Incident: The company released 1H23 results, achieving revenue of HK$5.21 billion and yoy +7.9%. Among them, automotive display revenue increased 7.2% year on year to HK$4.65 billion. The increase was lower than market consensus expectations, mainly due to price competition in the automotive industry putting pressure on upstream parts manufacturers; industrial display revenue increased 13.8% year on year to HK$560 million, and demand for electronic products mainly in the consumer category increased. 1H23 achieved net profit of HK$200 million, a year-on-year decrease of 19.3%. Mainly affected by a decline in product ASP, inventory impairment, and a rise in production capacity at the new base in Chengdu, corresponding to a year-on-year decline in net interest rate of 1.3 pct to 3.9%.

The global market share has further increased, and it is expected that the increase in 2H23's operating rate will bring profit improvement: 1) In terms of shipment volume, according to Omdia statistics, the company maintains first place in the three major rankings of global vehicle shipments, medium and large size (≥8 inch) shipments, and total shipping area. The global vehicle market share has further increased to 17.5% of 1Q23. The product coverage rate in the Chinese market has increased from 30% of 1H22 to 50% of 1H23; 2) In terms of price, the 1H23 downstream automobile industry price war has had an impact on the company's ASP, but currently the company says The price proposed by Tier 1 has stabilized, and it is expected that the price pressure for 2H23 products will ease; 3) In terms of production capacity, the company's Chengdu base has one-stop production capacity from cutting to module assembly. It is the largest mass production size special vehicle display module base in the world. It is expected that with the increase in 2H23 operating rate, the base is expected to achieve 15+ million design production capacity within 2023.

The system-level business continues to advance, and the overseas market growth rate can be expected: 1) In terms of system business, the company has provided instruments and central control display assembly products for Xiaopeng G6 and G9 models, and also has manufacturing capabilities for system-level products such as CMS and AR-HUD. 1H23 has received order breakthroughs from North American core OEMs, and the company expects system business revenue to double throughout the year 23. 2) In terms of overseas business, the number of overseas target sites of 1H23 has continued to increase rapidly over the same period last year. Among them, the number of European and American high-end screen projects is close to the full year level of 22, and the number of top European and American brand projects has exceeded 22. In order to meet the rapid growth in overseas demand, the company's overseas resource investment has continued to increase. It has built new sales channels in Michigan, North America, and expanded the size of the system team in Los Angeles and Munich. According to the fixed cycle, we expect overseas revenue to be released in 24-25, and we expect to achieve the company's target of 50% + of overseas revenue by 2025. Furthermore, under the trend of screen separation, the company, as a core supplier of automotive display technology, is expected to continue to strengthen direct cooperation with OEM car manufacturers and raise the company's overall profit level.

Profit prediction, valuation and rating: In the short term, we judge that the continuous subsidy promotion in the early stages may have led to a rise in demand in the 2H23 automobile market. At the same time, the risk of price cuts for downstream car manufacturers still exists. We lowered the company's net profit from 23-24 to HK$50,700 million (-16%/-5% compared to the previous forecast); however, considering that the company is a leader in the global vehicle display industry, the development trend of large screen and intelligent racetracks is highly certain, and it is expected that the company will continue to decline with the continuous increase in the operating rate of the vehicle display base in Chengdu. marginal cost, release The scale effect, in addition to the company's continued promotion of system-level business and overseas market development, is expected to open up room for the company's long-term growth. We raised our 25-year net profit to HK$970 million (an increase of 9%) to maintain the company's “buy” rating.

Risk warning: Industry growth falls short of expectations, market competition intensifies, and price reduction pressure from downstream customers increases risk