[investment points]

The company released its mid-2023 report. 2023H1 achieved operating income of 322 million yuan (yoy-19.24%). The decline in revenue was mainly due to the decline in orders in the domestic market affected by objective factors. The company actively reduced costs and increased efficiency, optimized the business structure, increased the proportion of high gross profit overseas business, realized a net profit of 18.3022 million yuan (yoy+214.68%), and realized a comprehensive gross profit margin of 44.04%, an increase of 9.41pcts over the same period last year.

Set "hardware + software + content" to build a professional intelligent video solution. The company's solutions cover many areas such as film and television, digital content, finance and communications. In terms of different industries, the company's revenue in the film and television field during the reporting period reached 78.0038 million yuan, an increase of 91.08% over the same period last year. By the end of the period, it had cumulatively undertaken 53 medium-and large-scale XR virtual studio projects worldwide. The company's leading product, "RM2.3 high-end virtual film and television shooting and display products", won the "10th China LED Innovation Award" and was favored by the industry. At the same time, the company participated in the compilation of "Technical requirements and Measurement methods of LED display projection system" led by China Film Co., Ltd., and worked together to promote the promotion and application of LED display screen in China's film industry. In the field of digital content, the subsidiary company signed 22.1203 million yuan of new orders during the reporting period, an increase of 56.98% over the same period last year, which is close to the amount of newly signed orders for the whole of 2022. Creative Digital has signed strategic agreements with a number of well-known MCN institutions and film and television culture companies. In the field of finance and communications, the company has undertaken 16 intelligent banking network system integration projects during the period, providing solutions or related equipment for more than 300 communication operators.

Focus on the forefront of the industry and actively innovate research and development. 2023H1 invested 41.5463 million yuan in R & D, and the R & D expense rate reached 12.91%. Among them, 64K super-resolution intelligent display system / Mini LED commercial display system won the Innovation Achievement Award of the China Association for the Promotion of Industry-University-Research Cooperation. Virtual image processing methods, image processing systems and storage media won the 24th China Patent Excellence Award issued by the State intellectual property Office. During the reporting period, the company added 43 new authorized patents and software copyrights, including 2 new invention patents; by the end of the period, the company had a total of 929 valid authorized patents and software copyrights.

Equity incentives demonstrate long-term confidence. The company recently disclosed the 2023 employee Stock ownership Plan (draft), which involves no more than 4 million shares and a buyback price of 3.47 yuan per share. The participants are the company's directors, executives, key managers, business and technical backbones, etc., with a total of no more than 90 people. The performance evaluation at the company level includes three unlocking periods, of which the first unlocking period in 2023 is not less than 1.016 billion yuan in revenue or not less than 50 million yuan in net profit. We believe that equity incentive can effectively stabilize the company's core management and technical team, and demonstrate the company's confidence in future development.

[investment advice]

Throughout 2023H1, the company's revenue is under pressure under the influence of the external environment, but the company actively optimizes its business structure, reduces costs and increases efficiency, and its profitability is significantly improved. Looking to the future, the company's first-mover advantages in virtual photography, digital content and other areas have gradually emerged, and the future performance can be expected.

We maintain our previous profit forecast for the company and expect the company to achieve revenue of 1.308 million yuan in 2023-25, net profit of 1.10pm, 1.52 billion, 0.23 and 0.30 per share respectively, corresponding to PE of 42-30-23, respectively, maintaining the "overweight" rating.

[risk Tip]

Downstream demand picked up less than expected.

Exchange rate fluctuation risk