Event: in 2023, H1 Company achieved revenue of 557 million yuan, an increase of 20.60% over the same period last year; net profit of 82 million yuan, down 11.31% from the same period last year; and non-net profit of 63 million yuan, down 12.23% from the same period last year. In 2023, Q2 Company realized revenue of 316 million yuan, an increase of 36.34% over the same period last year, an increase of 30.84% over the same period last year, a net profit of 56 million yuan, an increase of 27.09% over the same period last year, an increase of 111.93% over the previous year, and a deduction of 46 million yuan for non-net profit, an increase of 23.59% over the same period last year and 167.51% over the previous year.

The performance of H1 was dragged down by the low demeanor of the Q1 market, and the industry repair contributed to the substantial improvement of the performance of Q2: in 2023, H1, affected by the overall prosperity of the Q1 semiconductor industry, the company's overall profitability declined; however, Q2 benefited from the bottom of the market, the company's orders rebounded rapidly, capacity utilization increased rapidly, Q2 revenue and profits reached record highs, and profitability improved significantly compared with the previous month. In 2023, H1 company's gross profit margin was 24.01%, year-on-year-6.69pcts; company net profit margin was 14.72%, year-on-year-5.30pcts. In 2023, the gross profit margin of H1 company declined compared with the same period last year, mainly due to the continuous expansion of the company's production capacity, which pushed up operating income and costs. at the same time, Q1 was affected by the overall prosperity of the semiconductor industry in 2023. The decrease in customer order saturation led to an increase in unit cost, and the change rate of operating cost was greater than operating income. In terms of expenses, the rates of sales, management, R & D and financial expenses of H1 company in 2023 were 0.63%, 4.63%, 6.70% and 1.17%, respectively, and the year-on-year changes were-0.13/-0.46/-0.71/-0.57pcts. Among them, the H1 financial expense rate and absolute value decreased significantly compared with the same period last year, mainly due to the interest fee of no bank loan in the current period.

Raise funds to expand 12-inch closed test capacity and actively lay out high-end advanced packaging: in August 2023, the company plans to issue convertible corporate bonds to unspecified objects to raise no more than 1.2 billion yuan. For projects such as "12-inch advanced process new display driver chip wafer bump manufacturing and wafer test expansion" and "12-inch advanced process new display driver chip wafer testing and wafer packaging expansion" and other projects In order to carry out wafer bump manufacturing and wafer testing services for new display driver chips, combined with the current market demand and technology development trend of OLED and other new display driver chips. After the completion of the project, it will effectively enhance the scale of closed testing services for the company's OLED and other new display driver chips, consolidate the company's leading position in the field of closed testing of display driver chips, and increase market share. In addition, the company continues to invest in research and development, comprehensively enhance the advanced packaging and testing service capabilities of new display and high-end process products such as OLED, constantly expand the product application fields of closed test services, and actively expand the field of emerging products represented by in-vehicle electronics. In 2023, based on its leading bump manufacturing (Bumping) and flip packaging technology (FC), the company continues to expand its technological boundaries and lay out high-end advanced packaging technologies such as Fan-out, 2.5D/3D and SiP based on customer requirements, laying a solid foundation for breaking through the technical bottleneck of the industry.

The prosperity of the DDIC market has rebounded, and the localization trend of the panel supply chain has become increasingly significant: on the one hand, as the downstream inventory demolitions are coming to an end, the demand for oversized panels has gradually recovered. Since March 2023, the display driver chip market has picked up rapidly, and the demand for closed testing has increased rapidly. At the same time, the display driver chip market shows obvious structural changes in 2023, and the shipments and permeability of new display driver chips such as OLED are increasing rapidly. According to Frost & Sullivan data, global shipments of OLED display driver chips reached 1.4 billion in 2020, and global OLED display driver chips are expected to reach 2.45 billion in 2025, with a market penetration rate of 10.5%. On the other hand, according to CinnoResearch data, the share of Chinese mainland display panel production capacity rose from 27% to 65% between 2016 and 2021, showing a trend of rapid growth. Chinese mainland display panel production share is expected to further increase in the future, reaching 76% in 2025. Chinese mainland panel manufacturers represented by BOE, Huaxing Optoelectronics and Deep Tianma have not only enhanced their own voice, but also gradually tilted supply chain resources to Chinese mainland manufacturers. At the same time, with the gradual increase in the scale and market share of Chinese mainland display driver chip design enterprises, and the leading global wafer manufacturing enterprises have also set up factories in the mainland to expand production lines, Chinese mainland local packaging and testing enterprises are also moving toward the fast track of development.

Cover for the first time, give "increase" rating: the company is one of the first advanced closed testing enterprises with gold bump manufacturing capacity in China, and the first to introduce 12-inch wafer gold bump production line and achieve mass production.

The company has been deeply engaged in the field of display driver chip packaging and testing for many years, and has accumulated rich customer resources with advanced closed testing technology, stable product yield and high-quality service ability. In 2023, H1, the company continues to expand the application field of closed test chips, continue to expand the technology boundary, layout Fan-out, 2.5D/3D, SiP and other high-end advanced packaging technology. In the future, with the continuous repair of the display driver chip industry, the continuous improvement of OLED display driver chip penetration, and the smooth progress of the company's 12-inch closed test capacity expansion project, the company is expected to further enhance profitability and open up long-term growth space. It is estimated that the return net profit of the company from 2023 to 2025 is 160 million yuan, 227 million yuan and 302 million yuan respectively, the EPS is 0.19,0.27,0.36 yuan respectively, and the PE is 54x, 38x and 29x respectively.

Risk hints: market competition aggravates risk; higher customer concentration risk; higher supplier concentration risk; macroeconomic fluctuation risk.