The profit forecast was lowered, the target price was raised, and the holding increase rating was maintained. The company announced its 2024 three-quarter report, and the results fell short of market expectations. We lowered 2024-2026 net profit to -0.043/-0.002/0.099 billion yuan (previous value was -0.031/0.025/0.144 billion yuan), and adjusted the corresponding EPS to -0.47\ -0.02\ 1.10 yuan. Considering the average valuation of the industry, 91.97x PE was given in 2026, and the target price was raised to 101.17 yuan (previous value was 69.28 yuan), maintaining an increase in holdings rating.

Performance fell short of expectations, and consolidation dragged down the short term. In the first three quarters of 2024, the company achieved revenue of 0.458 billion yuan, a year-on-year increase of 19.17%; net profit to mother was -0.052 billion yuan, which turned into a year-on-year loss. Considering only the Q3 quarter, the company achieved revenue of 0.147 billion yuan, an increase of 1.49% over the previous year; net profit to mother in the single quarter was -0.024 billion yuan, and losses increased by about 10 million yuan month-on-month. On the revenue side, revenue in the industrial sector was under pressure in the short term, and the semiconductor sector slowed down in Q3 due to the pace of delivery.

From a profit perspective, the main reasons are as follows: 1) Swiss Jouguang increased automobile business revenue after merger, but the gross profit from the related business was negative; 2) the increase in expenses during the period directly led to an increase in employee remuneration after completing two mergers and acquisitions, and the company will continue to increase investment in R&D; 3) on the financial cost side, fluctuations in the company's exchange rate led to an increase in cumulative exchange losses in the first three quarters, and merger and acquisition loans also increased interest expenses.

Develop optical communication services, and achieve multiple in-vehicle fixed-point services. According to the company's announcement, the company has now established cooperative relationships with major optical module manufacturers, participated in the design of new products for some customers, is in the preparation stage before mass production, and is expected to increase sales revenue by tens of millions. In the automotive business, in October 2024, the company obtained an official fixed-term letter from a European automotive Tier 1 customer for the second lidar line transmission module project. It is the second fixed-point project from this customer since December 4, 2023. The estimated mass production period is 2027.

Catalyst: The material continues to be in place, and the yield climbs rapidly.

Risk warning: AI investment is slowing down, and production capacity is falling short of expectations.