Incident: The company released its 2023 semi-annual report. The company achieved revenue of 802 million yuan in 2023, an increase of 11.97% over the previous year; realized net profit of 39 million yuan, an increase of 28.16% over the previous year; achieved non-net profit of 33 million yuan, an increase of 36.14% over the previous year. On a quarterly basis, Q2 revenue for 2023 was 472 million yuan, up 6.95 percent year on year, and 43.18% month on month; net profit returned to 30 million yuan, down 30.55 percent year on year and 254.23% month on month; net non-net profit deducted 27 million yuan, down 29.28% year on year, and 397.30% month on month.
Market demand picked up, H1 revenue resumed growth: H1 in 2023, the business environment in domestic and foreign markets improved, market demand picked up to varying degrees, and the company's revenue resumed year-on-year growth. The gross margin of H1 Company in 2023 was 22.01%, -0.01pcts; the net interest rate was 4.87%, +0.60 pcts from the previous year. The company's net interest rate increased, mainly due to the increase in government subsidies received by H1 Company in 2023. In terms of expenses, the H1 sales/management/R&D/financial expense ratio in '23 was 1.46%/6.95%/9.64%/-0.38%, respectively, and the changes over the same period were -0.02/-0.35/- 0.66/-0.18 pct, respectively. The cost rate declined during the period, and the company's cost control effect was remarkable.
The security market space is vast, and the intelligent driving sector is being expanded: According to data from the Huajing Industrial Research Institute, the market size of China's intelligent security software and hardware reached 61.6 billion yuan in 2022, and the market size growth rate reached 13.3%. The market size is expected to increase to 91.3 billion yuan by 2025. In the IoT visual video surveillance business, the company's main products are high-definition high-magnification zoom optical lenses. The company's optical lens products can be widely used in smart IoT visual video surveillance, such as smart cities, smart homes, intelligent transportation, border and coastal defense, energy and environmental fields. The company's differentiation strategy in high-end optical lens products such as HD and zoom is in line with market development trends, and has broader market penetration prospects. In the field of intelligent driving, the company's holding subsidiary United Auto focuses on research and development of new technologies and products. In the first half of 2023, a number of targeted projects were added, and overall revenue increased by 214% over the same period last year. In 2022, the company's product mass production capacity and quality assurance capabilities in the field of intelligent driving continued to improve, in-vehicle processes and system construction were further strengthened. Standard processes such as IATF16949, EHS, and ESD20.20 continued to advance and implement, and successfully passed the IATF16949 supervision and review and EHS system certification. With the application and popularization of technologies such as ADAS and the Internet of Vehicles, the company will continue to actively explore cutting-edge technologies and applications in the field of intelligent driving, accelerate technology, product innovation and new business breakthroughs, and further expand its market share.
The new display sector continues to be booming, and fundraising projects open up room for growth: According to IDC forecasts, total global AR/VR investment is expected to increase to US$74.73 billion in 2026, and the CAGR from 2022 to 2026 will reach 38.5%. In the field of new displays, in H1 in 2023, the company achieved a 45% year-on-year increase in revenue. Among them, revenue for projection products increased 97% year-on-year, revenue for OEM products such as AR/VR all-in-one machines increased 85% year-on-year, and sales volume exceeded 110,000 units. As one of the first hardware manufacturers in the metaverse, the company is deeply involved in the AR/VR field, has the ability to integrate components and complete machine assembly, and has stored core technologies for AR/VR related hardware products, such as optical waveguides, Fresnel lenses, and pancake technology. The company has reached friendly cooperative relationships with well-known domestic AR/VR companies such as Leshang (Dapeng), Xiaopai, Liangliang Vision, and Nade; it plans to establish a long-term friendly strategic cooperative relationship with Xinchen Technology Co., Ltd. in areas such as metaverse technology research, industry application innovation and implementation, and ecological development. The company's fundraising “New Display and Smart Wearable Product Intelligence Project” is progressing normally according to the plan. After completion of the project, it is expected to achieve an annual output of 18 million vehicle lens products, 2 million new projection lens products, and 580,000 VR/AR all-in-one machines. The project further deepens the company's AR/VR business layout, enriches the company's new display product line, increases the company's product scale and mass production capacity, and brings greater performance growth to the company.
Maintaining a “buy” rating: The company has been deeply involved in the security lens industry for many years, and already has competitive comprehensive strength and market share. With the completion of expansion to major customers in some key regions in 2023, it is expected to further expand its market share. On the basis of continuing to consolidate the high-end security market, the company has made a forward-looking layout for emerging fields in the optoelectronics industry. With the rapid growth of markets such as new displays, intelligent driving, and artificial intelligence, and the gradual implementation of fund-raising projects, it is expected to open up room for growth for the company's performance. It is estimated that the company's net profit for 2023-2025 will be 189 million yuan, 217 million yuan, and 254 million yuan respectively, EPS will be 0.70 yuan, 0.81 yuan, and 0.95 yuan respectively, and corresponding PE will be 26X, 23X, and 19X respectively.
Risk warning: Market competition risk, downstream demand falling short of expectations, risk of technology development and iterative upgrading, increased market competition