Performance preview

The forecast is that net profit to the mother will increase by 50-70% year on year, in line with our expectations. Carlet released the 2023 performance forecast. The company's revenue for 2023 is expected to be 951-1,087 million yuan, an increase of 40-60% year on year, and net profit to the mother is 1.97-223 million yuan, up 50-70% year on year, in line with our expectations and better than market expectations. Corresponding to the 4Q23 single quarter, Carlet is expected to achieve operating income of 383-519 million yuan, an increase of 50-103% year on year, and net profit to mother of 0.87 to 113 million yuan, an increase of 61-109% year on year. We believe that the rapid increase in Carlet's 4Q23 revenue and profit is mainly due to overseas market development and gradually entering a harvest period, and downstream customer product delivery concentrates on confirming revenue.

In addition, Carlet recently issued several announcements: 1) As of January 16, the company has initiated an initial share repurchase with a repurchase amount of about 5 million yuan, and will continue to repurchase shares in the future; 2) shareholders and core executives holding 5% or more of the company's shares voluntarily promised not to reduce their holdings of the company's shares within two years (from release to November 30, 2025). We believe that the above announcement further shows that the company has strong confidence in subsequent growth. Combined with the company's previous equity incentive plan, we continue to take a good look at Carlet's medium- to long-term growth trend.

Key points of interest

Applications such as Ultra HD, XR shooting, and LED cinema have been implemented, driving the rapid growth of Carlette's core products.

We believe that as ultra-high-definition video and XR virtual shooting technology matures, downstream customer requirements for video and image processing technology will continue to increase. We are optimistic that the trend of high-end LED video processing equipment will increase the unit price of Carlet equipment, and the gross margin of related businesses is also expected to continue to improve. Looking forward to the future, we believe that in application scenarios such as ultra-high-definition video and virtual shooting, video processing equipment is expected to drive Carlet's rapid growth. In addition, the penetration rate of LED cinema screens is also expected to continue to increase in the future, opening up new LED application fields and driving the continuous growth in shipments of products such as Carlite display control and video processing equipment.

Overseas channel development is progressing smoothly, and we are gradually entering the harvest period. At the beginning of 2023, Carlet 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. By cultivating R&D and sales teams and building distribution channels throughout the year, we believe that Carlet's overseas market has gradually entered a harvest period. Considering that the profitability of all overseas products is much better than domestic, we believe that overseas business can guarantee Carlet's achieve rapid revenue and profit growth, and help the company continue to optimize profit levels and achieve high-quality growth.

Profit forecasting and valuation

We maintain our 2023 performance forecast. Considering Carlet's overseas business development and profitability improvement, we raised 2024e EPS by 9% to 4.51 yuan and introduced 2025e EPS 7.03 yuan. The current stock price corresponds to 2024/25e 20.8/13.3x P/E. We maintain our outperforming industry rating and target price of 130.0 yuan, corresponding to 2024/25e 28.9/18.5x P/E, and there is still room for 39% increase compared to the present.

risks

Overseas business development fell short of expectations, and downstream LED demand was weak or put pressure on the company.