Key points of investment

On January 29, 2024, the company released the “2023 Annual Results Forecast”.

Comprehensive gross margin is improving year by year, and net profit to mother is expected to increase by more than 100% year on year. The company's annual comprehensive gross margin has improved year by year. The company's gross margin improvement is mainly due to the following two reasons: (1) The company integrates “hardware+system+software+content+interaction” into an integrated light display solution based on LED ultra-high-definition displays and smart lighting, and develops “hardware+system+software+content+interaction” into an integrated light display solution. From single hardware to overall solution sales, the added value of the company's business is gradually highlighted; (2) Thanks to the company's deep cultivation in the international market for many years, the advance layout of channels and brand advantages, the overseas business contribution continues to gain strength. The company's net profit to mother increased year over year, but there is still room for improvement in cost control. The company will continue to improve operational efficiency and profit quality through organizational structure optimization and product focus. The company is expected to achieve net profit of 131 million yuan to 170 million yuan in 2023, an increase of 105.46% -167.09% over the previous year; net profit without deduction to mother is between 149 million yuan and 193 million yuan, an increase of 178.44% to 261.98% year on year.

The five major technologies seize AI development opportunities and comprehensively increase customer value with new quality productivity. Generative AI is taking the world by storm, while also bringing significant commercial growth to the LED light display industry. LED technology is widely used in commercial cultural tourism, educational conferences, entertainment and sports, etc., and rich application scenarios are more conducive to the implementation and promotion of AI technology. (1) Digital virtual person UniAvatar: Zhouming Technology's digital virtual human solution now has star IPs such as Qi Xiaoyi, Mark Cat, and the mythical beast LuDuan. These IP images cover various forms such as portraits and cute pets. They are able to speak, listen, think, and see, whether as digital employees or as separate individuals, to fully meet enterprise/consumer/industrial needs in various fields such as performance, interaction, and live streaming.

(2) LumingPT, a large vertical multi-modal model: After successively becoming a global ISV partner of Microsoft and Dell, and obtaining official GPT-4 access permits, Zhou Ming opened up key technical channels, successfully built LumingPT, a multi-modal large language model for the vertical industry, and completed a gorgeous transformation from chatGPT in chat mode to LumingPT in expert mode. Multi-mode real-time interaction covering graphics, motion, and spatial perception will provide the “most powerful brain” for use in multiple scenarios such as digital human applications. (3) Cross-modal production content: UniCMGC, with “cross-modal production content” as its characteristic, will achieve cross-modal production such as “one sentence can generate an image” with high quality. Especially in combination with LED screen technology, UniCMGC will be characterized by “multiple modes and multiple scenes” and is suitable for education, entertainment, radio and television, enterprises, exhibitions, etc. (4) Spatial Sensing UniSP: Zhou Ming UniSP has created a hardware matrix of spatial sensing sensors including 2D sensors, 3D sensors, and wearable motion capture. With UniSP, users will get a smarter and more personalised emotional interaction experience after inputting multi-modal information. (5) Virtual shooting system UniStudio: LED virtual studios have begun experimenting with innovative AIGC technology to help film and television production workflows, including early creation such as AI scripts and AI original drawings, mid-stage shooting of 3D models, digital people, etc., and post-production such as restoration of works and AI rendering. More than 140 virtual studios around the world, of which more than 110 choose Zhouming Group and its ROE. Zhouming Technology will use rich data and leading technology to interconnect creativity between production side and consumer side.

Four major achievements, from products to platforms, to create an LED+AI ecosystem. (1) Full-size holographic transparent cabinet: The full-size holographic transparent cabinet AvatarAIO uses an ultra-high-definition 3D transparent screen as the interactive medium, with cross-modal generation as the core to achieve different interactive feedback such as touch, sound pickup, and spatial perception. The 21-85-inch optional screen can better meet global applications such as front desk reception, exhibition education, etc. (2) Metaverse ecological fish tank screen: The metaverse ecological fish tank screen UniMiniMeta uses a large LED screen to create a “Chinese landscape” fish tank with a sense of space. The micro landscape inside the product can be switched with one click through the mobile app. The electronic pet and digital landscape can be used without maintenance or electricity. The large amount of materials comes from the “LightFort Cloud Platform”. (3) Guangbao Cloud Platform: Guangbao Cloud Platform is a digital asset sharing and trading platform provided by Zhouming for all digital content creators. The platform has a rich and high-precision digital asset library and creator community composed of many artists, and strives to create a standardized, efficient, high-quality, and low-cost 3D asset supply. (4) Optical display content box UniMetabox: Optical display content box UniMetabox can interconnect local multi-display terminals such as fish tank screens, all-in-one conference machines, holographic equipment, transparent display cases, etc., and connect massive cloud digital assets. Through a simple and easy to understand interactive interface, ordinary users can also more conveniently implement multi-modal interactive services and digital asset broadcast control.

Investment advice: In 2023, the global semiconductor market fell into a slump, demand in the terminal market was weak, and downstream demand fell short of expectations. We adjusted the company's 2023 performance forecast. The revenue from 2023 to 2025 was 73.94 billion yuan, 15.1%/10.8%, respectively; net profit to mother was adjusted from the original 2.93/3.95/503 million yuan to 147/395/503 million yuan, with growth rates of 130.9%/168.5%/27.5%, respectively; corresponding PE was 41.3/15.4/12.1 times, respectively. Considering that Zhouming Technology is deeply involved in the field of LED light display and has successfully built multi-scene light display solutions, Superposition Company is leading the layout in new application fields such as XR virtual shooting, LED cinema screens, and AI virtual digital humans, grasping industry trends, and has broad prospects.

Maintain the buy-A recommendation.

Risk warning: downstream demand falls short of expectations; new technology/product/project progress falls short of expectations; risks caused by the development of LED display technology; AI-related developments fall short of expectations.