Incident: The company released its 2022 annual report on March 21. The company achieved revenue of HK$10.722 billion for the full year of 2022, an increase of 39% over the previous year. Among them, revenue from the TFT module business and touch screen display module business increased 45% year on year, revenue from the monochrome display business increased slightly by 1% year on year; and achieved net profit of HK$583 million, an increase of 78% over the previous year.

The volume and price of automotive displays have risen sharply, and profitability has increased dramatically: throughout 2022, the company's performance grew rapidly. The main reason is that in 2022, strong demand in the domestic traditional automobile and new energy vehicle markets boosted demand for automotive display panels. At the same time, the rising share of high-end products such as touch screen display modules, large TFT display modules, high-end display technology modules and system solution products also increased the average selling price of the company's product portfolio. The company's gross margin for the full year of 2022 was 13.35%, -1.52 pcts year on year; the company's net interest rate for the full year was 5.22%, +1.22pcts year on year. The company's net interest rate increased dramatically in 2022. The main reason is that in 2022, mass production of various TFT and touch screen display module projects drove revenue growth and brought about scale effects, which further improved the company's overall net interest rate. In terms of expenses, the company's sales, finance and other expenses rates for the full year of 2022 were 7.89%/0.12%/4.15%, respectively, and the year-on-year changes were -1.85/0.11/-0.50 pcts, respectively.

The automotive business is progressing smoothly, and the leading position of automotive displays is stable: in 2022, the company's Chengdu automotive module production base officially began construction, and mass production began in October; at the same time, several OLED projects have already entered the mass production stage. R&D projects for AR-HUD, CMS, switchable privacy displays, and smart surface displays are progressing smoothly, and the launch of a high-end product line is expected to bring new growth opportunities to the company in the future. Furthermore, the company's customer introduction progressed smoothly, and new orders continued to be obtained. In 2022, the company continued to promote large TFT touch screen modules, BD displays, mini-LEDs, AMOLED display modules, CMS, HUD and display system products to customers. It signed cooperation agreements with Xiaopeng Motor, GAC Aian, Nacha Auto, and JAC, won orders for large AMOLED displays from several new energy vehicle brands, and obtained system display solution business orders from many domestic automobile manufacturers. In 2022, in the global automotive display market, the company's market share continued to expand, ranking first in the world in terms of delivery volume and delivery area. Among them, the market segment leading position for 8-inch and larger displays was particularly prominent.

Continuing to benefit from the growth of the NEV industry, CMS accelerated mass production: Benefiting from domestic tax incentives and the continuous increase in NEV penetration, overall demand for automotive displays began to increase gradually in the first half of 2021, and the growth rate increased further in 2022. According to statistics from the China Automobile Association, domestic NEV sales reached 6.887 million units in 2022, an increase of 93% over the previous year; the passenger car market analysis report released by the CPC shows that the penetration rate of new energy passenger vehicles reached 27.6% in 2022, up 12.6 pcts from 2021. The penetration rate of new energy vehicles will continue to increase rapidly in the future. It is expected that the penetration rate of new energy passenger vehicles will reach 36% in 2023. The sharp increase in automobile production and sales and the penetration rate of new energy vehicles is expected to increase demand for large, high-quality displays. Furthermore, in January 2023, according to information released by the National Standard Information Public Service Platform, the new national standard for CMS GB15084-2022 was approved and will be officially implemented on July 1 this year. However, the company already started CMS related technology development and business layout as early as 2019, and its affiliate company, Jiang Cheng, also completed the CMS pre-research project with OEMs in the same year, and was one of the first suppliers in China to promote mass production of CMS on passenger cars. With the official release of this standard, CMS will become a new touchpoint for car companies to pursue intelligent solutions. The company is expected to seize new trends in the industry and explore new profit growth points.

The first coverage gave a “buy” rating: the company's main business is the design, manufacture and sale of liquid crystal displays and related products. The products include automotive displays, industrial displays, home appliance application displays and medical product displays; the company continues to focus on the two major fields of automotive displays and industrial displays. Among them, automotive products cover various categories such as automotive instruments, central control, entertainment system displays, HUD, CMS, etc.; the industrial display business is laid out in the fields of industrial instruments, medical and consumer goods. With the introduction of carbon standards, carbon neutrality targets, and the formal implementation of the new national standard for CMS, the demand for large high-end vehicle displays in the NEV industry will increase dramatically. The company is expected to use forward-looking technology layout to take advantage of the new trends in the industry to inject new growth momentum into the company's performance. Furthermore, with the gradual mass production of high-end display products such as BD displays, mini-LEDs, AMOLED displays, and display system solutions, the company's revenue level is expected to increase, and economies of scale are expected to further increase. The company's net profit for 2023-2025 is estimated to be HK$740 million, HK$993 million, and HK$1,190 million respectively. EPS is HK$0.93, HK$1.26, and HK$150, respectively, and PE is 15X, 11X and 9X respectively.

Risk warning: the risk of increased market competition, the risk that panel prices fall short of expectations, the risk that demand for in-vehicle displays falls short of expectations, the risk of macroeconomic fluctuations and policy changes.