The company achieved revenue of HK$10.722 billion in 2022, +38.6% year on year; net profit of HK$582 million, +77.7% year on year, mainly benefited from an increase in the penetration rate of smart cockpits. At the same time, the company's position as a global leader in in-vehicle displays was steady and its share continued to increase. The volume and price of automotive screens continued to rise. The scale effect continued to be evident, and performance increased in '22. Looking ahead to '23, although the growth rate of global vehicle display volume and price has abated due to price reductions in terminal vehicles and fierce competition in the industry, we believe that the company will rely on the Group's advantages to expand its customer and model coverage, and its leading position is expected to strengthen. It is expected that the company's revenue growth rate will still be far higher than the industry's growth rate and higher than the profit side growth rate with a significant increase in market share. In the long run, we are optimistic that the company will increase revenue and profitability through overseas projects. At the same time, the company lays out a “three-step” strategy to open up incremental space and maintain the “buy” rating with vehicle display system assembly and smart cockpit business.
Global automotive products showed another increase in leading market share, with the company's revenue/net profit attributable to the mother +39%/+78%, respectively.
The company achieved revenue of HK$10.722 billion in 2022, +38.6% year on year, mainly benefiting from the continuous release of the company's in-vehicle display modules. The company's market share continued to rise under the trend of automotive intelligence. According to Omdia, 22Q3 achieved the first ranking in total shipment volume for the first time, with a market share of 16.6%. At the same time, the ranking of large-scale shipments and total shipping area in global automotive displays remained number one, with a market share of 22.7%/18.6% respectively. The leading position in global automotive displays is stable. The company achieved net profit of HK$582 million, +77.7% year on year; EBITDA reached a record high of HK$840 million, +64% year on year. On the cost and expense side, the company's employee remuneration accounted for 6.3% of operating income, -1.3 pcts year on year; depreciation expenses were HK$170 million, +4% year on year. The depreciation expense ratio was 1.5%, compared with -0.5pct year on year. In terms of profitability, the EBITDA rate was 7.8%, +1.2pcts year over year; the net interest rate was 5.4%, +1.2pcts year over year. The company mainly relies on BOE Group to maintain asset light, while scale effects continue to be evident. Looking at 22H2, the company achieved revenue of HK$5.881 billion, +29.8% year on year, +21.9% compared to 22H1; net profit of HK$400 million, +60.4% year on year, compared to 22H1 +62.1%; EBITDA was HK$482 million, +42.2% year on year, +34.3% compared to 22H1. In terms of profitability, the EBITDA rate was 8.2%, +0.71 pct year on year, compared to 22h1+0.75pct; the net interest rate was 6.9%, +1.3 pcts year on year, compared to 22h1+1.7 pcts, and profitability continued to increase.
The domestic automotive business is the main growth engine, and overseas revenue is expected to increase significantly in the future. By business, automotive/industrial display revenue in 2022 was HK$96/1.1 billion respectively, +47%/-7%, respectively, accounting for 89%/11%, and +5pcts/-5 pcts, respectively. By region, domestic/overseas revenue in 2022 was HK$75/3.2 billion, +48%/+21%, respectively, accounting for 70%/30%, and +5pcts/-5 pcts, respectively. 1) Domestic market: In '22, the company's product coverage rate of the top 20 domestic car manufacturers reached 45%, and the product coverage rate of mainstream new energy vehicle manufacturers in China reached 54%, and it has signed 16+ upstream and downstream strategic partners related to the automobile industry chain. 2) Overseas markets: Overseas revenue in 2022 was +21% compared to the same period last year, and the target situation was +20% or more. Targeted high-end screen projects in Europe and the US achieved a year-on-year increase of more than doubled, and targets for top European and American brand projects increased 40+ times year over year. We expect the growth rate of the company's shipments in 2023 to far exceed the growth rate of the industry. At the same time, the company expects the share of overseas revenue to increase to 50% in 3-5 years, and we expect the company's profitability to continue to increase.
Chengdu's module production capacity is about to be released, new products are being introduced in the system assembly business, and the “three-step” strategy is progressing smoothly.
Relying on the Group's production capacity, customer and cost advantages, the company lays out a “three-step” strategy for vehicle display devices, display systems and smart cockpits. 1) Looking at automotive display devices, the Chengdu automotive display base, a wholly-owned subsidiary of the company, covers 5 to 35 inch LCD vehicle display modules, with a design production capacity of about 15 million pieces/year. We estimate that the corresponding output value is about HK$4.5 billion. The base entered the first phase of production ahead of schedule in November 2022, and was profitable that year. At the same time, the company expects to reach production within 2023. 2) Looking at the expansion of the industrial chain, the separation of screen screens is driving the restructuring of the industrial chain. The company continues to lay out the vehicle display system assembly business. The system business grew several times in 2022, adding 10+ customers and 20+ designated projects. At present, the company's Heyuan base continues to improve the display assembly line. The screen system assembly business has supplied Xiaopeng G9 in batches, and AR-HUD products have been shipped to BAIC Rubik's Cube.
Furthermore, the CMS (electronic exterior rearview mirror) and two-wheeler business will become new growth points for the system assembly business. According to the new national standard GB15084-2022, vehicles carrying CMS can be officially legally launched on the road from July 1, 2023. The company's Jiang Cheng subsidiary has a good technical foundation. In 2022, it launched the first domestic CMS product with mass production capacity with BAIC Rubik's Cube, which will usher in new development opportunities. In terms of the two-wheeler display system business, the company has already obtained project targets from many domestic manufacturers in 2022. Our partners include leading motorcycle and electric vehicle factories such as Qianjiang Motorbike. We expect the company to ship in 2023. In the long run, the smart cockpit business is expected to open up a broad space for growth.
Risk factors: Industry competition heightens risks; downstream demand falls short of expectations; customer progress falls short of expectations; company capacity expansion falls short of expectations; new product development and commercialization falls short of expectations.
Investment advice: The company is a global leader in in-vehicle display modules, benefiting from opportunities to increase the penetration rate of smart cockpits. At the same time, the company's share continues to increase, and the high performance increase in 2022 is in line with expectations. In the short term, the company relies on the Group's advantages to continue to expand its share, and its leading position is expected to strengthen, but as terminal vehicle prices drop, the competitive pattern becomes more intense, and the Chengdu automotive display base climbs, the short-term profit side's growth rate falls short of the revenue side. In the long run, we are optimistic that the company will increase revenue and profitability by investing in overseas projects. At the same time, the company lays out a “three-step” strategy to open up incremental space through vehicle display system assembly and smart cockpit business. We lowered the company's net profit forecast for 2023/24/25 to HK$682/8.21/1,001 million (the original forecast was HK$730/848/HK$1,010 million). We selected Lansi Technology, Changxin Technology, Dongshan Precision, and leading automotive system assembly business manufacturers Huayang Group, Desai Seiwei, Junsheng Electronics, and Huaan Xinchuang, the leading automotive system assembly business manufacturers. Comparable company Wind agreed to expect an average PE value of 23 times in 2023. The company's current stock price is only 17 times that of PE in 2023. We have given a target price of 19 yuan according to 23 times PE in 2023 to maintain the “buy” rating.