 billion yuan, a year-on-year decrease of 32.54%; net profit after deducting non-return to mother of 0.019 billion yuan, a year-on-year decrease of 37.02%.

The semiconductor and aerospace business was the main driver of growth: of the company's revenue in the first three quarters of 2024, semiconductors accounted for 48.60%, life sciences accounted for 22.28%, driverless cars accounted for 6.65%, biometrics accounted for 6.44%, AR/VR testing accounted for 4.74%, aerospace accounted for 1.81%, and other fields accounted for 9.48%. Thanks to the strength of the semiconductor business, the company's revenue from the aerospace business also increased significantly compared to the same period last year. Looking forward to the future, the development of the domestic semiconductor optics industry chain is expected to accelerate, and the company's semiconductor business is also expected to expand steadily.

The AR/VR and life sciences business is temporarily under pressure: the company's AR/VR testing revenue declined compared to the same period last year, mainly due to the long product delivery cycle, and some orders have yet to generate revenue. The company is in close communication with downstream customers in the AR field and is working together to upgrade products. Customer overseas marketing was blocked and inventory cycles affected, leading to a decline in the company's life sciences and medical revenue.

Multiple factors affect the company's gross margin level: In the first three quarters of 2024, the company's gross profit margin was 48.15%, down 3.13 percentage points from the same period last year. Changes in the product structure in operating income, an increase in overall employee remuneration compared to the same period last year, depreciation of new plants and testing equipment, and an increase in utility costs are the main reasons for the change in the company's gross margin.

Investment proposal: We expect the company to achieve operating income of 0.488/0.56/0.649 billion yuan and net profit to mother of 0.044/0.058/0.072 billion yuan in 2024-2026. The corresponding PE was 229.60/172.74/140.49 times, respectively, maintaining the “gain” rating.

Risk warning: The downward cycle in the semiconductor market is compounded by overseas supply risks, and demand for semiconductor optical components is slowing down; high-end product development progress falls short of expectations; industry competition is intensifying.