Incident: The company released its quarterly report for '24, and both revenue and profit increased. In the first three quarters of 24, the company achieved revenue of 0.739 billion yuan, up 41.00% year on year; net profit to mother of 55.81 million yuan, up 19.53% year on year; after deducting non-net profit of 44.67 million yuan, an increase of 39.61% year on year. 24Q1-Q3 gross profit margin 35.88% (YoY +1.00pcts), net profit margin to mother 7.55% (YoY -1.36pcts). Looking at Q3 alone, 24Q3's revenue for the single quarter was 0.318 billion yuan, +71.33% YoY, +21.57%; net profit to mother was 25.47 million yuan, +70.20% YoY, +6.80% month-on-month; after deducting non-net profit of 20.75 million yuan, +80.02% YoY and -1.03% YoY. 24Q3 gross profit margin 36.83% (YoY -0.25pcts, month-on-month +1.28pcts), net profit margin 8.02% (YoY -0.05pcts, -1.11pcts month-on-month).

Cost control is stable. 24Q1-Q3's R&D expenses were 0.109 billion yuan, +11.53% YoY; R&D expense ratio was 14.75%, -3.90pcts; sales expense ratio 1.94%, +0.23pcts yoy; management expense ratio 10.70%, -0.89pcts yoy; financial expenses ratio 0.44%, YoY +2.82pcts. 24Q1-Q3 operating cash flow was $0.148 billion, +115.28% YoY. Inventory at the end of 24Q3 was 0.273 billion yuan, +10.73% year over year; contract debt was 8.61 million yuan, -43.82% year over year.

The subsidiary Jiahua Weijie's revenue increased. The company's performance grew rapidly, mainly due to the acquisition of Bayan and the increase in revenue of the subsidiary Jiahua Weijie. During the September Light Expo, Optical Bank Technology and its subsidiary Jiahua Weijie participated in a joint exhibition to exhibit products such as optical fiber arrays (FAU), lithium niobate modulators and chips, and fiber laser devices. We believe that with the development and penetration of the CPO, the subsidiary Jiahua Weijie FAU products are expected to rapidly increase volume and enhance the company's performance with its advanced manufacturing and mass production capabilities.

Profit forecast. We estimate that the company's revenue for 2024-2026 will be 0.935, 1.227, and 1.617 billion yuan; net profit to mother will be 0.07, 0.124, and 0.174 billion yuan, respectively; and EPS will be 0.28, 0.50, and 0.70 yuan respectively. Referring to the average valuation level of comparable companies, the company was given a 2024 dynamic PS range of 17-20X, corresponding to a reasonable value range of 63.81-75.08 yuan; in terms of segmental valuation, the corresponding reasonable value range was 58.26-71.98 yuan; combining the two valuation methods, the final reasonable value range was 63.81-71.98 yuan; “superior to the market” rating.

Risk warning. Industry prosperity fell short of expectations, downstream manufacturers expanded upstream, and industry competition intensified.