2022 marks the beginning of a new round of the company's strategic cycle. The recovery trend in overseas demand has been verified. Domestic business has been disrupted by the epidemic in the short term without changing the long-term trend. It is expected that the smart display sector will continue to have a good start in Q1 during the year. At the same time, the company integrates Mini/Micro LED products through upstream and downstream linkages in the industrial chain. With the beginning of a new cycle in the LED industry, micro LED products are expected to be gradually released, driving the company into a new period of rapid development. We adjusted the company's 2022-2024 EPS forecast to 0.37/0.53/0.67 yuan (the original 2022-2023 EPS forecast was 0.44/0.65 yuan, 2024 was an additional forecast), gave the company 27 times PE in 2022, lowered the target price to 10 yuan, and maintained the “buy” rating.

The performance of the 2022Q1 is in line with expectations, and the intelligent display continues to gain strength. On April 26, 2022, the company released its quarterly report of 2022. 2022Q1 achieved revenue of about 1,762 million yuan (YOY +18.21%); net profit of the mother was 115 million yuan (YOY +10.75%); net profit of the non-return mother was 103 million yuan (YOY +7.03%). Specifically, the smart display sector maintained a steady growth trend, achieving overall revenue of 1,512 billion yuan (YOY +33.23%), and its revenue share increased to 85.88%; the cultural tourism night travel sector was repeatedly affected by the domestic epidemic and achieved overall revenue of 166 million (YOY -42.54%); the virtual reality sector benefited from the launch of NP's next-generation products, and the revenue side continued to pick up, achieving overall revenue of 81 million yuan (YOY +33.02%). Looking ahead, the boom in the LED industry is gradually picking up, and new technology has brought about product iteration and application scenarios. As the domestic epidemic gradually eases, it is expected that the domestic channel side of the business is expected to gain further strength.

As a new strategic cycle begins, the recovery in overseas demand is expected to resonate with the strength of domestic channels. 2022 marks the beginning of the company's fourth three-year strategic cycle of “technology leadership, industrial layout, application expansion”. We expect the smart display business to maintain a steady growth trend in the context of a recovery in demand in overseas markets and continued strength on the domestic channel side. In terms of overseas demand, as the epidemic was gradually brought under control, overseas demand began to recover at an accelerated pace in the second half of 2021. In particular, small-pitch products showed an accelerated penetration trend. In 2021, small-pitch products accounted for 50.54% of Pinda's revenue in the US (+11.95Pcs). The trend of an accelerated recovery in 2022Q1 overseas revenue was further established, with revenue reaching 550 million yuan in a single quarter (YOY +55.55%). In terms of domestic channels, the company continues to promote refined channel management and product standardization, while establishing the “Jin Lixiang” brand to explore the sinking market. In 2021, the domestic channel business achieved revenue of 1,433 billion yuan (YOY +53.79%), and new orders were signed for the whole year of nearly 2 billion yuan, exceeding the target tasks. The 2022Q1 domestic business has been affected to a certain extent by the epidemic. It is expected that the previous rapid growth trend will continue during the year as the domestic epidemic is brought under control. At the same time, the Hunan plant reached production capacity of 6000 KK/month in December 2021, and will effectively undertake some of the channel products previously outsourced, which is conducive to optimizing the gross margin of channel products.

The first year of industrialization began, and Micro LED took the lead in overseas markets. With terminal manufacturers intensively releasing related products, mini LED backlights have basically become the standard for high-end products of major terminal manufacturers, and micro LEDs have also begun to gain prominence in the field of high-end commercial display. The start of the first year of industrialization in 2021 is expected to drive the LED display field into a new growth cycle. In 2020, Liard and Taiwan's Jingyuan Optoelectronics jointly established Lijing Company to build the world's first large-scale Mini/Micro LED mass production base, and officially put into operation in October of the same year. The yield of massive transfer technology has already exceeded 99%. Lijing expanded production early to 800 KKK/month in the first half of 2021. Currently, the capacity utilization rate is close to 100%. It is expected that in 2022 it will fully reach 1,600 KK/month after delivery. In 2021, the company's microLED products took the lead in overseas markets. New orders of 320 million yuan were signed for the full year of 2021, confirmed revenue of 234 million yuan, and successfully achieved the goals set at the beginning of the year. Looking ahead, as core processes such as massive transfers continue to mature, the cost and unit price of micro LED products are expected to begin a downward cycle, leading to the expansion of more application scenarios, and the penetration rate is expected to continue to increase.

Risk factors: The supply of micro LED chips may not meet market demand, the progress of micro LED technology may be slower than expected, the reputation of the cultural tourism and night travel sector has declined, and the impact of the pandemic has exceeded expectations.

Investment advice: After the three-year strategic cycle adjustment in 2019-2021, the company's focus showed remarkable strategic results, and product expansion and channel construction worked together. 2022 marks the beginning of a new round of the company's strategic cycle. The recovery trend in overseas demand has been verified. Domestic business has been disrupted by the epidemic in the short term without changing the upward trend in medium to long-term prosperity. It is expected that the smart display sector will continue to have a good start in Q1 during the year. At the same time, the company integrates Mini/Micro LED products through upstream and downstream linkages in the industrial chain. With the beginning of a new cycle in the LED industry, microLED products are expected to be gradually released, driving the company into a new period of rapid development. As the company's cultural tourism night travel sector is affected by the short-term domestic epidemic and the medium- to long-term policy cycle, we lowered the sector's performance expectations based on prudential principles. Adjust the company's EPS forecast for 2022-2024 to 0.37/0.53/0.67 yuan (the original 2022-2023 EPS forecast was 0.44/0.65 yuan, 2024 is an additional forecast). After comprehensively considering factors such as the current valuation level of comparable companies (Zhouming Technology and San'an Optoelectronics's 2022 Wind forecast an average PE of about 19 times), Riyadh's leading position in the industry, and the gradual release of Micro LED, we gave the company 27 times PE in 2022, lowered the target price to 10 yuan, and maintained the “buy” rating.