1Q24 revenue and net profit to mother both declined year-on-year, maintaining an increase in holdings

The company disclosed its 2024 quarterly report. The company achieved revenue of 2,284 billion yuan, -2.5% year-on-year, and net profit to mother of 106 million yuan, or -9.51% year-on-year. We maintain our 24-26 EPS forecast of 0.66/0.74/0.82 yuan. As of 2024/4/23, the company's average PE for 2024 is 22x. The company's emerging automotive display and VR equipment is in the phase of volume growth, but in the short term, it was dragged down by exports from traditional main businesses, and revenue growth fluctuated. We gave the company a 2024 22xPE valuation, maintained a target price of 14.52 yuan, and maintained an “gain” rating.

First-quarter revenue may be disrupted by exports

The company's 1Q24 revenue is weak. We think it may be mainly hampered by overseas business. According to customs data, the 1Q24 digital TV set-top box industry's export volume/value was -33.9%/-38.7%, respectively. Against this background, although the company has strong R&D and technology accumulation in the smart terminal field and has cooperated with domestic and foreign operators, short-term export expectations are still fluctuating. Considering that the company has a long-term foundation of global cooperation and a large number of regional knowledge methods, we are still optimistic about the long-term growth of the company's overseas smart terminal and broadband connection business.

Emerging businesses are growing or more prominent

In terms of emerging businesses: 1) In 2023, the automotive display business continued to receive 20 key project targets from core customers, adding new targets for FAW Pentium, Changan Avita, and Geely Galaxy series products, and simultaneously obtaining entry and project targets from two leading independent OEMs and mainstream domestic car manufacturers. We expect that the new project will continue to release revenue growth and maintain high growth over 24 years. 2) In terms of virtual reality VR/MR/AR solutions and terminals, the company has expanded a number of important overseas B-side customers in 23 years, and we expect related orders to be actively presented in 24 years.

Gross margin weakened in the first quarter compared to the same period last month

Due to the month-on-month increase in raw material prices and changes in the domestic and foreign sales structure, the company's gross margin fluctuated. The company's gross margin for 1Q2024 was 14.74%, -2.19 pct year-on-year, and -2.0pct month-on-month.

Expense rate decreased year over year

The overall cost ratio of the 1Q2024 company for the period was -0.32pct year over year. Among them, the sales expense ratio was -0.44pct yoy, the management expense ratio was +0.27pct yoy, the R&D expense ratio was -0.64pct yoy, and the financial expense ratio was +0.49pct yoy (affected by the decrease in interest income).

Risk warning: Increased competition in the industry; adverse fluctuations in raw material costs; decline in export demand.