Event: On December 18, 2023, Guangxi Juncheng Technology Co., Ltd. held a groundbreaking ceremony for the automotive LCD module production project. According to the company's prospectus, the total capital raised by the company's initial public offering of shares in 2022 was 690 million yuan (issue price 37.75 yuan/share), and the net capital raised was 61 million yuan. Among them, the Guangxi Juncheng automotive LCD module production project plans to use 170 million yuan of capital raised, and the project is expected to reach the intended useable state by December 31, 2024.

The proposed acquisition of cockpit shows that Tier 1 is newly accessible, and in-vehicle displays will create a new growth engine. On October 24, it was announced that the company plans to purchase 75% of Xintongda's shares and raise supporting capital by issuing shares and paying cash. Established in 2004, Xintongda is a well-known first-class supplier of automotive instruments. It is the chairman unit of the Vehicle Instrument Committee of the China Automobile Association. Its products mainly include intelligent products such as automotive instruments (accounting for ~ 80% of revenue), HUD, sensors, and controllers.

In 2021/2022/1H23, Xintong achieved revenue of 41 million/4.4 million/230 million yuan and net profit of 7.01 million million/19.58 million/9.95 million yuan respectively. Major customers include Geely Automobile (2022/1H23 accounting for 50% +), JAC, Beiqi Foton, Great Wall Motor, Jiangling Motors, etc. Relying on Xintongda's high-quality customer resources and cockpit display product line, the automotive display business is expected to bring a new growth curve to the company after the acquisition is completed.

Opening up the upstream and downstream automotive screen industry chains, cockpit display integrators are setting sail at an accelerated pace. Juncheng Technology is an industry leader focusing on customized LCD displays. The company has the production capacity of monochrome LCD screens and modules (TN, STN, VA) and color TFT LCD modules. In the automotive field, the company is a second-tier supplier of automotive LCD products. It has developed large automotive VA LCD screens and streaming media smart rearview mirrors with highlights such as high-precision color film attachment, integrated black screen, and TFT optical bonding. The company has been deeply involved in the field of liquid crystal displays for many years, and has stable production capacity and supply advantages in the industrial chain. With the effective integration of the company's upstream and downstream resources, the collaborative advantages of the automotive display industry chain are expected to be realized at an accelerated pace.

Investment advice: Taking into account the new convergence factors, we expect the company to achieve operating income of 640 million yuan, 1.34 billion yuan and 1.60 billion yuan in 2023, 2024 and 2025, corresponding net profit of 0.9 billion yuan, 130 million yuan and 160 million yuan. Based on the closing price on December 18, PE is 33.5 times, 22.3 times and 19.2 times, maintaining the “increase in holdings” rating.

Risk warning: The risk of raw material prices continuing to rise; the company's customer and order development falls short of expectations; acquisition progress falls short of expectations; LCD technology is being replaced by OLED display technology.