From January to September 2022, the company achieved operating income of 5.178 billion yuan, an increase of 1.88% over the same period last year; net profit of 583 million yuan, down 27.05% from the same period last year; and net profit of 530 million yuan, down 29.11% from the same period last year.

In the medium and long term, the company is expected to benefit from the continued growth of the automotive electronics business, the emerging thinning of UTG and the increase in the contribution of VR/ wearable modules, but in the short term, we believe that the company may be affected by downstream demand for periodic performance pressure. we expect the company's annual EPS in 2022-23-24 to be 0.33 impulse 0.41 shock 0.49 yuan, 20 times PE in 2022, corresponding to a target price of 6.6 yuan, downgraded to "overweight" rating.

Affected by the prosperity of the downstream consumer electronics industry, the company's revenue and profit in the first three quarters were + 1.88% and 27.05% respectively compared with the same period last year. From January to September 2022, the company achieved operating income of 5.178 billion yuan, an increase of 1.88% over the same period last year; net profit of 583 million yuan, down 27.05% from the same period last year; and net profit of 530 million yuan, down 29.11% from the same period last year. From a quarterly point of view, the company's 22Q1/Q2/Q3 achieved revenue of 1.417 million yuan, 14.96 yuan, 1.965 billion yuan, + 10.49%, 12.05%, 7.94%, 1.72 million, 1.71 million, and 37.87 million yuan, respectively, compared with the same period last year. We believe that the year-on-year decline in revenue and profit is mainly due to the pressure on downstream consumer electronics touch display modules and thinning demand for consumer electronics.

Gross profit margin is under pressure, foreign exchange earnings led the company in the first three quarters of the financial expense rate fell sharply compared with the same period last year. In terms of gross profit margin, the overall gross profit margin of the company from January to September 2022 was 19.35%, compared with the same period last year-7.16pcts. Among them, the gross profit margin of 22Q1/Q2/Q3 is 22.14% 3.88/-6.76/-10.47pcts 20.06% 16.38% respectively compared with the same period last year. On the expense side, from January to September in 2022, the company management + finance + sales expense rate was 2.28%, year-on-year-2.01pcts, and the overall expense rate for the three periods decreased; the R & D cost was 249 million yuan, + 5.51% compared with the same period last year; and the R & D expense rate was 4.81%, year-on-year + 0.16pct. In a single quarter, the 2022Q3 management / finance / sales / R & D expense rates are 1.73%, 1.98%, 1.48% and 4.73% respectively, compared with the same period last year, respectively, compared with the same period last year. The larger year-on-year decline in the financial expense rate is mainly due to the increase in exchange earnings during the reporting period. The company's net interest rate reached 11.59% in the first three quarters of 2022, compared with the same period last year. The net profit rate of Q3 in the first three quarters of the year was 11.54%, compared with the same period last year.-7.33pcts.

In the future, the company is expected to continue to benefit from high-end car + large screen, while folding screen, VR, Watch will contribute to long-term growth momentum. 1) on-board display: we believe that under the background of automobile intelligence, it is a general trend for on-board display to upgrade to "large screen + multi-screen + joint screen + multi-shape". The company has been deeply ploughing the touch display industry chain for a long time, covering both new energy customers and traditional customers. It is expected to continue to benefit from cutting into 70% of the world's mainstream automobile brands through Tier 1. 2) UTG thinning: with the tight layout of SHOVM and other head manufacturers, the mature overlay technology brings lower costs, and the folding screen terminal is expected to enter a period of large-scale development in 2022. We expect global shipments of 1300-14 million folding screen phones in 2022 and CAGR50%+ shipments in 2022-2025. The company has all the manufacturing technology of UTG cover plate, and is expected to cut into the mainstream mobile phone UTG supply chain by virtue of deep technical reserves and long-term cooperative relationship in the future. 3) small size touch display module: as for VR, the company currently supplies Meta and Pico from global Top4 enterprises, which is expected to continue to grow with downstream volume and head customers. In terms of Watch, the company's customers cover the top five international intelligent wearable brand manufacturers, successfully mastering the core technology of flexible OLED module packaging, providing North American customers with the world's first wearable module products based on flexible OLED panels, and is expected to maintain a leading position and enjoy the industry growth dividend by virtue of technological advantages in the future.

Risk factors: weak demand, persistent impact of the epidemic, risk of technology path change, increased competition, exceeding expectations, and so on.

Earnings forecast, valuation and rating: in the medium to long term, the company is expected to benefit from the continued growth of the automotive electronics business, the emerging thinning of UTG and the increase in the contribution of VR/ wearable modules, but in the short term, we believe that the company may be under pressure from the periodic performance affected by downstream demand. We downgrade the company's annual EPS forecast of 2022-23-24 to 0.33 yuan 0.41 pound 0.49 yuan (the original forecast is 0.52 yuan 0.64 pound 0.77 yuan). We select A shares in the same layout of consumer electronics IoT and automotive electronics field of Lixun Precision, Gale shares, Sunny Optical Technology and other leaders as comparable companies, its average PE in 2022 is 18 times, taking into account the company's automotive electronics business follow-up growth potential, give the company 2022 target PE=20 times, corresponding to the target price 6.6 yuan, downgraded to "overweight" rating.