Nova Nebula is a leading domestic display control manufacturer. It is based on LED display control systems and is gradually expanding into the fields of video processing systems and cloud-based information publishing and management systems. The company has leading product performance and a perfect sales and service system. Downstream customers cover domestic LED and security industry leaders. The products are widely used in large-scale projects at home and abroad such as military parades, World Cup, Spring Festival Gala, etc., and the future is expected to continue to grow along with the penetration of technology trends such as MLED and 5G/8K and overseas business expansion. Given the company's leading position in the industry and business growth, it is recommended to focus on it.

Nova Nebula is a leading domestic display control manufacturer. It focuses on the field of video and display control, and provides comprehensive solutions for specialized software and hardware. The company has a deep accumulation in the field of LED display control, while gradually expanding into video processing and cloud-based information publishing and management system businesses. Among them, video processing business revenue continues to increase. 23H1's LED display control/video processing/cloud-based information publishing and management systems accounted for 48.03%/40.96%/6.48% of revenue, respectively. The company serves more than 4,000 customers around the world, including LED industry leaders such as Riyadh, Zhouming, and Abbison, and security industry leaders such as Haikang and Dahua. The products are widely used in large-scale projects at home and abroad such as the National Day celebration, Spring Festival Gala, and the World Cup. In 2020-2022, the company's revenue was 985/15.84/2,174 billion yuan, CAGR +48.56%, net profit to mother 1.11/2.12/308 million yuan, and CAGR +66.58%. The growth mainly benefited from the recovery in the downstream LED industry since 2021. The company is expected to achieve continuous growth in 2023. The company announced that it expects full-year revenue and net profit of 30.46/618 billion yuan, +40.10%/100.56% year-on-year.

Technology upgrades such as MLED and 5G/8K are driving up demand in the display control industry, and domestic manufacturers such as Nova Nebula have accelerated their share expansion. The requirements of the video image display control industry are closely related to the LED display industry.

Driven by factors such as the recovery in global demand for LED displays after the epidemic, the penetration of technologies such as MLED and 5G/8K, and the rise of segmented racetracks such as naked eye 3D/virtual shooting, the demand and unit price of the video image display control industry is expected to rise, and the size of the video image display control market continues to grow. The global video image display control industry is highly concentrated. European and American manufacturers such as Barco and Extron have been deployed earlier, and domestic manufacturers are catching up fast. Currently, domestic manufacturers represented by Nova Nebula are leading the LED display control market share. In the future, it is expected that the product matrix will be further improved in more fields such as video processing to enhance technical strength, sales scale and industry influence.

The company has remarkable advantages in product performance, customer resources, and sales service system, and is expected to open up room for growth along with technological innovation and overseas expansion. 1) Technical performance: The video image processing industry has high technical barriers. The company continues to invest in R&D, and has now formed five core technologies, leading the performance of products such as LED display control, pioneering products such as MLED display ASIC control chips; and further enriching the product line around technology trends such as MLED and 5G/8K to help improve revenue and profitability. 2) Customers: Deeply bind major downstream customers, establish cooperative relationships with Riyadh, Zhou Ming, Abison, Hikvision, Dahua, etc., and the customer resources are stable and high-quality.

3) Sales and service system: Focus on the construction of sales and service systems, and the sales cost ratio is higher than the industry level; at the same time, we are actively improving the overseas market layout and service network construction. Currently, we have 2 European and American subsidiaries and 8 foreign service outlets, and have experience in hosting major overseas events such as the Rio Olympics/Qatar World Cup. Future overseas business expansion is expected to further open up room for growth.

Fund-raising projects help build R&D bases and continuously optimize technical levels and overall management capabilities. The company plans to publicly issue no more than 12.84 million shares to raise 1,085 billion yuan, and actually issue 12.84 million shares to raise 1,629 billion yuan. The fundraising projects include “Nova Optoelectronic Display System Industrialization R&D Base”, “UHD Display Control and Video Processing Technology Center”, “Information System Upgrade Construction”, and “Marketing Network and Service System Upgrade” to help the company meet the rapidly developing product needs of the LED market, strengthen the technical advantages of the original UHD video industry, improve management level and efficiency, and expand marketing reach.

Investment advice: The company is a leader in the domestic LED display control industry, leading product performance and technology, perfect sales and service system, rich project experience, and has good customer resources and market reputation. The fund-raising project further supports the company's base construction, technology upgrading, management and service system improvement. The future is expected to achieve high growth along with technology trends such as MLED and 5G/8K and domestic substitution in overseas markets. We expect the company's total revenue for 2023-2025 to be 30.46/43.41/5.905 billion yuan, and net profit to mother of 6.21/9.09/1.06 billion yuan. The EPS considering issuing diluted share capital in 2023-2025 is 12.09/17.70/25.43 yuan, and the corresponding PE is 35.3/24.8/17.3 times. Given the company's leading position in the industry and business growth, it is recommended to focus on it.

Risk warning: technological innovation risk, downstream demand fluctuation risk, raw material supply risk, market competition risk.