The world's leading provider of LED light display solutions, deeply involved in the LED industry for 20 years. The company lays out three business segments of smart display, intelligent lighting, and cultural and creative lighting, and can provide customers with a full range of LED large-screen display products and professional audiovisual solutions. The distribution network covers more than 160 countries around the world, and has more than 3,000 sales channels and service outlets. Currently, LED display market share is second in the world, LED screen rental business is number one in the world, and LED display exports have dominated for six consecutive years. The company's revenue mainly comes from the LED display business. Product applications cover various aspects such as public safety, smart cities, stage displays, commercial displays, smart conferences and sporting events. The excellent application examples created include the large 4K screen of the Shenzhen Radio and Television Building, the display at the Qatar World Cup home stadium, and the Wukesong Ice Stadium at the Beijing Winter Olympics. The company's revenue grew steadily from 1.75 billion yuan to 7.08 billion yuan in 2016-22, with a CAGR of 26.3%. Overseas markets recovered in 2022, and the company's revenue from overseas markets increased nearly 43% year-on-year. Overseas business revenue accounted for 57.5%, and gross profit jumped to 73.6%. As overseas markets remained buoyant in 23Q1, domestic demand gradually recovered. The company achieved revenue of 1.63 billion yuan, +5.2% year on year, and net profit of 150 million yuan to the mother, +86.2% year on year. Performance picked up at an accelerated pace.

The penetration rate of high-end displays is increasing at an accelerated pace, and the industry has entered a growth trend. With the breakthrough of technological bottlenecks such as miniaturization processes, massive transfers, etc., and the continuous decline in application costs, small-pitch LED displays are widely used in indoor and outdoor advertising, cultural plazas, commercial buildings, hotels, shopping malls, stadiums, and stage performance backgrounds with the advantages of low granularity, high resolution, high gray scale, and high contrast. The LED display market is expected to grow from 63.8 billion yuan to 103.4 billion yuan in 2022-25, and CAGR will reach 17.5%. At the same time, the gradual maturity of cutting-edge technologies such as Mini/Micro LED, COB, and MIP has led to a reduction in application costs, application scenarios for high-end LED displays have continued to expand, and XR virtual shooting and naked eye 3D have created new growth highlights in the industry. It is expected that the global small-pitch LED display market will grow to 14.7 billion yuan in 2025, CAGR will reach 71% in 2022-25, the penetration rate in LED displays will increase from 5% to 14%, and the industry will grow at an accelerated pace.

The virtual studio has the highest market share in the world, and Microsoft AIGC's only digital virtual person partner. Out of 140 virtual photo studios around the world, the company has built more than 100, with a market share of nearly 80%. Radio, its wholly-owned subsidiary, has built top-tier film and television blockbusters worldwide, with total revenue of 1,663 billion yuan in '22, an increase of 22.04% over the previous year. 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. Zhouming Technology's advanced XR technology combined with Microsoft's AIGC continuously empowers the film and television production industry. The two sides jointly explore application scenarios for digital virtual people in different industries, develop customized digital virtual person services, provide users with richer and more diverse services, further open up the virtual person business space, and have a significant first-mover advantage.

Investment advice: We expect the company to achieve operating income of 80.6/92.0/105.1 billion yuan in 2023-25, an increase of 13.9%/14.2%/14.2% over the previous year; achieve net profit of 5.6/75/ 9.5 billion yuan, an increase of 781.9%/33.9%/26.9% over the previous year; the corresponding PE was 19.0/14.2/11.2 times, respectively. The average PE valuation of comparable companies in 2023 was 34.1 times, and considering that the company's LED display business benefited from rapid performance growth brought about by industry recovery and product high-end products, and that XR virtual shooting and naked eye 3D created new growth highlights, it was covered for the first time, giving a “buy” investment rating.

Risk warning events: New display technology development falls short of expectations; high-end product sales fall short of expectations; risk of exchange rate fluctuations; public information used in research reports may be at risk of information being delayed or not updated in a timely manner; risk that market demand/size estimates fall short of expectations