Incidents: The company released its 2022 annual report and 2023 quarterly report on April 16. The company achieved revenue of 7.076 billion yuan in 2022, a decrease of 2.12% over the previous year; the net profit of the mother was 64 million yuan, a decrease of 65.16% over the previous year; after deducting non-net profit of 53 million yuan, a decrease of 52.58% over the previous year. In Q1 of 2023, the company achieved revenue of 1,628 million yuan, an increase of 5.21% over the previous year and a decrease of 24.67%; Guimu's net profit was 145 million yuan, an increase of 86.24% over the previous year, an increase of 176.01%; after deducting non-net profit of 137 million yuan, an increase of 120.76% over the previous year, an increase of 167.43% over the previous year.

The impressive Q1 performance in 2023 indicates that the recovery in market demand is imminent: in 2022, overall demand in the domestic display market has yet to be released. The company's domestic business delivery was affected to a certain extent, and revenue fell 31.48% year on year. The company's comprehensive gross margin in 2022 was 26.80%, up 2.53 pct year on year; net interest rate was 0.73%, down 1.60 pct year on year. The company's comprehensive gross margin in Q1 of '23 was 32.14%, up 7.51 pct year on year and 6.91 pct on month; net interest rate was 8.78%, up 3.75 pct year on year, up 17.94 pct from month on month. In terms of expenses, the company's sales, management, R&D, and financial expenses rates in Q23 were 12.16%/4.46%/4.65%/1.12%, respectively. The year-on-year changes were 1.52/-0.13/0.27/0.17pct, respectively.

MLED products continue to be optimized and the Daya Bay Intelligent Manufacturing Base Phase II is actively deployed: the company continues to promote the LED semiconductor business, and MLED products continue to be optimized. In terms of micro-pitch product layout, Zhouming's UMINI series products P0.4, P0.6, P0.7, P0.9, P1.1, and P1.2 have achieved large-scale mass production and mass sales; pitch P0.4 umicro products have been officially released and have mass production capacity. The company's Huizhou Daya Bay Intelligent Manufacturing Base has a construction area of 400,000 square meters. Currently, the total production capacity of the Huizhou Daya Bay Intelligent Manufacturing Base has reached 20,000 KK/month. The second phase of the Huizhou Daya Bay Intelligent Manufacturing Base mainly lays out in the field of smart displays. With the Daya Bay Phase II production base and the launch of the Mini LED project, the company's overall production capacity will rise dramatically, increase the company's market share, and further consolidate the company's leading position in the global market.

Prospects for the XR business are promising. Jointly with Radio to open up the domestic market: According to TrendForce statistics, the XR virtual shooting market reached US$43 billion in 2022, an increase of about 52% over 2021, and is expected to continue to grow rapidly in 2023-2025. Radio, a wholly-owned subsidiary of the company, built its core competitiveness with “LED giant screen+XR virtual shooting technology”, maintained its leading edge in technology and market share overseas, and appeared at major events such as Broadway, Oscars, and Grammy. Out of 140 digital studios around the world, the company has built more than 100, with a market share of nearly 80%. In 2022, Radio achieved revenue of 1,663 billion yuan, an increase of 22.04% over the previous year. At the same time, Radio's first domestic XR virtual shooting BLUEBOXXR Studios project was launched, which will use rich international experience to open up a massive domestic market.

Together with Radio, the company continues to make efforts in the field of virtual production. As demand for XR technology applications grows, it is expected to further open up profit space in the domestic market.

The first coverage gave an “increase in ownership” rating: The company is deeply involved in LED downstream application products and optical display solutions. Its main business includes R&D, production and sales of smart display products. The main products are divided into two series: LED high-definition energy-saving full-color displays and LED energy-saving lighting. Benefiting from the company's continuous deployment of MLED, XR and brand advantages in overseas markets, as the production capacity of the company's Daya Bay intelligent manufacturing base continues to increase, the company's performance is expected to improve further. The company's net profit for 2023-2025 is estimated to be 468 million yuan, 623 million yuan, and 916 million yuan respectively. EPS is 0.43 yuan, 0.57 yuan, 0.84 yuan respectively, and PE is 19X, 14X, 10X respectively.

Risk warning: production capacity release falls short of expectations, risk of technological innovation, risk of changes in downstream customer demand, risk of market competition.