High precision, integration, miniaturization, and intelligence are the development trends of sensor technology. Sensors are an important part of industrial transformation and upgrading, improving product quality and reliability, and are widely used in industrial energy conservation, environmental monitoring, smart home, medical health and other aspects. The Metrology Development Plan (2021-2035) issued by the State Council proposes to "strengthen the research on new sensing technologies with high precision, integration, miniaturization and intelligence, and overcome the core key components and technologies of high-end metrology and testing instruments and equipment". As a key component to achieve digitalization, intelligence and low-carbonization, the gas sensor industry has played an important role in air pollution control, industrial transformation and upgrading, Internet of Things and artificial intelligence, and healthy China.

The "dual carbon" policy promotes the in-depth development of the industry. On May 29, 2024, the State Council issued the "2024-2025 Energy Conservation and Carbon Reduction Action Plan", which clearly states that in 2024, energy consumption and carbon dioxide emissions per unit of GDP will be reduced by about 2.5% and 3.9% respectively, the energy consumption of industrial units above designated size will be reduced by about 3.5%, the proportion of non-fossil energy consumption will reach about 18.9%, and the energy-saving and carbon-reduction transformation of key areas and industries will form energy-saving about 50 million tons of standard coal and reduce carbon dioxide emissions by about 130 million tons. In 2025, non-fossil energy consumption will account for about 20%, and energy-saving and carbon-reduction transformation in key areas and industries will form energy-saving about 50 million tons of standard coal and reduce carbon dioxide emissions by about 130 million tons, and we will do our best to complete the binding targets for energy conservation and carbon reduction in the 14th Five-Year Plan. Therefore, whether it is energy saving and consumption reduction in industrial processes, greenhouse gas emission detection, or emissions from fuel vehicles and non-road mobile machinery, they are all subject to increasingly stringent laws and regulations, which is expected to promote the growth of market demand for gas analysis instruments and gas sensors.

Sifang optoelectronics has a leading position in the industry. The company is a national high-tech enterprise, a national specialized and special new "little giant" enterprise, a single champion demonstration enterprise, and a national intellectual property advantage enterprise. With long-term technical precipitation, strict quality system and international vision, the company has become a supporting supplier for many of the world's top 500 companies and leading enterprises at home and abroad. According to the "Gas and Particle sensors 2024" released by Yole Intelligence, the company's PM sensor products rank first in the global market share. Up to now, the company's products have been exported to more than 80 countries and regions, and are moving towards an international brand in the field of sensors and scientific instruments. In the first three quarters of 2024, the company achieved revenue of 540 million yuan, a year-on-year increase of 20%; The net profit attributable to the parent company was 62 million yuan, a year-on-year decrease of 39%.

Earnings Forecast, Valuation and Rating: According to the company's announcement, the company's profit in the first three quarters of 2024 declined, mainly due to the increase in R&D expenses, sales expenses and management expenses brought about by the layout for future sustainable development. We believe the impact is likely to last. We lowered the company's 2024-2025 net profit attributable to the parent company to 101/134 million yuan, a 56%/60% reduction from the previous one, and the new company's 2026 net profit attributable to the parent company is 173 million yuan, corresponding to PE34/26/20X. We are bullish on the company's long-term growth potential and maintain our BUY rating.

Risk warning: market competition is intensifying, and the progress of new product research and development is less than expected.