Incident: The company transferred 51% of the shares of the wholly-owned subsidiary Hong Kong Guangfeng. After the transfer, Hong Kong Guangfeng will no longer be listed. Previously, the company held 44% of GDC's shares through Hong Kong Guangfeng. The purpose of the transfer was to reduce the uncertainty GDC brought to the company's development.

Detailed interpretation of equity transfers: divestment of loss-making businesses

Why transfer GDC? GDC is mainly engaged in the digital cinema server (IMB) and cinema management system (TMS) business. In 2019, the company acquired part of GDC's shares for strategic collaboration purposes, and the current shareholding ratio is 44%. Since the arbitration dispute between GDC and the company occurred in '22, GDC's revenue declined, and profits turned into losses. GDC's net profit in '22 and '23 was -0.14 billion yuan and -027 million yuan, respectively, and there is a risk of continued loss. The company considers the decline in synergy in recent years, and this divestment will effectively control the impact of GDC losses on the company's performance.

Who is the transferee of the transaction? The transferee, LONG PINE, is 100% controlled by the actual controller of the company and constitutes a related transaction, but it does not constitute a major asset restructuring.

What is the transfer price, and does it result in additional profit or loss? The transaction was priced at US$0.1 billion (approximately RMB 0.7 billion), and the transfer was based on the book value of GDC's shares, with no additional impact on the income statement. However, the GDC divestment will reduce the risk of subsequent adverse effects on the company's performance.

Will the transfer of Hong Kong Guangfeng's shares affect the company's other businesses? ① The company will transfer assets under Hong Kong Guangfeng other than GDC to other corporate entities within the scope of the merger before delivery, without affecting the normal development of the company's overseas business. ② The cash obtained from this share transfer can be used by the company to further invest in growth businesses such as automotive and optimize the asset structure.

Optimizing the asset structure, the next step is to look at high-quality growth

Organize foreign investment and improve the quality of profits. The company initially focused on ALPD? It continues to expand multiple downstream applications and quickly complete early growth and scale improvement; at this stage, the company focuses on core businesses with space and growth, while at the same time focusing more on sorting out assets to improve the quality of growth. High-quality growth with increased profitability will be the main theme at this stage.

Core growth point: The automotive business has been contributing revenue in 24 years and has entered the fast track of growth. The company's automotive business has entered the harvest period, and the first targeted M9 has already entered the mass production delivery period. The company supplies cockpit displays for the M9. As of April 12, the total number of M9 units has exceeded 70,000 units, driving the company's automotive business to continue to increase this year. Looking ahead, the company still has targets in hand and will continue to be implemented: it has been announced that the targets include several leading customers such as BYD, Cyrus, and BAIC New Energy, as well as leading Tier 1 manufacturers such as Huayu Vision. We expect the number of fixed targets in the company to increase further in '24, the stock of targeted models will gradually be launched, and profitability is expected to continue to improve as the business gradually matures.

Strengthening basic disk stability: consolidating the quality of 2B and 2C services. ① The B-side cinema business has emerged from the haze of the epidemic and returned to a stable cash position. As of mid-April, ALPD? The number of laser projection light sources installed worldwide has exceeded 37,000, and the steady rise in installation volume has contributed steadily to the company's basic infrastructure. Furthermore, after launching the next-generation active projection technology VLED LED Cinema projection solution in 2023, Zhongying Guangfeng has successfully installed 8 solutions in domestic cinemas, opening up new profit growth points. ② The C-side business was previously affected by fluctuations in the downstream boom. Currently, Fengmi Technology has optimized the product structure, combined with downstream K-type consumer trends, focusing on products with high profit quality such as LCD micro-investment and laser TVs. C-side profit is expected to improve markedly in 24 years.

Investment advice: buy ratings

Looking ahead to 24, the profit quality of the company's traditional 2B and 2C businesses will be further improved compared to 23, while the growth curve of the automotive business continues to accelerate, and the business trend continues to improve. Looking at the Beijing Auto Show in the short term, it is expected to catalyze events and continue to focus on new breakthroughs in the automotive business.

The profit forecast is adjusted under the influence of upfront investment in short-term R&D expenses. The estimated profit for 23-25 is 1.0, 150, and 30 billion (previous values: 1.6, 2.6, and 4.1 billion), corresponding to PE89, 63, and 31x. Maintaining a buy rating

Risk warning: Vehicle performance falls short of expectations, the downstream boom in C-side business fluctuates, and short-term R&D investment increases