This report is read as follows:

The company reported lower-than-expected results in mid-2023 and a significant increase in gross profit margin. With the release of Mini/Micro LED products in the future, the company is expected to achieve long-term and stable development.

Main points of investment:

Maintain the holding increase rating. Taking into account the lower-than-expected recovery in some downstream areas, we downgrade the company's EPS forecast for 2023-2024 to 0.34 (- 0.15) / 0.42 (- 0.28) yuan, and the new company's 2025 EPS to 0.51 yuan. With reference to the comparable company valuation level and considering the company's growth in Mini/Micro LED, we give the company 25x PE in 2024, lowering the target price to 10.5 yuan (- 1.75) yuan, and increasing the holding rating.

The performance was lower than expected and profits maintained steady growth. According to the report of the company's 2023 results, 23H1 achieved an operating income of 1.696 billion yuan, a year-on-year-5.73%, and a net profit of 121 million yuan, a year-on-year net profit of 121 million yuan. From a year-on-year point of view, the company achieved an operating income of 980 million yuan, + 1.88% year-on-year, and a net profit of 76 million yuan, + 65.74% over the same period last year. From the plate point of view, the company's 23H1LED packaging plate revenue-7.23%, automotive lighting plate + 9.08%. The decrease in revenue but the increase in profit of 23H1 is mainly due to (1) the company has taken a number of cost-reducing measures to increase efficiency and optimize the product structure. (2) the purchase price of some raw materials has declined. (3) the increase in foreign demand and the rise in the exchange rate of the US dollar.

Mini/Micro LED continues to promote, continue to achieve mass production import. In terms of research and development, the company focuses on developing Mini/Micro LED projects, and there are already products in small batch trial production; in terms of production capacity, Hongli shows that the second phase of the project is basically completed and accepted, and will gradually release production capacity in the future; in terms of market, the company actively follows up on VR, wearable, notebook, display and other fields, closely cooperating with first-tier manufacturers at home and abroad.

Catalyst. The introduction of new customers; the proportion of headlights is increasing.

Risk hint. Research and development failed to follow up in time; demand recovery in some areas was not as expected.