In the first three quarters, the company achieved revenue of 7.628 billion yuan, -15.52% year-on-year; net profit of 448 million yuan, -36.65%; and gross profit margin of 16.74%, -1.41pcts year-on-year. The company's performance was under pressure in the short term, mainly due to the high performance base caused by the operator's accelerated stocking last year and the low level of prosperity in the mobile phone panel market, and the decline in the profitability of the company's related business. However, the company's share of winning bids in the new round of set-top boxes and broadband equipment collection by operators is high, and the fundamentals are stable. At the same time, the company's VR/AR and in-vehicle businesses are expanding rapidly, and it is expected to become a new driving force for the company's growth in the future. The company was given a target price of 15 yuan to maintain a “buy” rating.

Revenue and profit are under pressure in the short term, mainly affected by factors such as the low level of prosperity in the mobile phone panel market. In the first three quarters, the company achieved revenue of 7.628 billion yuan, -15.52% year-on-year; net profit of 448 million yuan, -36.65%; and gross profit margin of 16.74%, -1.41pcts year-on-year. Looking at a single quarter, the company achieved revenue of 2,458 billion yuan in Q3, -11.88% year-on-month and -13.08%; net profit of 130 million yuan, -39.59% year-on-year, -35%; and gross profit margin of 16.88%, -1.17pcts year-on-year, +0.42pct. The company's performance growth rate is under pressure in the short term, mainly due to chip shortages in the same period last year and accelerated preparation by operators, etc., which led to a high base for the same period last year, and the low level of prosperity in the mobile phone panel market, which led to a significant decline in profitability.

The company won a new round of procurement for operator set-top boxes and broadband equipment with a high share, and overseas business expansion was smooth.

In terms of set-top boxes, at the beginning of this year, the company won the first bid with a share of 28.39%. China Mobile will launch a new round of smart set-top box procurement tenders this year. Since then, the company has successively won exclusive bids for the Henan Unicom IPTV set-top box project, Shandong Unicom's 4K smart set-top box project, and the Liaoning Unicom 4K smart set-top box project. The company has a leading share in the collection of set-top boxes from the three major operators. At the same time, the company is based in overseas markets such as Europe, Latin America, Africa, and the Middle East, and has successively broken through mainstream overseas operators with customers such as Australia and the United States, and its overseas business has maintained a growing trend. In terms of broadband connectivity business, the company has successively won bids with top ranking operators. Since the beginning of the year, the company has won the bid for the telecom broadband integrated terminal collection project with an 11% share; it won the bid for the second batch of China Mobile's centralized procurement of smart home gateway products in 2022-2023, ranking first in the total number of successful bidders. In addition, the company won second place in the bid for China Mobile's 2023-2024 intelligent enterprise integration gateway product collection project. The company has also expanded its broadband business in overseas regions such as India, Southeast Asia, and Europe. The company won the bid with a high share in the new round of collection of set-top boxes and broadband equipment from the three major operators. Overseas business expansion was smooth, and the fundamentals were stable.

The rapid expansion of VR/AR and in-vehicle businesses is expected to become a new driving force for the company's growth in the future. The company released the Pancake ultra-short focus VR all-in-one in July 2022, focusing on the B-side operator market and the C-side retail market. At present, the company is expanding smoothly in overseas markets, and has already expanded to XR industry application customers in Japan, the US, South Korea, India, etc., and customized delivery of MR products to customers such as India has begun. At the same time, the company's products also won the VR/AR Innovation Gold Award at the 2023 World VR Industry Conference, demonstrating the strong competitiveness of the company's products.

In terms of the automotive business, the company's shipments of products such as in-vehicle human-computer interactive display assembly systems and in-vehicle intelligent instrument systems increased dramatically in 2023. This year, the company has successfully passed the entry review of Beijing Hyundai and FAW Pentium and obtained the front-loading system code. According to the current order volume forecast, the company's annual shipment volume in 2023 is expected to be about 1.5 million units. According to the company's WeChat account, at present, the company continues to expand production capacity, and plans to produce more than 7 million units per year in the future to ensure the company's growing demand for in-vehicle business shipments in the future.

Risk factors: policies related to dual gigabit and HD/UHD fall short of expectations; expansion of new businesses such as VR and automotive electronics falls short of expectations; market competition intensifies; exchange rate fluctuations, geopolitics and other factors affect the company's overseas business.

Profit forecast and valuation rating: As an industry leader in the field of set-top boxes and broadband access, the company has the highest collection share of domestic operators. At the same time, overseas business is expanding rapidly, and the business base is stable. At the same time, the company's VR/AR and in-vehicle businesses are progressing smoothly, which is expected to open up new growth space for the company in the future. However, due to the low popularity of mobile phone panels on the company's performance, we lowered the company's net profit forecast for 2023/2024 to 641/852 billion yuan (the original forecast value was 11.89/1,494 billion yuan), and added the 2025 net profit forecast of 1,040 billion yuan. Referring to comparable company valuations (Tianyi Co., Ltd., Yilian Network, Shentianma, and Xing Rui Technology Wind unanimously expect the current price to correspond to the 2024 average 21x PE valuation), we gave the company a 2024 20x PE valuation, corresponding to the target price of 15 yuan, maintaining the “buy” rating.