Event: on October 28, 2022, the company released its third quarterly report for 2022. 2022Q3, the company realized operating income of 3.25 billion yuan, a decrease of 4.9% over the same period last year, a net profit of 55 million yuan, a decrease of 86.36% over the same period last year, and a deduction of 107 million yuan for non-profit, a decrease of 134.73% over the same period last year. In the first three quarters of 2022, the company achieved revenue of 10.012 billion yuan, an increase of 5.04% over the same period last year, and a net profit of 987 million yuan, a decrease of 23.27% over the same period last year.

Comments: optimistic about the breakthrough of the company's silicon carbide products, which is expected to continue to increase the company's revenue; optimistic about the company's LED high-end areas and special application business.

In the single quarter of 2022Q3, the company's operating income was 3.25 billion yuan, down 4.9 percent from the same period last year, 11.09 percent from the previous month, and the net profit from its mother was 55 million yuan, down 86.36 percent from the same period last year and 89.08 percent from the previous year. We believe that, mainly due to the impact of the epidemic, sales of products in the traditional LED area are weak; in addition, as the company's overall operating capital demand increases, the amount of borrowing increases and financial expenses increase compared with the same period last year; and some of the company's new projects are still in the profitability improvement period and other factors, resulting in a decrease in net profit. The company continued to reconfigure R & D, with R & D expenses of 396 million yuan in the first three quarters of 2022, an increase of 18.97% over the same period last year, mainly due to the company's increased R & D investment in integrated circuits, Mini/Micro LED chips, infrared / ultraviolet LED and other subdivisions.

The company signed 3.8 billion yuan SiC procurement agreement, silicon carbide business set sail. On September 2, the company announced silicon carbide Mos 1200V series new products at the New Energy vehicle Electric Drive Technology Innovation Summit, including 1200V silicon carbide mos products such as 16hou, 20hou and 80hou, respectively. The company's series products are better than competitors in breakdown voltage, stability and other indicators. On November 6, the company's wholly-owned subsidiary signed the Strategic purchase intention Agreement for silicon carbide chips, with an estimated order value of 3.8 billion yuan.

With the successive release of Mos products and the signing of procurement agreements, the company's silicon carbide business continues to advance and has made initial progress. From the perspective of vehicle performance, after carrying silicon carbide, the vehicle loss is reduced by 80%, the charging speed is increased by two times, the power density is increased, and the volume is reduced. From the perspective of vehicle modules, 1) on-board charging OBC/ DC fast charging: Silicon carbide devices will improve the performance of the electric vehicle charging module; 2) Motor drive / inverter: the high voltage withstand voltage, wide band gap and high thermal conductivity of SiC make SiC more suitable for applications with high power density and high switching frequency; 3) DC-DC:SiC diodes can better balance voltage withstand voltage and efficiency while improving integration.

The market continues to be bullish on the LED field, and the company's LED is expected to start quickly. On August 11, BOE announced that in order to quickly acquire LED epitaxial / chip core technology and form an independent development platform for MLED business, it planned to subscribe to Huacan Optoelectronics Dingzeng shares with self-raised funds of no more than 2.1 billion yuan, becoming its largest shareholder. Hisense Video continued to increase its capital, with a shareholding ratio of 16.82%. The market continues to be optimistic about the LED industry, and we believe that the company is also expected to start volume quickly in the high-end field of LED, and the high-end business of Mini Led backlight applications and the special business based on intelligent headlights are expected to become new growth points. 1) the company's LED high-end business has developed rapidly at home and abroad, Mini LED applications have been continuously promoted by international leading customers, and domestic customers have entered small batch production of Mini LED backlight solutions for televisions and notebooks. 2) the company's LED special application business, such as intelligent light products, has increased its share in the new generation of self-driving vehicles, and customers have penetrated into high-end models and new energy vehicles to cooperate with domestic and foreign well-known automobile companies such as Changan, Dongfeng, Porsche, Audi, Jianghuai, Shenlong and so on.

Investment advice: optimistic about the development of the company's silicon carbide business, the rapid expansion of MINILED, and the rapid growth of compound semiconductor business capacity. Taking into account the fact that the traditional LED business is not as good as expected this year, we adjust the company's profit forecast. The expected net profit for 22-24 is reduced from 1.998 billion / 3.172 billion / 4.317 billion to 1.692 billion / 3.07 billion / 4181m, maintaining "buy".

Rating.

Risk hint: poor supply chain leads to inventory risk, lower-than-expected Mini LED demand, lower-than-expected compound semiconductor production capacity climbing, and silicon carbide demand lower than expected.