The company's recent situation

Recently, Carlett issued the “Reminder Notice on Receiving Proposals from the Company's Actual Controllers and Chairman to Repurchase the Company's Shares” (later called the “Notice”). Chairman Zhou Jinzhi proposed that the company use its own capital to repurchase some of the shares already issued by the company through centralized bidding transactions.

reviews

The proposed equity buyback shows confidence in the company's continued growth in the future. According to the company's announcement, based on confidence in future sustainable development and a reasonable judgment on long-term value, the company's chairman proposed to use no less than 30 million yuan and no more than 50 million yuan for share repurchases. The repurchase price should not be higher than 150% of the company's average stock trading price in the 30 trading days before the repurchase resolution was passed. The repurchase of shares will later be used for employee equity incentives or employee stock ownership plans. We believe that the company's choice to repurchase at this point further demonstrates that the company management has strong confidence in future development, and that in the future, the repurchase of shares may be used for employee stock ownership plans or equity incentive plans to further improve the company's incentive mechanism, enhance team cohesion and corporate competitiveness, and promote the company's healthy and sustainable development.

Sphere, an LED dome theater in Las Vegas, USA, was launched. In the future, the penetration of high-end LED scenes will increase to promote the expansion of the video processing equipment market, and Carlette is expected to fully benefit. 3Q23 Sphere, a North American spherical theater, was completed and launched. According to Sphere's official website, the venue has recently begun operation, and with new technology such as 16K ultra-high-definition LED displays, consumer feedback has been very positive. We believe that the penetration rate of LED application scenarios in high-end performing arts, entertainment and other fields is expected to continue to increase in the future. Considering that products such as display control and video processing equipment are more demanding in high-end scenarios, it may promote an increase in project value. We are optimistic that Carlette is a leader in video processing equipment. Related revenue is expected to continue to grow rapidly. At the same time, the high-end trend may drive continued improvement in the gross margin of Carlette-related businesses.

Overseas channel development is progressing smoothly, gradually entering the “0-1” market to break through the harvest period. Beginning in 1Q23, Carlette continued to promote the development of overseas distribution channels, enter overseas markets such as Europe, America, and the Middle East through participation in exhibitions and local training, and expand overseas customers with product performance advantages. Through continuous cultivation in the two quarters of 1H23, we believe that Carlette's overseas market has gradually entered a harvest period. Considering that the profitability of all overseas products is significantly better than domestic, we believe that overseas business is expected to guarantee Carlette's rapid growth in revenue and profit, and help the company continue to optimize profit levels and achieve high-quality growth.

Profit forecasting and valuation

We maintain Carlette's 2023/24e EPS at 2.97/4.14 yuan. The current stock price corresponds to 2023/24e34.7/24.9x P/E. We have maintained an outperforming industry rating. Considering the growth in market confidence in the company's future growth and the rise in the valuation center, we raised our target price by 13% to 130.0 yuan, corresponding to 2023/24e43.7/31.4x P/E, which still has room for 26% increase compared to now.

risks

Downstream LED demand falls short of expectations; overseas business development falls short of expectations.