Carlet is a company that provides comprehensive solutions in the field of LED video imaging. The company's products are mainly divided into three categories: LED display control systems, video processing equipment, and cloud networking players, which cover the LED video playback back-end. Most of the company's management are from Tsinghua University or other 985 universities. They have a rich technical heritage, which has shaped the company's technology-oriented corporate DNA.

Driven by two major incremental logic, LED control systems are expected to usher in high growth. 1) As factors such as the epidemic subside, the growth momentum of downstream LED shipments has resumed, and the display control system is expected to enjoy the high growth brought about by downstream drivers as the core component of LED display applications. According to data from the Institute of Advanced Industrial Research, the size of LED displays in China in 2022 is about 63.3 billion, and the estimated market size of display control systems is 2.66 billion yuan; 2) The overall demand for LED control systems is related to the number of pixels in LED displays, and changes in the number of pixels are mainly driven by two layers: ① the trend of miniaturization of LED spacing; ② the trend of ultra-high definition in the industry.

The demand for display control systems is inversely proportional to the size of the point spacing. With the introduction and mass production of spacing below 1.0, the market share of smaller pitch displays will continue to increase. Assuming that the sales area does not change in 2023-2027, and only considering changes in LED point spacing for industrial applications, we estimate that the compound growth rate of the number of corresponding pixels will reach 12.87%. Under the ultra-high definition trend, the pixel volume corresponding to 8k is more than 9 times that of 2k, which is also driving the demand for display control systems upward.

Starting from the LED display control system, Carlet's integrated products drive overall gross profit increase. The company started with an LED display control system, continuously accumulated R&D experience and market reputation, and integrated product modules. Derived from a transmitter, combined with the capabilities of video playback processing equipment, a series of super master control products with a higher degree of integration was designed. Looking forward to the future, the release of high-end super control series products is expected to further increase the company's gross margin. At present, the combination of display control systems and video processing equipment has become the company's second growth curve. In addition, considering that LED direct display systems involve a wide range of functional modules and application scenarios, the company is expected to further evolve into functional modules such as audio and video acquisition and processing.

Growth rivals Barco, and overseas layout accelerates project implementation. The company's overseas sales are concentrated in North America and Europe, benefiting from the continued improvement of the LED display market in Europe and America. The company's overseas revenue growth rate reached 85%/46% in 21/22, and overseas revenue of 70 million yuan in '22. As the impact of the epidemic weakens in overseas markets, demand for orders from downstream customers is strong, application scenarios are gradually diversifying, and the growth of landing projects can be expected.

Profit forecast: We expect the company's revenue for 2023-2025 to be 1,018/15.16/2,279 million yuan, with a corresponding growth rate of 49.87%/48.89%/50.38%; the company's net profit to mother is 2.12/2.97/444 million yuan. The company is the leading manufacturer of LED display control equipment, and video processing equipment has become the company's second growth pole. In the future, with the release of high-end super control series products, we are optimistic that the company's profitability will further increase. We will give the company 35xPE as the target valuation in 2024, with a target market value of 10.406 billion yuan, corresponding to a target price of 153.02 yuan, covering the first time, giving it a “buy” rating.

Risk warning: The risk of market competition, the risk of high customer concentration, the risk of technological iteration and upgrading, the risk of insufficient production capacity, and the risk of high concentration of proxy procurement are subjective.