Event: the company released its mid-2023 report, with operating income of 3.299 billion yuan during the reporting period, an increase of 4.21% over the same period last year, and a net profit of 221 million yuan, an increase of 81.33% over the same period last year, deducting 266 million yuan of non-return net profit, an increase of 123.72% over the same period last year.

Domestic and foreign business gradually recover, the industry inflection point appears: the company's main business for smart display product research and development, production and sales, 2022 annual report revealed that the company has the world's largest LED display intelligent production and manufacturing base, market position firmly in the forefront of the industry, LED display market share for many years in the world's top three. Thanks to the company's "hard practice" in sound operation for many years, the effectiveness of management has been gradually reflected in the performance. As the market picks up and the economy recovers, domestic business demand is gradually released. During the reporting period, the company achieved a net profit of 221 million yuan, an increase of 81.33% over the same period last year; a net profit of 266 million yuan, an increase of 123.72% over the same period last year; and a net cash flow of 350 million yuan from operating activities, an increase of 10942.66% over the same period last year.

Innovative applications such as XR virtual shooting business and "LED+ digital content" continue to emerge: the China News revealed that in metasonic applications, XR virtual production market is developing rapidly and is the first to become one of the mature classic applications. The company has achieved global first-mover advantage, providing a full set of virtual shooting film and television full-link solution of "XR virtual shooting system + digital special effects assets + DCI certified LED movie screen". From a single LED display terminal and broadcast control system, the upgrade extends to a virtual shooting solution that integrates self-developed motion capture technology, virtual shooting system software, virtual digital human, and digital virtual assets, and is actually applied to a variety of virtual shooting scenes. The China News disclosed that the company has the ability to innovate the whole process of digital content, as well as a team of experienced experts, with LED UHD display as the traction, content driver as the core, and an integrated solution of "hardware + software + content + interaction" to provide services for major events such as Saudi Carnival season, CCTV Spring Festival Gala and CCTV Lantern Festival Gala. Various innovative applications such as LED+AIGC have emerged to open the company's growth curve.

The capacity of the intelligent manufacturing base is gradually climbing, tamping the company's leading position: according to the 2022 annual report, the company's Huizhou Daya Bay intelligent manufacturing base, with a construction area of 400000 square meters, is currently the largest LED intelligent manufacturing base in the world. With the release of the production capacity of Daya Bay, the company's own production capacity can gradually digest all orders, and the subsequent production capacity will gradually increase according to market demand, which is expected to further consolidate the company's leading position in the global market.

Investment suggestion: we expect the company's income from 2023 to 2025 to be 8.845 billion yuan, 11.056 billion yuan and 13.82 billion yuan respectively, and its net profit to be 596 million yuan, 751 million yuan and 945 million yuan respectively. The six-month target price is 9.58 yuan, corresponding to 17.5 times PE in 2023, maintaining the "buy-A" investment rating.

Risk tips: the industry demand is not as expected; the market competition is intensified; the promotion of new products is not as expected.