Earnings in 2022 were in line with expectations, and the board recommended a 31% dividend rate. The company achieved revenue of HK$10.7 billion in 2022, an increase of 39% over the previous year. Among them, the automotive display business was the core driver of revenue growth; it achieved net profit of HK$580 million, an increase of 78% over the previous year, in line with expectations, mainly due to the increase in gross margin driven by scale effects. By the end of 2022, the company had cash on hand of HK$2.88 billion, which was relatively abundant. The Board recommended a dividend of HK$180 million, with a dividend rate of 31%, which remained stable.
The volume and price of in-vehicle display modules have risen sharply, and the Tier1 system business has contributed new volume over a long period of time. Automotive display business:
The company's automotive display business achieved revenue of HK$9.6 billion in 2022, an increase of 47% over the previous year, and achieved revenue of HK$5.2 billion in 2022/H2, an increase of 33% over the previous year. 1) Display module side: The leading position is stable, achieving a sharp rise in volume and price. Measurement side: Meeting the demand for multiple screens and large screens for new energy vehicles, the company's automotive TFT screens and medium to large display modules all have the highest market share in the world. Price side: The increase in the proportion of the company's high-end products (such as touch screen modules, large TFT modules, BD cell modules, mini-LED modules, etc.) has led to an increase in average price. In the future, we expect the company to rely on BOE Group to seize opportunities on the vehicle display module circuit with advanced technology and sufficient production capacity, increase market share, and achieve continuous rapid growth.
2) Tier 1 product side: Mass production of the company's tier 1 business is progressing rapidly. In terms of vehicle display systems, the company has supplied multiple projects to new car companies, and the number of targeted projects continues to increase; on the HUD side, the company has already mass-produced the first domestic front-mounted AR-HUD, and at the same time took the lead in formulating the first domestic HUD authoritative test standard at the end of 2022, demonstrating the company's leading position in the industry; in terms of electronic exterior mirrors, the company is expected to mass-produce after the national standard comes into effect in July this year, and has also completed the development of CMS systems based on Horizon chips; in addition, the company has also expanded multiple display system projects for two-wheelers. We expect revenue from the Tier-1 business to grow rapidly in the future, becoming the company's second growth pole.
Industrial display business: The company's industrial display business achieved revenue of HK$1.1 billion in 2022, accounting for 11% of total revenue, down 7% year on year, and 2022H2 achieved revenue of HK$600 million, up 7% year on year. It is expected that revenue from this sector will remain stable in the future.
Gross margin continues to rise, and it is expected that it will continue to rise steadily over the long term. The company's gross margin in 2022 was 9.1%, an increase of 0.7 pct over the previous year, and the net profit margin of return to the mother was 5.4%, an increase of 1.2% over the previous year; the gross margin of 2022H2 was 9.3%, and the net profit margin of the return to the mother was 5.6%, all of which achieved positive year-on-month growth, mainly due to increased scale effects brought about by increased sales volume and the high-end product portfolio. We expect the company's gross margin to fluctuate in the short term as the Chengdu plant is put into operation and competition from downstream OEMs intensifies, but in the long run, as the new plant reaches production efficiency and the share of Tier 1 business increases, it is expected that gross margin will continue to rise steadily.
Maintaining the “buy” rating: We expect BOE Precision's total revenue in 2023-2025 to be approximately HK$137/175/21.4 billion, an increase of 28%/27%/22%, and the net profit of the mother to be around HK$7.7/10.0/1.27 billion, an increase of 32%/30%/26% over the previous year. We gave BOE Precision Electronics (0710.HK) a target price of HK$21, corresponding to 20x 2023e P/E, and maintained a “buy” rating. We are optimistic about innovative trends such as multi-screen and large-screen cockpit displays, and we are also optimistic about the company's accumulation of advantages in new products and technologies. We expect BOE Precision will be the “screen powerhouse” of automotive displays benefiting from these trends.
Risk warning: Demand for large-screen and multi-screen displays fell short of expectations, competition for in-vehicle displays on the racetrack exceeded expectations, panel market prices fell short of expectations or costs exceeded expectations.