The leader in the field of LED display control, given a “buy” rating

The company is a supplier of core components and equipment in the field of video image display. Based on LED display control systems, the company gradually expands to video processing and playback, etc., and is expected to benefit from the growth opportunities brought by the increased penetration rate of small-pitch displays and 4K/8K ultra-high-definition video; at the same time, the company is accelerating overseas market expansion, and performance is worth looking forward to.

The company's equity incentive performance target is based on 2022, and the growth rate of operating income or net profit from 2023-2025 is not less than 50%/125%/238%, respectively, demonstrating confidence in long-term development. We expect the company's net profit from 2023-2025 to be 1.98, 2.97, and 445 million yuan, respectively, and EPS of 2.91, 4.36, and 6.55 yuan/share, respectively, corresponding to the current stock price PE, 36.1, 24.1, and 16.0 times, respectively, covering the first time, giving it a “buy” rating.

Display control systems: The increase in small-pitch penetration rate and economic recovery drive take-off, and the increase in small-pitch penetration rate brings opportunities for volume and price increases: the reduction in the cost of small-pitch LED displays and the increase in fineness are expected to expand application scenarios and lead to an increase in demand; at the same time, the number of pixels per unit area of LED displays increases, and the share of display control systems in display costs will further increase. The economic recovery is worth looking forward to: downstream economic recovery, industry inventories are gradually being digested, leading to a boost in LED demand.

Video processing equipment: The development of 4K/8K ultra-high-definition video has increased long-term growth momentum, benefiting from policy catalysis such as “one hundred cities, one screen” and the application of 5G technology. The rapid rise of 4K/8K ultra-high-definition video has, on the one hand, promoted the development of AR/VR and other fields and expanded the downstream application market for video processing equipment; on the other hand, the value of high-performance products targeting the 4K/8K scenario is higher, and the increase in revenue share is expected to drive overall gross profit margin.

Going out to sea accelerates, space can be expected

The company is accelerating overseas market expansion, and future prospects are worth looking forward to. According to the company's announcement, the number of overseas dealers increased to more than 20 in the first quarter of 2023, and is expected to increase to around 100 by the end of 2023. In the first half of 2023, the company's overseas revenue increased by 83.19% year on year, and the comprehensive gross margin of overseas products was basically the same as in 2022 (79.52%). High growth in overseas business revenue will further boost the company's comprehensive gross profit margin. We are optimistic that the company's market layout in the Middle East, Europe, America and other regions will continue to improve, which is expected to give a good boost to the company's overseas performance.

Risk warning: downstream demand falls short of expectations; market competition intensifies; company R&D and market expansion fall short of expectations.