CONANT OPTICAL (02276) has multiplied four times in four years: the leading manufacturer of lenses is stable, and AI glasses have entered the investment boom.

In 18 trading days, the stock price of the lens manufacturing leader CONANT OPTICAL (02276), with the halo of AI glasses, continued to surge in market value. It was observed that CONANT OPTICAL rose from 12.94 Hong Kong dollars on December 11 to a peak of 28.1 Hong Kong dollars in 17 trading days, with a surge of over 110%. There are three main drivers for the surge: firstly, the continued popularity of AI glasses concept, leading to a frenzy of fund inflow in the sector; secondly, the company's share placement raised approximately 828 million Hong Kong dollars for the research and development of lens and visual solutions for smart glasses and XR headsets, gaining market recognition; thirdly, the major shareholder increased their holdings, with Goertek increasing their holdings by 679 million Hong Kong dollars through the share placement. In fact, not only did the company surge recently, but looking at a longer period, it has been steadily bullish since its listing. In December 2021, it was less than 4 Hong Kong dollars and has now exceeded 24 Hong Kong dollars, with a cumulative increase of over 5 times during the period. This is mainly due to the value-driven growth, with long-term investors' steadfastness driving CONANT OPTICAL's market value to new highs year after year. The company has a strong fundamental background, with a compound growth rate of 13.54% and 30.72% in revenue and net profit respectively over the past five years. It is expected to continue to achieve double-digit growth in 2024, with growth rates of 17.5% and 31.6% respectively. With annual dividend policies, core shareholders continue to increase their holdings, while institutional investors are reluctant to sell, driving the bullish trend with multiple factors. The recent surge in popularity of AI glasses and the rise of smart glasses as an investment trend have led to various companies stepping up their efforts in the sector. For example, on January 2, Raybird Innovation RayNeo and Alibaba Cloud announced a strategic cooperation in the AI glasses field, where the Tongyi series large models will provide exclusive technical support for Raybird Innovation's AI glasses. As a leader in lens manufacturing, CONANT OPTICAL will also benefit from the industry investment wave and maintain high growth in performance. Expanding the AI glasses industry chain, high market prospects Smart glasses are an ideal application for AI technology, with AI smart glasses mainly incorporating functions like audio, camera, and AI on the frames while still using traditional optical lenses. They can be divided into smart glasses without cameras, smart glasses with cameras, and smart glasses with display screens. Among them, smart glasses without cameras and smart glasses with cameras are relatively mature, while the technology for smart glasses with display screens is not as advanced, with fewer products on the market. From a company's perspective, Meta released the second generation Ray-Ban Meta product in September 2023, which became a million-seller product this year, igniting the industry boom. Both domestic and foreign tech companies, including Apple, Huawei, Xiaomi, Meizu, as well as Conant, Raybird, Nreal, among others, are laying out their strategies in the AI glasses market. The unit price of AI glasses is not high, for example, the price of Meta's Ray-Ban Meta smart glasses is $299 per pair, making them widely acceptable to the masses. Moreover, on one hand, AI glasses are expanding the industry chain, significantly increasing the market cake of the industry chain; on the other hand, they are accelerating product iteration, shortening the replacement cycle, and releasing incremental markets. Currently, the industry is in a phase of high-speed growth, and as AI large-scale model technology applications mature, AI glasses will experience a full-on outbreak. According to Wellsenn XR Vicshen's prediction, global AR glasses sales were 510,000 units in 2023, and it is expected to reach 1.8 million units by 2027, with a compound growth rate of 37%, and a significant surge to 80 million units by 2030. AI glasses have become an investment hotspot in the market sector, and looking at Hong Kong stocks, CONANT OPTICAL is a leading domestic lens manufacturing company in the Hong Kong stock market. With 20 years of R&D and operational experience, the company's optical factory sales volume market share ranks first domestically at 9%, surpassing the second-place by 3.1 percentage points. As an industry leader, the company has always been favored by capital markets, with performance and market value continuously trending upwards since its listing. With a solid foundation, AI glasses create growth opportunities CONANT OPTICAL's main products include standardized lenses and custom lenses, both of which have shown steady growth trends. In the first half of 2024, revenues were 780 million yuan and 194 million yuan respectively, with year-on-year growth rates of 18.4% and 13.5%, and revenue shares of 79.7% and 19.9% respectively. Their revenue covers the globe, with Asia, Europe, and the Americas being core markets, contributing 