1H23's performance met our expectations

Riyadh announced 1H23 results: revenue of 4,018 billion yuan, up 9% year on year, and net profit of 338 million yuan, up 26% year on year. It is within the range of previous performance forecasts and is in line with our expectations. Corresponding to the 2Q23 single quarter, Riyadh achieved revenue of 2,236 million yuan, an increase of 15% over the previous year, and net profit of 216 million yuan, an increase of 42% over the previous year.

By business, 1H23 Riyadh's smart display business achieved revenue of 3.378 billion yuan, up 6.4% year on year. We think the main reason is 1) rapid year-on-year growth of LED displays in emerging markets such as Asia, Africa; 2) domestic LED demand was weak in the same period last year, and related demand rebounded after recovery; 1H23 cultural tourism night tours achieved 440 million dollars in revenue, an increase of 21.8% year-on-year. We think the main reason is that market demand is picking up; 1H23's virtual reality business reached 194 million yuan, up 21.9% year on year. We think the main reason is virtual reality The business supply chain has improved, delivery speed has increased, driving rapid revenue growth.

Development trends

The demand for micro LEDs continues to grow, and there is plenty of room for replacement in application scenarios. Riyadh uses a massive transfer and MIP package structure. The products are mainly black diamonds or “N in 1” micro LED beads. They are made into micro LED modules through STM. The product spacing covers 0.4-1.8 mm, and can be used in professional scenarios such as conference rooms and command centers. According to the company announcement, 1H23 Riyadh Micro LED product sales are close to 200 million yuan, with an annual sales target of 400 million yuan, a year-on-year increase of double. Looking forward to the future, we are optimistic that Riyadh Micro LED products will achieve product replacement in the small-pitch market through cost reduction and spacing increase, thereby expanding application scenarios and continuing to contribute to revenue growth.

The development trend of motion capture is improving, and the future market potential of spatial computing can be expected. Virtual Motion Point, a wholly-owned subsidiary of Riyadh, has world-leading motion capture technology. 1H23 Riyadh provides customers with a more complete user experience through camera control system upgrades and system accessories optimization. Furthermore, in July of this year, Riyadh established a cooperation with Huawei Pangu Grand Model, and is also strategically cooperating with JD Technology Dacheng, focusing on core technologies such as “spatial computing,” “digital people,” and “AI big models,” and empowering terminal application customers.

Profit forecasting and valuation

We maintain the Riyadh 2023/24e EPS at 0.33/0.43 yuan, and the current stock price corresponds to 2023/24e18.0/14.0x P/E. We maintain an outperforming industry rating and target price of 7.5 yuan, corresponding to 2023/24e22.6/17.6x P/E. There is still room for 25% improvement compared to the current one.

risks

The recovery in downstream LED demand fell short of expectations; overseas market development progress fell short of expectations.