Event: The company released its 2023 and 2024 quarterly results.

2023: Operating income of 1,020 million yuan, +50.16% year over year; net profit attributable to mother was 203 million yuan, +54.29% year over year; net profit without return to mother was 165 million yuan, +39.46% year over year.

2024Q1: Operating income of 143 million yuan, +7.55% year on year; realized net profit of 18.886 million yuan, or -35.39% year on year; deducted non-net profit of 5.4815 million yuan, -74.24% year on year.

Revenue from video processing equipment is growing rapidly, and overseas revenue is growing at a high year-on-year rate. In 2023, the company's major products achieved rapid growth, and gross margin increased dramatically. Among them, video processing equipment revenue was 498 million yuan (yoy +84.57%), gross margin was 63.77% (yoy+4.13pct); LED display control system - receiver card revenue was 363 million yuan (yoy +34.66%), gross margin 22.89% (yoy+4.71pct); CCN player revenue was 596.14,600 yuan (yoy+39.91%), gross margin was 56.18% (yoy+5.29pct). By region, the company's overseas revenue increased year-on-year in '23.

Overseas revenue in 2023 was 136 million yuan, up 94.50% year-on-year. Among them, North America accounted for 59.34% of overseas revenue, Europe for 20.63%, Asia for 13.13%, and other regions for 6.73%. Overseas gross margin reached 79.35%%. Benefiting from high-margin products and rapid revenue growth in overseas regions, the company's overall gross margin in 2023 was 48.08%%, +5.9pct year-on-year.

Actively expand sales channels and further enrich the product matrix. In 2023, the company's sales/management/R&D expenses rate was 11.57%/4.50%/10.31%, respectively, with a year-on-year change of 3.08/-1.07/0.72pct. In terms of sales, the company continues to increase the size of the sales team and strengthen talent training, actively expand sales channels, strengthen the construction of domestic and overseas marketing outlets, and at the same time arrange multiple exhibition activities on a global scale to increase the coverage of high-end products in overseas markets. In terms of R&D, the company continued to increase R&D investment and expand the R&D team, and R&D expenses increased 61.5% year on year. As of December 2023, the company had 445 R&D personnel, an increase of 71% over the previous year, accounting for 41.20% of the total number of employees. In 2023, the company launched innovative products such as the Mica industrial calibration system and the M10 self-developed chip, further consolidating the company's leading technology position in the industry.

Downstream inventory removal combined with the investment period put pressure on Q1 performance in the short term. In 24Q1, the company's revenue increased by 7.55% year on year. The reason for the slowdown in growth was mainly due to the company's strict control of channel vendor inventories. At the same time, expenses remained high during the period. Sales/management/R&D expenses rates were 18.15%/7.37%/20.90% respectively, up 4.74/0.49/7.64pct year-on-year respectively, mainly due to the company's continuous increase in marketing and R&D investment, and the combined increase in equity incentive costs.

Investment advice: Q1 has always been a low season for the industry, accounting for a small share of annual revenue. We believe that the high-definition industry trend in the video image industry will not change. The company is expected to achieve revenue of 1,487/21.42/3,038 billion yuan in 2024-2026, achieve net profit to mother of 3.01/4.67/698 billion yuan, and maintain a “buy” rating.

Risk warning: Downstream prosperity falls short of expectations, technology research and development falls short of expectations, and market competition intensifies.