3Q22's revenue rose 7.5% year-on-year, while net profit fell 34.2%. The company's 1-3Q22 revenue is 5.178 billion yuan (YoY + 1.9%), and the mother net profit is 583 million yuan (YoY-27.1%), of which 3Q22 revenue is 1.965 billion yuan (YoY + 7.5%) and mother net profit is 218 million yuan (YoY-34.2%). The company's revenue growth year-on-year benefited from the continued expansion of automotive electronics and emerging consumer electronics businesses such as VR and smartwatches; the year-on-year decline in net profit was mainly due to rising prices of upstream raw materials, epidemic control measures in many places in the country, and weak demand for traditional consumer electronic products such as mobile phones. Company 1-3Q22 gross profit margin 19.35% (YoY-7.16pct), 3Q22 gross profit margin 16.38% (YoY-10.27pct, QoQ-3.68pct); company 1-3Q22 period expense rate 7.09% (YoY-1.86pct), of which financial expense rate-1.56% (YoY-2.06pct).
The company laid out the high-quality track with on-board screen earlier, with a full range of products. In the smart car era, the on-board display market is gradually opening up. Omdia predicts that global shipments of on-board displays will grow from 149m in 2020 to 251m in 2028 (CAGR: 6.74%), of which the CAGR of rearview mirror, head-up display and dashboard will reach 47.9%, 16.4% and 20.0%, respectively. The company has a complete on-board display industry chain, covering on-board Sensor, touch module, cover plate, touch display integrated module, etc.; customers include Japanese, European, American and German brand car companies, covering more than 70% of the world's automobile brands. By the end of the third quarter, the company's vehicle business accounted for more than 50% of the total revenue.
The long-term growth of the global VR/AR industry is full of momentum, and the company is a supplier of Meta and Pico display modules.
According to IDC data, global VR/AR investment is US $14.67 billion in 2021 and is expected to increase to US $74.73 billion in 2026 (CAGR: 38.5%). Among them, IDC predicts that China's VR/AR investment will increase from US $2.13 billion in 2021 to US $13.08 billion in 2026 (CAGR: 43.8%). The medium-and long-term growth momentum of the VR/AR industry is abundant. The company provides display modules for Meta, Pico and other head VR brands, and speeds up the research and development of high-generation VR head display modules equipped with Micro LED, paying close attention to the development trend and trend of VR.
Folding screen has become the trend of consumer electronics innovation direction, the company folding screen UTG business leading in China. According to DSCC, global shipments of 7.98 million folding screen phones (YoY + 254%) in 2021 are expected to grow 123% to 17.77 million in 2022 and 54.68 million in 2026 (CAGR 47% in 21-26). The company has all the manufacturing processes of folding screen UTG cover, including glass thinning, cutting and cross-section treatment, glass surface treatment and so on. The company has accelerated the high-level business cooperation with the global panel leader and head mobile phone brand, and has been designated by domestic head brand customers.
Investment suggestion: we expect the company's 22-24 operating income to be RMB 73.211,84.94 billion respectively (YoY 4.3% YoY 16.0% plus 14.5%), and its net profit to be 8.11 YoY-10.3%/19.3%/19.4%, corresponding to a PE of 18.7, 15.7 and 13.1 times, respectively, maintaining the buy rating.
Risk tips: downstream demand is not as expected, new product launches are not as expected, and competition in the industry is intensified.