Key points of investment
Vehicle displays are leading the way. Display profitability has improved dramatically, and smart cockpits are leading new growth. The company, formerly known as Precision Electronics International, has been deeply involved in monochrome display modules for many years. In 2016, BOE entered a merger and acquisition to transform and develop TFT color LCD modules. It has now become a first-line supplier of automotive display modules. It is leading the shipment volume of modules over 8 inches, and is actively expanding into new businesses such as display system integration and smart cockpit solutions. The company's revenue in 2021 was HK$7.7 billion (+71% YoY), of which automotive displays/industrial displays accounted for 84%/16% (+89%/+14% YoY), respectively. Guimo's net profit was HK$330 million (+378% YoY), and Gimo's net profit margin increased to 4.2% (+2.7ppts YoY).
With strong industry demand, reduced internal costs and increased efficiency, profits are expected to continue to rise. New energy vehicles have accelerated the intelligence of automobiles and drive demand for displays. DIGITIMES Research expects global display shipments to reach 240 million blocks in 2025, with a total scale of about 12.2 billion US dollars (CAGR of about 11.2% in 2020-2025). BOE Group has provided the company with stable and low-cost panel resources, as well as advantages such as product development, domestic customer relationships, and capacity regulation. The company's market share continues to grow when domestic production is replaced; as the scale effect is gradually reflected, profit margins are expected to continue to increase.
System integration and smart cockpits are medium- to long-term growth paths. As a leading manufacturer of in-vehicle display modules, the company is currently actively expanding its smart cockpit product line (China's smart cockpit market is expected to reach 100 billion yuan in 2025), such as digital rearview mirrors, transparent A-pillars, HUDs, etc. At the same time, it is also actively expanding the Tier 1 business of display systems, and has directly supplied hardware modules or semi-system products to new energy vehicle companies such as Xiaopeng in 2021. The company previously strategically invested in Ruihe Technology and Frontier Technology to significantly enhance its technical strength in the field of full integration and HUD. In the future, it may continue to further enhance the competitiveness of the industry through foreign investment and mergers and acquisitions.
Investment advice: We believe that the steady growth of the company's core display modules and increased profit margins are expected to drive performance for more than two years; smart cockpits and system integration will also bring medium- to long-term business space.
We expect the company to generate revenue of HK$95562/120.69/14.546 billion in 2022/23/24, with net profit of HK$4.12/491/592 million. Based on the company's 2022 profit forecast, we gave 18 times the PE valuation, corresponding to the target price of HK$1,008, covering the “prudent increase” rating for the first time.
Risk warning: Vehicle display competition intensifies, product development falls short of expectations, and the panel industry is declining