Guotai Junan: CONANT OPTICAL (02276) is expected to see a year-on-year increase in net profit attributable to shareholders of not less than 30% in 2024, maintaining a "hold" rating.

Guotai Junan released a research report stating that it maintains a "buy" rating for CONANT OPTICAL (02276), considering the continuous optimization of the company's product structure and benefiting from the development trend of smart glasses. It has raised the company's forecasted net profit attributable to shareholders for 2024-26 to RMB 425 million / 521 million / 616 million (originally RMB 409 million / 492 million / 575 million), with a growth rate of 30/23/18%. The company's net profit for 2024 is expected to increase by no less than 30%; recent positive events (equity incentives, Thai factory, Goertek investment, cooperation with major factories) are promising for future development. Guotai Junan's main points are as follows: The company has issued a positive profit forecast, expecting a shareholder's net profit for 2024 to increase by no less than 30% compared to 2023. 1) The high increase in net profit in 2024 is mainly due to: the company achieving good results in business market expansion, with steady income growth; diversified types of lenses, with a gradually increasing proportion of high value-added products; continuous optimization of financing structures and scale to increase profit levels, reduce financing costs, and further reduce financial expenses; 2) The bank estimates that the company's net profit in 2024 may be no less than RMB 425 million, with a net profit CAGR of about 35% from 2020-24, far better than industry peers. Net profit for 2024H2 may be no less than RMB 216 million (+28.6%). Recent positive events for the company include (equity incentives, Thai factory, Goertek investment, cooperation with major factories). 1) Equity incentives: 7 executives and 148 employees were granted approximately 11.926 million shares at a price of RMB 4.58 per share (2.8% of total shares), with performance conditions requiring a minimum net profit growth rate of 21/17/15% for 2025-27 (excluding equity payment expenses); 2) Thai factory: The construction of the first plot of land is progressing, with an expected 13% increase in capacity (approximately 13 million pairs of lenses); the company has acquired the second plot of land for approximately RMB 48 million, mainly for the construction of XR product lenses. Production line; 3) Goertek investment: GoerTek has completed the acquisition of Subsidiary GoerTek Technology Co., Ltd., increasing its holding in the company to 20.03%, making it the second largest shareholder; 4) Cooperation with major factories: Progress is smooth for multiple research and development projects with several global leading technology and consumer electronics companies, including several top American companies as mentioned earlier. The bank believes that the company is a global leader in lens manufacturing, with a rich SKU, outstanding cost performance, optimized product structure, and efficient C2M model, which continuously enhances profitability and steadily increases market share. The company's adhesive lenses may be the optimal solution for the myopia problem in smart glasses, and the company is expected to further break through important customers in the domestic and international smart glasses industry for future development. Risk Warning: Customized lenses, self-owned brand promotion falling short of expectations, development of smart glasses lens business falling short of expectations, intensifying industry competition, etc.