Recently, the contrasting views of major investment banks Goldman Sachs and Morgan Stanley on the optical module industry have ignited discussions in the market. On October 14, Goldman Sachs released a research report focusing on two Chinese optical module firms, Zhongji Xuchuang and Tianfu Communication. Goldman Sachs rated both companies as a "Buy" and raised the 12-month price target for Zhongji Xuchuang from 442 yuan to 470 yuan, and for Tianfu Communication from 398 yuan to 450 yuan. Conversely, Morgan Stanley, in its latest research report, indicated that after several months of significant price increases, the favorable fundamentals of the optical module industry have largely been reflected in stock prices. Under this rationale, it adjusted its ratings on multiple related stocks, with New Yisheng even being downgraded to "Underweight." Amidst this dissonance between the two investment banks regarding the optical module sector, Cambridge Technology's IPO in the Hong Kong market has further fueled interest in this hot sector. In contrast, Boundless Group, which recently went against the trend by advancing its IPO in the U.S. amidst a potential government shutdown, appears to be quieter amidst the market's growing buzz.
Boundless Group, a developer of optical modules primarily focusing on the VR/AR segment, has been secretly filing with the SEC since March 14. On October 10, the company made its public filing for an IPO on NASDAQ under the ticker "BLTG." According to its prospectus, Boundless Group specializes in the design, research and development, and sales of optical display modules and complete optical display products as a domestic optical display technology company. Boundless Group operates in the upstream of the supply chain, providing both product design and contract manufacturing services as well as optical display solutions based on customer requirements. Utilizing proprietary technology developed in-house, the company offers comprehensive services to meet the demands of various industries, including consumer electronics.
In summary, Boundless Group’s business model involves outsourcing production to third-party original equipment manufacturers (OEMs), which manufacture products according to Boundless Group's design specifications; Boundless then generates revenue from sales of these products. Looking at its product portfolio, Boundless Group's core business targets emerging industries such as VR/AR and consumer electronics, covering VR headsets, Pancake optical engines with eye-tracking capabilities, and optical products suitable for AR and mixed reality (MR). This sector is distinctly different from the currently booming optical module market.
According to information obtained, optical modules are optical devices used for high-speed data transmission, converting optical signals to and from electrical signals, facilitating data transit within communication networks. The upstream of the optical module supply chain includes optical and electrical chips and components, while downstream applications primarily encompass two major areas: the telecommunications sector, represented by 4G/5G wireless networks and fixed broadband FTTX, and the data center sector supporting applications in AR/VR, AI, and the metaverse. Thus, Boundless Group operates in the terminal segment of the upstream optical module supply chain, mainly benefiting from the ongoing growth of the metaverse concept and the accelerating iteration of consumer electronic devices.
Market insights indicate that by 2024, the market size for artificial intelligence in visual technology in China is expected to reach 234 billion yuan, representing a year-on-year growth of 18.6%, of which emerging applications like VR/AR contribute significantly to this growth. IDC reports indicate that the computer vision application market is expanding from traditional security to areas such as the metaverse and autonomous driving, with a projected growth rate of 21.2% year-on-year for 2024. Additionally, the Yangtze River Delta region, where Boundless Group is located (including Shanghai, Hangzhou, and Nanjing), accounts for 19.7% of China's visual AI market, benefiting from a well-developed industrial chain and a pool of technical talent.
Especially within the VR optical sector, as shipments of consumer-grade headsets continue to grow, suppliers of customizable optical display modules are reportedly entering a period of capability and revenue expansion. Furthermore, regarding the company's ongoing exploration of the electronic paper industry, its prospectus shows that the market for colored electronic paper displays is transitioning from monochrome to color solutions, with global penetration rates expected to climb from 10% in 2024 to 49% in 2028, and China's penetration rates anticipated to rise from 13% in 2024 to 51% in 2028.
Boundless Group, as one of the few domestic companies capable of large-scale supply of VR optical modules, has been directly impacted by the recent surges in the VR/AR industry, reflected in its financial results. Data indicates that for fiscal years 2024-2025, the company's revenue is projected to jump from $10.92 million to $26.2 million, showcasing a staggering growth rate of 139.9%. Concurrently, its gross profit is expected to rise from $616,000 to $1.721 million, showing a year-on-year increase of 179.3%. This robust performance is primarily supported by stable supply and sales structures alongside its technological advancements.
However, despite these promising figures, Boundless Group is still operating at a loss. Projections show net losses of $1.69 million and $1.79 million for the fiscal years 2024 and 2025, respectively. The continuous loss stems mainly from rising revenue costs that keep pace with revenue growth. While the company’s revenue will experience a year-on-year increase of 139.9% in 2025, the associated costs have similarly surged from $10.3 million last year to $24.48 million, marking a growth of 137.5%.
Examining the expense structure reveals that the company's research and development investments are projected to reach $1.635 million in fiscal 2025, up 65.1% year on year, with R&D costs accounting for approximately 6.2%. Additionally, general administrative expenses are expected to rise by 125%, indicating that there is room for improvements in cost control, and this highlights that the company's expansion into new business areas and R&D efforts may further strain short-term profitability.
In terms of valuation, if we consider an issue price of $5, Boundless Group’s current PS (Price-to-Sales) ratio stands at approximately 6.5 times, significantly lower than the average level of nearly 22 times PS for its domestic peers, indicating a notable margin of safety in valuation. Given the current market conditions for optical modules and the U.S. market's preference for profitable companies, if Boundless Group can achieve profitability, it may attract a broader base of investors in the U.S. stock market.