Event: on August 21, the company released its 2023 mid-term report. 2023H1, the company achieved operating income of 5.17 billion yuan, down 17.15% from the same period last year; net profit from home was 318 million yuan, down 35.36% from the same period last year; and net profit from non-return was 323 million yuan, down 27.25% from the same period last year.

The intelligent terminal market is waiting to pick up, and the vehicle display business is expanding smoothly. 2023H1, the smart terminal business achieved business income of 3.77 billion, down 27.67% from the same period last year, mainly due to inflation in Europe and the United States, continuous interest rate increases by the Federal Reserve, and lack of global consumer demand. Benefiting from the demand in Europe, Latin America, Africa, the Middle East and other places, and breaking through customers such as Australia and the United States, the overseas business of set-top boxes has maintained growth, and the coverage and market share of overseas mainstream telecom or integrated operations are gradually increasing. Orders as a whole to achieve stable supply and delivery The professional display business achieved business income of 1.256 billion yuan, up 40.93% from the same period last year, mainly due to the fixed-point display assembly projects of many star models, including Avita E12, FAW Pentium, etc., and deeply ploughing the new projects of the existing designated brand car factories, the market position has been further improved, and the company expects to usher in the peak delivery season in the third and fourth quarters.

Improve the margin of human efficiency and increase investment in research and development. 2023H1, the company's sales expense rate was 4.66%, down 0.43pcts from the same period last year; the management expense rate was 1.60%, down 0.20pcts from the same period last year, and the human efficiency margin increased; and the R & D expense rate was 5.72%, increasing 0.94pcts compared with the same period last year, and increasing R & D investment.

Accelerating the landing of AIGC applications is expected to stimulate a new round of growth. Based on the accumulation of AI technology, including computer vision image quality enhancement algorithms, gesture recognition algorithms, natural language processing algorithms, speech recognition algorithms, edge computing, etc., the company actively maintains close communication with domestic and foreign artificial intelligence large language model manufacturers Microsoft Corp, Baidu, Inc., iFLYTEK, Huawei Pangu, etc. In April 2023, the company signed an Azure enterprise EA service agreement with Microsoft Corp, including GPT 3.5,4.0 application services, etc. Based on opening subscriptions in many international regions overseas, the company has completed internal testing and product application development of some products. The company is actively embracing and implementing technology applications such as AI, and selecting different models according to local regulations to accelerate the landing of AIGC products.

Investment advice: the main business of the company's set-top box is affected by macro factors and short-term performance is under pressure. with the continuous expansion of overseas customers and the integration of AI technology, the company is expected to pull a new round of growth. We predict that from 2023 to 2025, the company will achieve income of 132.84 yuan, 166.36 yuan and 20.691 billion yuan, and net profit of 8.47,10.42 and 1.388 billion yuan respectively. The previous PE valuation will be 18x, 15x and 11x respectively, maintaining the "overweight" rating.

Risk hint: the risk that the collection volume of operators is less than expected; the risk of macroeconomic fluctuations; the risk of large fluctuations in raw material prices; the risk that new products and new business promotion is not as expected.