Incident: The company released the 2023 annual report and the first quarter report of 2024. In 2023, it achieved operating income of 1,020 million yuan, an increase of 50.16% over the previous year, and achieved net profit of 203 million yuan, an increase of 54.29% over the previous year.

The first quarter of 2024 achieved operating income of 143 million yuan, an increase of 7.55% year on year, and realized net profit to mother of 19 million yuan, a year-on-year decrease of 35.39%. High growth was achieved in 2023, and 2024Q1 performance was under pressure in the short term.

Gross margin has increased dramatically, and the advantages of high-end and large-scale products have been highlighted. In 2023, the company's comprehensive gross margin reached 48.08%, up 5.90 pcts year on year. Among them, the gross margins of receiving cards, video processing equipment, and cloud network players increased 4.71 pcts, 4.13 pcts, and 5.29 pcts, respectively. We believe that the company has increased its R&D efforts to launch high-end products, and the average unit price has increased; at the same time, the advantages of large-scale product volume have been highlighted, and upstream bargaining capacity for chips and components has increased, and raw material prices have declined.

We expect that as 4K displays become mainstream and 8K gradually penetrates, the trend of high-end video equipment will continue, and prices are expected to continue to rise.

Video equipment has grown in volume, and the globalization strategy is beginning to bear fruit. In 2023, the company's video processing equipment revenue increased 84.57% year on year, accounting for 48.85% of the company's total revenue; the company's overseas revenue increased 94.50% year on year, accounting for 13.38% of the company's total revenue. Since the company's overseas revenue is mainly based on video equipment, the growth rate has basically converged. In 2023, the company strengthened the construction of marketing outlets at home and abroad, and at the same time arranged many training activities, promotion meetings, and well-known LED exhibition activities on a global scale. While maintaining good cooperative relationships with many well-known customers, the company continued to explore potential high-quality customers at home and abroad, increase the coverage of high-end products in overseas markets, and the global strategy is beginning to bear fruit.

Expand the recruitment of R&D personnel and continue to enrich the product matrix. In 2023, the company's R&D personnel reached 445, up 71.15% year on year; in 2022 - 2023, the proportion of R&D personnel increased from 31.71% to 41.20%; in 2023, the number of master's degree students reached 62, an increase of 106.67% year on year. The company is strengthening the recruitment of highly educated R&D personnel, which shows that the company is optimistic about the market prospects of high-end products and accelerates technology iteration. In 2023, the company launched Mica intelligent core testing equipment to achieve intelligent and unmanned management of the entire MLED display correction process; launched the M10 self-developed chip to improve the display effect in various aspects such as grayscale, uniformity, and color, meet the integrated and intelligent development needs of the LED industry, and continue to enrich the product matrix.

Investment proposal: The company is a leader in video image display control in China, the core of the LED card industry. With video processing technology, it will quickly deploy video processing equipment for new products at home and abroad. We predict that the company will achieve revenue of 1,460, 20.75, and 2,909 billion yuan in 2024-2026, and achieve net profit of 3.04, 4.69, and 719 million yuan, corresponding to PE of 19x, 12x, and 8x, maintaining the “plus” rating.

Risk warning: Overseas expansion falls short of expectations; progress in technology implementation falls short of expectations; government expenditure falls short of expectations.