EB SECURITIES: Maintains Buy Rating for CONANT OPTICAL (02276) as XR Business Achieves Breakthrough Progress

EB SECURITIES published a research report stating that it maintains its forecast of Conant Optical's (02276) net profit attributable to shareholders for 2026-2028 at RMB 710 million, RMB 880 million, and RMB 1.06 billion, corresponding to price-earnings ratios of 25x, 20x, and 17x as of August 17, 2026. The basis for this includes: 1) leading consumer electronics companies both domestically and internationally are accelerating the launch of XR new products, propelling the global smart glasses industry into a rapid growth phase; 2) the company has positioned itself within the core supply chain of global smart glasses leaders; 3) the company continues to advance the production launch of its Shanghai fitting and packaging production line, the expansion of its Qidong XR lens production line, and the upgrade of its Jiangsu Blueprint XR production line, with the AI glasses lens business ramping up shipments and expected to become a second growth driver. The company maintains a "Buy" rating. Key points from EB SECURITIES are as follows: Event: On August 17, 2026, Conant Optical released its performance report for the first half of 2026 ending June 30, 2026. Performance: In the first half of 2026, XR business revenue saw substantial growth, while net profit attributable to shareholders continued to rise. Total revenue for the first half of 2026 reached RMB 1.167 billion, an increase of 7.6% year-on-year, with XR-related revenue amounting to RMB 50.5 million, a year-on-year increase of 1475.3%. In terms of geographical revenue distribution, revenue from the Americas was RMB 295 million, a year-on-year increase of 33.9%, accounting for a 5 percentage point increase, the most significant rise. Gross profit was RMB 500 million, up 12.6% year-on-year, with a gross margin of 42.9%, an increase of 1.9 percentage points compared to the previous year. This rise in gross margin is mainly due to the rapid growth in revenue from self-owned brands and customized lens businesses, as well as an upgraded product mix. Adjusted net profit for the period was RMB 346 million, a year-on-year increase of 27.6%. The company's main business can be segmented by product into standard lenses, functional lenses, and customized lenses, and by business model into OEM business and self-owned brand business, analyzed as follows: OEM business revenue has declined year-on-year, while self-owned brand development is showing effectiveness. In the first half of 2026, OEM business revenue was RMB 378 million, down 7.2% year-on-year, mainly due to the effect of a high base. Self-owned brand revenue reached RMB 789 million, an increase of 17% year-on-year. In the first half of 2026, revenue from functional lenses and customized lenses grew year-on-year, while traditional lens business saw a slight decline: revenue from traditional lenses/functional lenses/customized lenses was RMB 483 million/RMB 428 million/RMB 254 million, with year-on-year changes of -5.7%/+11.9%/+37.4%, accounting for 41%/37%/22% of total revenue, respectively. With significant mass production projects underway, the second half of 2026 is a key period for the commercialization of XR business. 1) Major mass production projects have been established. On April 22, the company announced it had signed a legally binding memorandum of cooperation with a leading global smart glasses company, marking its entry into the core supply chain of global smart glasses leaders. On July 16, the company announced that it had recently signed cooperative R&D framework agreements or procurement framework agreements with four leading international and domestic technology companies and consumer electronics giants, marking the company's role as a core lens supplier or key long-term R&D partner for smart glasses products for these four clients. 2) Proactive capacity layout to enhance mass production and delivery capabilities. The company has completed the acquisition of the remaining equity of its associate company Jiangsu Blueprint and is strategically upgrading its existing factory and production lines, matching and improving the production lines for the second and third phases of the XR project, which is expected to enhance the mass production capabilities for several key projects in the future. 3) Collaboration with Goertek: The companys wholly-owned subsidiary Asahi Lens has established a joint venture with Goertek Optics (with the company holding a 30% stake), focusing on the R&D and manufacturing of optoelectronic components corresponding to XR optical waveguide lenses, electrochromic materials, and eye-tracking functionalities. 4) Strategic investment in the unicorn company Lingban Technology (Rokid) to strengthen upstream and downstream collaboration.