Both revenue and net profit for 23 fell short of expectations. Focus on subsequent overseas fixed/high-end screen sales, BOE Precision's revenue for 23 years was HK$10.76 billion, +0.4% year over year; net profit to mother was HK$475 million, -18.4% year over year; both fell short of our previous expectations (+12%/-11% YoY). Main factors: (1) domestic automaker price cuts had a negative impact on ASP; (2) overseas demand declined, -11.8% year over year; (3) high employee cost growth due to rising production at Chengdu module factory (+38% year over year). Looking ahead to 24 years, considering the ongoing domestic price war and the risk that overseas sales will fall short of expectations, we should lower our 24/25E revenue to HK$116/13.2 billion (original value: $148/17.8 billion). Furthermore, the investment in the Chengdu module factory is nearing completion, and the company's gross margin has shown a recovery trend since 2H23. We expect the company's net margin to recover in 24/25/26, giving net profit to mother HK$5.3/6.3/770 million (original value of $7.4/1.01 billion in 24/25). Refer to comparable companies, and give 13.6X PE for 24 years (average value of 24.7X for comparable companies, 45% discount considering slowing revenue growth pressure), target price of HK$9.15 to maintain “purchase”.

2023 review: Slowing demand and pressure on profits led to revenue and net profit falling short of the company's domestic/America/Europe/Korea/Japan revenue of +6/+7/-12/-23/ -57% year on year, respectively, reflecting on the one hand that domestic car companies' price reduction pressure had a certain impact on revenue, and on the other hand, the decline in orders from overseas customers due to macroeconomic factors and competition. The company's net profit fell 18.4% year on year, mainly due to: (1) the decline in single-chip display module ASP due to price cuts by domestic automakers (we estimate about -5% year-on-year); (2) the impact of recruitment personnel at new factories was significant (7183 employees at the end of '23, an increase of 25.3% year on year). In terms of inventory, inventory continued to rise by the end of 2023, reaching HK$1,947 billion, with a turnaround time of 70 days.

2024 outlook: Driven by the focus on overseas orders/high-end screen sales, the company has continuously increased its overseas layout and obtained more overseas high-end screen and rated brand targets. The company has guided an improvement in overseas orders in '24, and the overseas market has achieved double-digit growth. We believe that the increase in overseas demand will be the main driver of the company's revenue growth in 24-26. At the same time, we see that A-Si modules are currently under high competitive pressure. The company is focusing on continuously upgrading LTPS/oxide/OLED modules with higher unit prices and larger screens, which is expected to make a positive contribution to ASP. With the rapid increase in the operating rate of module manufacturers in Chengdu, we are optimistic about the 24-year profit margin repair trend.

Based on the 13.6X PE valuation, the target price is HK$9.15. Maintaining a “purchase” long-term, the company's future overseas targeted releases are expected to bring about a recovery in performance growth and an increase in the share of system-level business to drive upward valuation. However, considering that the company's overall revenue growth rate in '24 was still under pressure, we reduced 24-year revenue/net profit by 22/ 28% to HK$11.58/53 billion, gave it 13.6X PE for 24 years (24.7 times the average value of the company's 2024E PE), and maintained the purchase. The target price was HK$9.15 (previous value of HK$13.14).

Risk warning: Overseas targeted sales fell short of expectations, and the progress of net profit restoration fell short of expectations.