The company's main business is smart display, and Micro LED black diamond series products will be launched in 2022. The company's business layout covers intelligent displays, urban lighting environments, new cultural tourism formats and virtual reality technology, marketing networks and production bases around the world. The company's business includes smart displays, cultural tourism night tours, and virtual reality, which account for 85%, 10%, and 5% of total revenue in 2022, respectively. The company ranked No. 1 in the global market share of LED displays for 7 consecutive years from 2016 to 2022. In June 2022, the company released Micro LED black diamond series products. At the end of 2022, the company developed a series of outdoor small-pitch black diamond products to expand the application field from indoor to outdoor.
The risk of subsequent impairment of goodwill has been reduced, and overseas revenue is growing rapidly. The company expanded its business direction through the acquisition of LED lighting, cultural and creative-related companies, and formed a goodwill of nearly 2.7 billion yuan at the end of 2018. In 2020, affected by the pandemic and macro-deleveraging, many of the company's subsidiaries experienced goodwill impairment totaling $1,307 billion, resulting in loss of performance. As of 1H23, the company's goodwill balance of $762 million, mostly from NP companies, and the risk of subsequent depreciation is low. The company has established a European and American market team centered on “Pinda America” and an Asian, African and Latin American market team centered on “Hong Kong Riyadh”. Both international channel teams drive the company's overseas revenue growth.
In 2013-2022, the company's overseas market revenue increased from 190 million yuan to 2.94 billion yuan, a CAGR of 35%.
Demand in the small-pitch LED market continues to rise, and the ultimate micro LED display is unstoppable. Demand in the small-pitch LED market is rising, driven by emerging markets such as LED all-in-one conferencing machines, XR virtual cameras, and the cinema market. The China Business Industry Research Institute expects sales of small-pitch LED displays in China to increase 9.10% year-on-year to 18 billion yuan in 2023. Micro LED can be used in large screen displays and wearables, and the market is growing strongly. According to TrendForce, the production value of Micro LED chips will increase 92% year-on-year to $27 million in 2023, and is expected to reach $580 million in 2027 and 136% CAGR in 2027. The company's 1H23Micro product revenue is nearly 200 million yuan, and the 2023 Micro product revenue target is 400 million yuan.
New application scenarios such as intelligent conferencing, XR virtual shooting, and digital people are expected to become new profit growth points for the company.
The company launched smart blackboards, LED all-in-one computers and other products to provide convenient and efficient audio and video solutions for education, meetings and other scenarios. XR virtual shooting for film and television can reduce shooting costs, shorten the production cycle, and improve the quality of video shooting. According to TrendForce, the global XR virtual shooting display market will reach $431 million in 2022, an increase of 52% over the previous year. LED display systems account for the highest cost in XR virtual imaging systems, and the high growth rate of the XR market will drive the company's LED display revenue growth. The wholly-owned subsidiary Virtual Mobile Network lays out emerging businesses such as AI and digital people, and is expected to become a new profit growth point.
Profit forecast and valuation: We expect the company's 2023-2025 net profit of 5.49/7.70/983 million yuan (YoY 95.0%/40.3%/27.7%), EPS of 0.22/0.30/0.39 yuan, respectively. Referring to the comparable company's PE valuation, the company will be valued 31-33 times in 2023, corresponding to the stock price of 6.73-7.16 yuan, giving a “buy” rating.
Risk warning: Production capacity release falls short of expectations; risk of impairment of goodwill; market demand falls short of expectations.