Net profit from 23 years of income to mother was under pressure, maintaining an increase in holdings

The company disclosed its 23 annual report. The company achieved revenue of 10.627 billion yuan, net profit to mother of -11.5%, and net profit to mother of -26.85%. Revenue and net profit to mother were weaker than our expectations. Among them, 4Q23 revenue was +0.68% year-on-year, and net profit to mother +32.8% year-on-year. The company's revenue and net profit in 23 were affected by a high base. The growth rate was not strong, but the diversified business was still developing rapidly. Overseas demand for the smart terminal business may gradually recover in '24, the automotive display business still has room for growth, and virtual reality has potential. We adjusted 24-25, and introduced a 26-year forecast EPS of 0.66/0.74/0.82 yuan (the value was 0.78/0.88 yuan before 24-25). As of 2024/3/21, the company's average PE in 2024 was 22x, giving the company 2024 The 22xPE valuation corresponds to the target price of 14.52 yuan (previous value 15.4 yuan), maintaining the “gain” rating.

The set-top box business may continue to be under pressure. The broadband and virtual reality business or smart terminal business achieved revenue of 7.863 billion yuan (-17.91% year over year). We believe that this is mainly due to the weak impact of the set-top box business overseas business. According to customs data, the export volume/value of the digital TV set-top box industry was -26.5%/-35.1%, respectively, in 23, but broadband access devices (won the bid performance in centralized procurement of operators' smart home gateway products) and virtual reality VR/MR/AR solutions and terminals (new VR products released in 23) , expanding overseas B-side customers) or still maintaining good performance.

The automotive display business is showing strong performance, and operating services are growing steadily

The professional display business achieved revenue of 2,407 billion yuan (+12.78% year over year), mainly benefiting from the automotive electronic vehicle display assembly business. In '23, the company obtained 20 key project targets for core automotive display customers, achieved sales of more than 1 million sets of products, and revenue of 982 million yuan (+216.29% year over year).

At the same time, the 23-year operating service achieved revenue of 324 million yuan (+37.65% year over year), mainly benefiting from the growth of after-sales value-added services and smart city service businesses.

The gross margin may still be dragged down by the professional display business. The cost ratio fell year on year 23, and the company's gross margin was 16.75% year on year, -0.92 pct year on year. Among them, the gross margin of smart terminals was +0.99 pct year on year, and the gross margin of professional display was -4.49 pct year over year (the gross margin of the small to medium display module business declined significantly year on year). The company's overall expense ratio in 2023 was -0.5pct year over year. Among them, with the exception of the year-on-year increase in R&D expenses (+0.49pct year over year), all other cost ratios declined year-on-year, with sales expenses -0.19pct yoy, management expenses ratio -0.12pct yoy, and financial expenses ratio -0.68pct yoy.

Emerging businesses have plenty of potential

Aiming at the traditional smart terminal business, the company still uses technical advantages to meet customer collection needs, focusing on AI applications and emerging fields of overseas optical fiber; investment in the automotive display business has shown results, and the entry and targeting of new key customers is expected to continue to increase the scale of automotive displays; the virtual reality terminal business focuses on expanding overseas B-side customers, and the company may be able to enjoy new growth opportunities.

Risk warning: Increased competition in the industry; adverse fluctuations in raw material costs; decline in export demand.