Event: The company released its report for the third quarter of 2023. In the first three quarters of 2023, the company achieved revenue of 895 million yuan, an increase of 28.25% over the previous year; realized net profit of 142 million yuan, a year-on-year decrease of 0.17%; and realized net profit of 117 million yuan, an increase of 12.28% over the previous year. On a quarterly basis, in 2023, Q3 achieved revenue of 338 million yuan, a year-on-year increase of 43.20%, an increase of 7.07%; realized net profit of 60 million yuan, an increase of 20.52% over the previous year, an increase of 7.70% over the previous year; and realized a net profit of 54 million yuan, an increase of 66.39% over the previous year, an increase of 17.75% over the previous year.

Demand stabilized and production capacity increased, and Q3 performance improved sharply year over year: Benefiting from market demand stabilizing and improving, the company had relatively sufficient orders as of the beginning of September; Q3 operating rate was at a high level, production capacity continued to increase, product structure was gradually optimized, and revenue and profit improved significantly year over year. In 2023, Q3's gross margin was 29.17%, down 0.60pcts year on year and up 2.44pcts month on month; net profit margin was 17.75%, down 3.34 pcts year on year, up 0.10 pcts month on month. In terms of expenses, the company's sales, management, R&D, and financial expenses in the first three quarters of 2023 were 0.65%/5.07%/6.38%/-0.83%, respectively, with year-on-year changes of -0.13/-0.64/-0.46/-0.60pcts respectively. Among them, the company's financial expense ratio and absolute value declined year-on-year in the first three quarters, mainly due to a sharp reduction in interest expenses and an increase in interest income.

Raise capital to expand 12-inch sealing and testing production capacity and actively lay out the automotive business: In August 2023, the company plans to issue convertible corporate bonds to unspecified targets to raise no more than 120,000 million yuan to raise capital for “12-inch advanced process new display driver chip wafer gold bump manufacturing and wafer testing capacity expansion” and “12-inch advanced process new display driver chip wafer testing and chip packaging expansion” to combine current market demand and technology development trends for new display driver chips such as OLEDs to carry out new display driver chip wafer gold bump manufacturing, wafers Testing services. Once completed, the project will effectively increase the scale of packaging and testing services for the company's OLED and other new display driver chips, consolidate the company's leading position in the field of display driver chip packaging and testing, and increase market share. In addition, the company's 12-inch display driver chip encapsulation and capacity expansion project will reach the intended usable state in December 2023, further increasing the company's current production capacity, thereby increasing the market share of the company's future products. At the same time, according to the company's announcement, the company plans to invest in the construction of the Huicheng Phase II project, with a total investment of about 1 billion yuan in the first phase of the project, mainly to expand production capacity for advanced packaging testing, and to extend production line processes to automotive chip packaging testing and other fields based on existing technology, and plans to invest about 600 million yuan in the first phase of the project to build a new automotive display chip project.

The DDIC market boom is picking up, and the trend of localizing the panel supply chain is becoming more and more prominent: on the one hand, as downstream inventory removal nears the end, compounding the impact of a gradual recovery in demand for larger panels, the display driver chip market has picked up rapidly since March 2023, and the demand for sealed testing has increased rapidly; at the same time, the display driver chip market has shown significant structural changes in 2023 H1, and the shipment volume and penetration rate of new display driver chips such as OLEDs have increased rapidly. According to the company's prospectus, according to Frost & Sullivan data, global OLED display driver chip shipments reached 1.40 billion units in 2020, and global OLED display driver chip shipments are expected to reach 2.45 billion units in 2025, with a market penetration rate of 10.5%. On the other hand, according to the company's prospectus, according to CINNO Research data, from 2016 to 2021, the share of mainland China's display panel production capacity rose from 27% to 65%, showing a rapid growth trend. It is expected that the share of mainland China's display panel production capacity will rise further in the future, reaching 76% in 2025. While panel manufacturers in mainland China, such as BOE, Huaxing Optoelectronics, and Shentianma, etc., are increasing their own voice, they are also gradually leaning their supply chain resources in favor of mainland Chinese manufacturers. At the same time, as the scale and market share of display driver chip design companies in mainland China have gradually increased, and leading global wafer manufacturing companies have also built factories in mainland China one after another to expand production and expand display driver chip foundry production lines, local packaging and testing companies in mainland China are also moving on the fast track of development at the same time.

Maintaining an “increase in holdings” rating: The company is one of the first advanced packaging and testing companies for display driver chips in China that has the ability to manufacture gold bumps, and was the first to introduce a 12-inch wafer gold bump production line and achieve mass production. The company has been deeply involved in the field of display driver chip packaging testing for many years, and has accumulated rich customer resources with advanced packaging and testing technology, stable product yield and excellent service capabilities. In 2023 H1, the company continued to expand the application fields of encapsulated and tested chips, continued to expand technical boundaries, and lay out high-end advanced packaging technologies such as Fan-out, 2.5D/3D, and SiP. In the future, with the continuous restoration of the display driver chip industry, the continuous increase in the penetration rate of OLED display driver chips, and the smooth progress of the company's 12-inch sealing and testing production capacity expansion project, the company is expected to further enhance profitability and open up space for long-term growth. The company's net profit for 2023-2025 is estimated to be 166 million yuan, 237 million yuan and 338 million yuan respectively, EPS is 0.20 yuan, 0.28 yuan, and 0.40 yuan, and PE is 54X, 38X, and 26X respectively.

Risk warning: Market competition increases risk; high customer concentration risk; high supplier concentration risk; risk of macroeconomic fluctuations.