Event: the company released its half-yearly report for 2022.

In the first half of the year, the company achieved operating income of 3.7 billion yuan, an increase of 2.8% over the same period last year, and a net profit of 270 million yuan, down 6.0% from the same period last year. The non-return net profit was 240 million yuan, down 8% from the same period last year. Of this total, Q2's revenue in a single quarter was 1.94 billion yuan, down 8.1% from the same period last year, and the net profit returned to its mother was 150 million yuan, down 15.7% from the same period last year. The net interest rate of Q2 is 7.9%, down 0.7pct from the same period last year and increasing 1.3pct from the previous month.

The smart display business has grown steadily and its profitability has improved: in the first half of the year, the revenue of the smart display business reached 3.2 billion yuan, up 16% from the same period last year. Q1 and Q2 accounted for more than 85% of the revenue. The half-year gross profit margin was not affected by the domestic epidemic and the increase in the proportion of distribution, rising slightly to 29% over the previous year. Among them, in the first half of the year, the growth of camp revenue affected by the epidemic slowed to 6%, while overseas showed that revenue increased by 41% compared with the same period last year. In terms of orders, domestic intelligent display orders have accelerated since the epidemic stabilized in June, with an increase of nearly 50% from June to July compared with April-May. In particular, the cost and price of the original Micro products (P0.4-0.9mm) have been reduced. After the company launched a series of black diamond products, Micro LED orders increased sharply, and new orders of 150 million yuan were disclosed in the first half of the year.

MicroLED process improvement, cost reduction to open the market space: New package single lamp mass production, expanding the spacing of MicroLED display products to 1.8mm, the company released the MicroLED black diamond series on June 30.

In addition, the company also completed the development and testing of the display screen made with NPQD R1 Micro LED chip with Saphlux on July 25, which is the industry's first display screen using quantum dot Micro LED chip, which has been officially introduced into mass production. The application space of Micro LED is greatly increased, and the process of commercialization is accelerated. The good rate of mass transfer has increased from 98.9% to 99.995%. The superimposed scale effect has brought the cost of Micro LED Nin1 products under control, the price of products has been significantly lower than when it was listed in 2020, the market space has been further opened, and the expansion plan of Lijing Micro LED production line is being planned.

We forecast that the company's earnings per share for 22-24 years are 0.29,0.39 and 0.51 yuan respectively (the original forecast for 22-23 years is 0.45,0.63 yuan, mainly according to the annual report of 21 and 22, the forecast of intelligent display income and night travel business income and gross profit margin forecast, and the forecast of raising fee rate). According to the comparable company's 22-year average valuation level of 29 times PE, the target price is given. Maintain the buy rating.

Risk hint

Mini/Micro LED technology development is not as expected risk; exchange rate risk; AR/VR business development and expected risk; gross profit margin fluctuation risk; production expansion schedule is not as expected risk.