Zhongtai: CONANT OPTICAL (02276) is first given a "buy" rating, expected to benefit fully from the increase in demand for AI glasses in the future.

Zhongtai released a research report stating that they are covering CONANT OPTICAL (02276) for the first time, with a "buy" rating. They forecast that the net profit attributable to shareholders for 2025, 2026, and 2027 will be 550 million, 690 million, and 810 million yuan respectively, with year-on-year increases of 29%, 24%, and 17% respectively. The corresponding PE ratios are 31, 24.9, and 21.2X. The company is a leading manufacturer of lenses, with a continuously upgrading product structure, and is expected to benefit significantly from the increase in demand for AI glasses in the future. Zhongtai's key points are as follows: Company Overview: A globally leading lens manufacturer The company is a leading provider of resin lens products and services in China, with three production bases providing various resin lens products to customers, including standardized lenses, personalized, differentiated, and high-end custom lenses. The company's customers are global, including well-known lens brands and international ophthalmic optical companies, with sales covering over 90 countries, including China, the United States, Japan, India, Australia, Thailand, Germany, and Brazil. In recent years, the company's revenue and profits have shown steady growth trends, with revenue of 1.084 billion yuan in the first half of 2025, a year-on-year increase of 9.9%; and a net profit of 273 million yuan, a year-on-year increase of 30.7%. The company's products are mainly divided into three categories: standardized lenses, custom lenses, and functional lenses, with revenues of 512 million yuan, 185 million yuan, and 382 million yuan in the first half of 2025, accounting for 47.27%, 17.05%, and 35.26% respectively. In terms of profitability, the company's gross margin and net margin have been continuously climbing in recent years, with the gross margin increasing from 30.6% in 2018 to 38.6% in 2024, and the net margin increasing from 9.1% in 2018 to 20.8% in 2024, mainly due to product structure optimization and effective cost control. Industry Analysis: Steady growth in the global lens market, potential for price increases in the Chinese market From 2019 to 2024, the sales of lens manufacturers worldwide increased from 5.2 billion US dollars to 6.2 billion US dollars, with a compound annual growth rate of approximately 3.6% during this period. China plays an important role in lens manufacturing globally and is one of the largest producers and exporters of lens products. From 2019 to 2024, the sales of lens manufacturers in China increased from 15.48 billion yuan to 20.72 billion yuan, with a compound annual growth rate of approximately 6.0%. By 2024, China's lens manufacturing accounted for approximately 46.4% of the global market. In terms of demand, there is potential for price increases in the Chinese lens consumption market. From 2019 to 2024, the retail sales of the Chinese lens industry increased from 29.84 billion yuan to 38.15 billion yuan, with a compound annual growth rate of 5.0%, but only accounting for 9.8% of global lens retail sales. The future growth in Chinese lens consumption is mainly driven by the increasing prevalence of myopia at a younger age, as well as an increase in per capita consumption and lens replacement frequency. Regarding competition, the global lens manufacturing sector is relatively fragmented. As of 2020, the company is the largest resin lens manufacturer in China, with a market share of approximately 8.5%, while the top five manufacturers account for only 25.0%. Company Strengths: Strong first-mover advantage with 1.74 lenses, C2M model boosts profitability The company's core strengths lie in its first-mover advantage with high refractive index 1.74 lenses and increasing the proportion of functional and custom lenses through an innovative C2M model. 1) First-mover advantage with 1.74 lenses: The raw materials for 1.74 lenses are monopolized by Mitsui Chemicals, with the company establishing a strong first-mover advantage through deep cooperation with Mitsui Chemicals since 2010. 2) C2M model: Rapidly responding to personalized needs of retail customers, helping customers achieve low inventory light asset operations, increasing the proportion of functional and custom lenses, and driving sustained profitability growth. Smart glasses poised for growth, lens segment expected to benefit How will the lens segment benefit? 1) Non-AI glasses: Stimulating additional lens demand, with the average order value expected to be higher than regular frame glasses; 2) Electrochromic lenses: High demands for C2M capability in the supply chain; 3) AI glasses: Integrated fitting as the best solution, with significant room for increase in the average order value of lenses. The company is actively deploying XR business and issued a private placement to Gaoer Subsidiary in January 2025, making Gaoer the company's second largest shareholder, with the two sides expected to have closer cooperation in the XR business. By January 2025, the company's XR business had begun contributing revenue, with accumulated revenue of approximately 10 million yuan as of August 31, 2025, including development fees, small trial orders, and production orders for individual key projects in China. The company expects revenue from XR to further increase in the second half of 2025 and in 2026.