Events:

According to the company's annual report of 2021 and quarterly report of 2022, the company achieved revenue of 7.018 billion yuan in 2021, an increase of 2.55% over the same period last year, a net profit of 904 million yuan, an increase of 8.39% over the same period last year, and a net profit of 838 million yuan, an increase of 8.12% over the same period last year. 2022Q1 achieved revenue of 1.717 billion yuan, an increase of 10.5% over the same period last year; net profit of 181 million yuan, down 21.66%; and net profit of 172 million yuan, down 21.03% from the same period last year.

Comments:

Automotive electronics, VR, and smart wear businesses drive growth in 2021, while 22Q1 profitability has declined:

Benefiting from the growth of automotive electronics, VR, smart wear and other emerging consumer electronics business, the company's operating income increased in 2021 compared with the same period last year. Except for the increase in income, the increase in net profit was mainly due to the obvious improvement in the operation of Bic Power, the participating company, compared with the previous year, resulting in an increase of 140 million yuan in equity investment income (- 112 million yuan in 2020). Q1's revenue grew 10.5% in 2022 compared with the same period last year, mainly due to the expansion of the automotive electronics business.

The net profit of homing decreased by 21.66% compared with the same period last year, mainly due to the increase in the rate of expenses during the period, the rate of management expenses, the rate of financial expenses and the rate of R & D expenses increased by 0.93, 0.43 and 0.31 pct respectively over the same period last year; second, due to the impact of the epidemic in the Yangtze River Delta and Pearl River Delta, the underemployment rate of some customers of the company and logistics and transportation costs have increased.

Card VR, smart wear and other emerging consumer electronics boom races:

(1) VR: according to the data of Gyro Research Institute, the number of VR head shipments in 2021 was 11.1 million, an increase of 66% over the same period last year. It is estimated that global VR head shipments will reach 20 million units in 2022, 100 million units in 2025 and 77% in 21-25CAGR. The company pays close attention to the Quest2 technology path and form of VR head show development trend and trend, relying on the accumulated equipment, technology, technology and talent advantages in the display module field, actively provide North American VR flagship customer Meta with Quest head display module products, and on this basis to speed up the research and development of high-generation VR head display module equipped with microled; at the same time, it also provides PICO NEO series head display module alone.

(2) Smart wearable: according to IDC data, shipments of wearable devices in 2021 were 533.6 million, an increase of 20.0% over the same period last year, of which the Chinese market shipped nearly 140 million units, an increase of 25.4% over the same period last year. In the future, with the gradual landing of the core health monitoring function of smartwatch, it is expected to create a new application scene and market development space for smart wearable products. At present, the company has shipped a variety of high-generation flexible OLED wearable display modules to North American consumer electronics giants, and is actively developing domestic flexible OLED flexible wearable customers, which will effectively ensure the sustainability and profitability of flexible OLED business.

Seize the growth opportunity of the vehicle display screen, continue to open up new energy customers: the permeability of the vehicle display screen continues to improve, and continue to develop towards the trend of large screen and multi-screen. According to DIGITIMES data, global shipments of vehicle displays are 141m in 2021. Global shipments of automotive displays are expected to reach 253m in 2026, with a CAGR of 10.24%. Although the proportion of shipments of head-up displays and rearview mirror displays is still low, there is plenty of room for growth in the future and is expected to maintain an average annual growth rate of about 15 per cent in 2020-2026. In 2021, the company's in-car electronics made a breakthrough, accounting for more than 3% of related business revenue, new energy customer groups, shipments continue to increase, has been directly for T company and BYD central control screen products, only for NIO Inc. ET7 central control screen, ideal ONE central control screen, Red Flag H4 vehicle screen, in the future will actively develop XPeng Inc., Nezha, Volkswagen, Guangzhou Automobile and other electric vehicle customers. In 2021, the company will introduce new technologies / products such as 3D vehicle curved cover and vehicle dazzling color display to the market, and the number of customer orders will continue to increase; at the same time, the company will increase its R & D and investment in HUD (head-up display) parts, and HUD parts will become an important vehicle product in the future.

Folding screen has become a new high ground for mobile phone innovation, and the company's in-depth layout of UTG technology: since 2021, many mainstream mobile phone manufacturers have released folding screen phones one after another, and the positioning of folding phones as a flagship model has been gradually recognized by the market. According to Omdia data, sales of folding screen phones have accelerated since the second half of 2021, with shipments reaching 9 million units in 2021, an increase of 309% over the same period last year. It is expected to reach 14 million units in 2022, 61 million units by 2026, and 46.6% CAGR in 2021-2026. The company now has the ability to mass-produce UTG related products for folding screen, and has established Wuhu Dongxin Optoelectronic Technology Co., Ltd., specializing in the research and development, manufacture and sales of foldable glass and related devices. At present, Dongxin Optoelectronics has established a profound business relationship with domestic and foreign mobile phone brand giants and has won the project location of the main domestic head brand customers. Driven by global UTG business demand, the company is expected to open up new profit growth space.

R & D continues to increase, operating cash flow is healthy: the company's R & D continues to increase. Q1 R & D in 22 years has increased by 18% to 83 million yuan compared with the same period last year, and the R & D expenditure rate is 4.83%, year-on-year + 0.31pct. Through continuous R & D investment, the company has accelerated the industrial mass production of a series of core new products represented by UTG and 3D vehicle curved cover plates. The company's 22-year Q1 cash-to-cash ratio was 95.51%, a significant increase of 24.8pctbot 22-year Q1 operating cash flow to 489 million yuan over the same period last year, a substantial increase of 189% over the same period last year, mainly due to the increase in sales rebate during the reporting period and good sales quality.

Profit forecast, valuation and rating: many of the company's business lines are located in the race track, including vehicle display, small-size consumer electronics, folding screen, etc., the company has a relatively profound technology and market accumulation in these areas, has a certain competitive advantage. Considering the impact of the epidemic on terminal consumption and supply chain, and combined with the company's quarterly report, we reduced the company's net profit to 980 million yuan (- 34.6%) and 1.179 billion yuan (- 36.1%) in 2022 and 2023, compared with the original forecast of 1.498 billion yuan and 1.846 billion yuan. At the same time, the profit forecast for 2024 was added. It is estimated that the company's operating income from 2022 to 2024 is 8.317 billion / 9.98 billion / 11.976 billion yuan respectively, the net profit returned to the parent is 980 million / 1.179 billion / 1.416 billion yuan respectively, corresponding to the PE is 15X/12X/10X respectively, maintaining the company's "buy" rating.

Risk tips: downstream demand is lower than expected; the progress of new technology research and development is not as expected; industry competition is intensified.