30.9%, 24.7%, and 23% respectively, totaling 78.6%. The company values research and development, with R&D centers in Shanghai and Jiangsu producing lens products for all age groups to meet different customer needs, such as panoramic polarized sunglasses, instantaneous non-film color-changing lenses, 3D 6K optimized progressive single-layer impact-resistant lenses, and more, continuously advancing high-end product strategies with good results. From 2018 to 2023, the growth rate of high-end lenses exceeded that of ordinary lenses, driving a 33.7% increase in lens unit price and a 6.3 percentage point increase in lens gross profit margin. CONANT OPTICAL employs different strategies for its two main products: high-end strategies and omnichannel strategies for standardized lenses, while adopting an innovative C2M business delivery model for custom lenses, with high unit prices and gross profit margins reaching 60%, far surpassing standardized lenses. Product strategies have driven overall gross profit margin increases, with the company's gross profit margin reaching 39.14% in the first half of 2024, a 5.22 percentage point increase from 2021. In terms of production capacity, the company has production bases in Shanghai, Jiangsu, and Japan, and is actively expanding overseas production capacity. In July 2024, the company announced its intention to acquire land in Thailand for 196 million baht to build a high refractive index lens production base. In fact, while the main business of CONANT OPTICAL is lens manufacturing, it is also continuing its efforts in AI glasses research and development. In December 2024, the company announced that several global leading technology and consumer electronics companies in the United States and other countries have progressed smoothly in multiple research projects, including previously signed procurement orders, with the company having already received payments for research and development expenses and trial orders. Ultimately, AI glasses are consumer electronics products, with lenses being the core upstream supply.Chain, joint research and development is the trend of AI glasses. Shenwan Hongyuan Group's securities research report stated that AR displays combined with optical lenses depend on joint research and development between consumer electronics and lens companies, which place higher demands on the product research and development capabilities of lens companies. Lens manufacturers with leading product technology are expected to stand out and accelerate industry optimization.Actively rewarding shareholders, the leading lens player's valuation is on the rise Benefiting from the huge market prospects of AI glasses, CONANT OPTICAL is expected to expand its market rapidly by leveraging its leading advantage in lens manufacturing, global layout advantages, and production capacity advantages, and partnering with downstream consumer electronics companies. The funds raised in the December 2024 share placement will be used for the research, design, and manufacturing of lenses and visual solutions for smart glasses and XR headsets. The underwriter is an indirect wholly-owned subsidiary of Goertek Inc., which means deep binding of the upstream and downstream supply chain. It is worth noting that the company has tied talents through equity incentives. In November 2024, it announced plans to grant 11.93 million shares to 7 senior executives and 148 employees. The incentives will be unlocked in three stages of 33%/33%/34% annually, with performance evaluation conditions of a year-on-year increase in net profit attributable to the parent company of no less than 21%, 17%, and 15% for the years 25-27. This round of incentives covers senior executives and core employees, achieving deep binding of interests. In December, a new round of 2025 equity incentive plan was announced, intending to grant up to 3% of the company's shares, further aligning employee interests. CONANT OPTICAL has a solid foundation, with its two main lens products steadily expanding global markets. The AI glasses trend provides new growth points, which may be a core reason for its recent accelerated rise. Many brokerage firms are bullish on the company's smart glasses business, with Guotai Junan's research report stating that the company's various R&D projects with global leading tech and consumer electronics companies are progressing well, with the smart glasses business expected to accelerate. The company is also actively rewarding shareholders, with an annual dividend payout ratio of around 20%. However, due to the market value growth far exceeding performance, the dividend yield is not attractive, at only 1%. The company has growth expectations, including steady growth in lens manufacturing business, accelerated global expansion after Thai capacity is landed, rapid expansion of new businesses under AI glasses demand, existing product demand, and creation of a new growth curve under joint research and development model. CONANT OPTICAL has a large short-term profit pressure and some potential for a pullback, but the company is well-received by key shareholders and investment banks, resonating with market hotspots, with strong fundamentals, and growth expectations of new businesses driving it higher in the medium to long term.