The company's profitability increased, and net profit to mother increased 38% year over year in 2023. The company released its 2023 annual report, with revenue of 17.167 billion yuan (YoY +14.2%); net profit to mother of 1,588 billion yuan (YoY +38.6%); gross profit margin of 18.83% (YoY +1.82pct). Among them, 4Q23 had revenue of 4.480 million yuan (YoY +9.9%, QoQ -9.53%); net profit to mother of 317 million yuan (YoY +19.4%, QoQ -41.11%), gross profit margin of 20.58% (YoY +0.61 pct, QoQ +1.87pct).
The company's TV ODM shipments increased 25% year-on-year, and began accepting orders for complete Mini LED TVs. According to Lotu Technology's data, in 2023, the company's TV ODM shipped about 10.5 million units in the year, ranking third in global TV ODM shipments, with a year-on-year increase of 25%, the biggest increase among ODM factories. The increase was mainly due to overseas incremental orders. The company's overseas markets are mainly in North America, and have successively developed markets in Europe, Southeast Asia, South America, etc. In 2023, as the cost of Mini LED backlit TVs decreased and the penetration rate gradually increased, the company's TV ODM began to accept orders for complete Mini LED TVs. The company relied on the advantages of the Mini LED supply chain to help customers upgrade their products and accelerate the penetration rate of Mini LED TVs.
LED chip production and sales are leading the industry, and the chip product structure is optimized to enhance profitability. As of December 2023, the company's gallium nitride chip production capacity ranked second in the industry, and production and sales volume ranked first in the industry. The company is leading the chip miniaturization technology industry, which has led to a sharp decline in the cost of Mini RGB chips. Currently, the company's monthly shipments of Mini RGB chips are 10,000 KK groups. In terms of product structure, the company increased the price of LED chip products in the general lighting market in the second half of 2023, increasing the proportion of high-value-added products based on capacity release.
The company's COB shows continued expansion of production, and the coverage of point spacing has expanded. In 2023, the company's COB display application achieved revenue of 541 million yuan and net profit of 35 million yuan. The company's COB shows that the monthly production capacity increased from 10,000 square meters/month in December 2023 to 16,000 square meters/month in April 2024 (measured by P1.25 point spacing products). Judging from the penetration rate of LED display different technology paths, the penetration rate of COB technology is above 50% in the spacing below P1.25, and the P1.56-P2.5 spacing is still dominated by SMD. At the beginning of 2024, the company launched a new COB module suitable for P1.5-P2.5, and the penetration rate of P1.5-P2.5 gradually increased. In the COB display market, companies take P1.0 as the center and develop into the P1.0-P2.5 and P1.0 display markets. Subsequent virtual pixel applications will drive the cost of COB display panels from the technical side to drastically reduce the cost of COB display panels, and COB display products may penetrate into commercial display and home theater fields such as consumer-grade education screens and all-in-one conference machines.
Investment advice: We are optimistic about the steady growth of the company's TV ODM business, the increased penetration rate of Mini LED backlighting and COB displays, and the increased profitability brought about by the optimization of LED chip product structure. The company's net profit for 2024-2026 is 21.99/26.90/2,930 billion yuan (previous value 2024-2025 was 22.07/2,635 billion yuan), corresponding PE is 11.0/9.0/8.3 times, respectively, to maintain the “buy” rating.
Risk warning: demand falls short of expectations; market competition intensifies; raw material price fluctuation, exchange rate fluctuation risk.