Summary of events: on July 20, 2023, the company released its semi-annual report of 2023. According to the announcement, the company achieved operating income of 1.199 billion yuan in the first half of 2023, an increase of 19.21% over the same period last year. The net profit attributed to shareholders of listed companies was 25.073 million yuan, down 41.59% from the same period last year. Compared with the first quarter of 2023, net profit, net profit after deducting non-recurring profit and loss improved significantly, and all achieved a turnaround.

In the post-epidemic era, economic activities have recovered steadily, and lighting demand has rebounded significantly. With the optimization of COVID-19 's epidemic control policy and the intensive introduction of government economic stimulus policies, the economic recovery has progressed steadily, and the previously suppressed demand for family decoration, commercial activities, cultural tourism and sports events has gradually recovered. In this context, as the basic demand of economic activities, the demand in the lighting field has rebounded significantly, and the inventory downstream of the superimposed industry has been digested in the early stage, which is at a relatively low level, so the demand for LED business has rebounded more obviously and rapidly. The company's gross profit margin has continued to pick up quarter by quarter from-1.44% of Q4 in 2022. According to the company's semi-annual report, the gross profit margin of Q1/Q2 LED chips and epitaxial wafers has rebounded to 13.67% and 20.08% in 2023, returning to the level of the first half of 2022: Mini LED is becoming more and more mature and the company is in a favorable position to seize opportunities. Benefiting from the continuous exploration of emerging markets and the continuous expansion of application fields, technological changes have brought about the upgrading of downstream structures, and the rapid progress of implantable devices, miniaturization and flexible electronic technology. Mini LED has landed in the new energy vehicle market; in the new VR head display market, with the development of various interactive and intelligent technologies, Mini LED backlight has gradually come to the fore. According to Trendforce, with the progress of industrial chain process technology and the improvement of yield, the cost of Mini LED backlight will drop by 15% and 20% per year. With the maturity of technology and continuous expansion of production, the effect of economies of scale appears gradually.

Mini/Micro LED has always been an important technology reserve of the company. On January 31, 2023, the company approved a new round of fixed growth plan to raise no more than 1.2 billion for the production of Mini LED chips. It is estimated that the project will form an annual production capacity of 7.2 million Mini LED chips. Huacan Optoelectronics, Qianzhao Optoelectronics and other companies in the same industry have increased the layout of Mini/Micro LED production capacity. With the increase of the company's investment, the company has achieved a harvest in terms of product yield and performance. in terms of product yield, Silver Mirror inverted products and Mini LED product series have been greatly improved (Mini LED comprehensive yield of more than 85%, Huacan Optoelectronics Mini LED comprehensive yield of 72% to 89%, dry photovoltaic Mini LED comprehensive yield of 85% to 91%), reaching the first-class level in the industry. At present, the company has been in the domestic first-line level in the field of high-end LED chips, such as high light efficiency, backlight, high voltage and large-size flip.

Profit forecast and investment advice: it is estimated that the company's operating income in 2023, 2024, will be 23.0, 25.7 / 2.84 billion yuan respectively in 2025, an increase of 13.1%, 12.1%, 10.4% over the same period last year. The net profits attributed to shareholders of listed companies were 1.19 / 155 million yuan, an increase of 238.1%, 36.3%, 29.6%, respectively, and the PE corresponding to 2023, 2024, 2025 was 65.3, 48.0, 37.0 times respectively. The current price of comparable company San'an Optoelectronics / Mullinson / Jufei Optoelectronics was valued at 56.93pm 20.0327.23 times in 2023 (based on Wind consensus). Considering the construction and release of the company's Mini/Micro LED capacity in the future, the company is given an "overweight" rating.

Risk hint: LED industry recovery is not as expected, capacity expansion is not as expected, and competition in the industry is intensified.