Key points of investment
The company publishes the 2023 Annual Report and the First Quarter 2024 Report.
The 24Q1 performance showed a high year-on-year increase. AMOLED's share increased steadily in 2023. The company achieved revenue of 1,629 billion yuan, up 23.71% year on year; net profit to mother was 372 million yuan, up 22.59% year on year; net profit after deducting non-return to mother was 340 million yuan, up 25.29% year on year; and gross profit margin of 35.72%.
The increase in annual performance is mainly due to the rapid penetration of AMOLED products in smart phones and other fields; in 2023, AMOLED accounted for about 20% of the company's revenue, showing a gradual upward trend.
24Q1 achieved revenue of 443 million yuan, up 43.74% year on year; net profit to mother of 76.69 million yuan, up 150.51% year on year; net profit without return to mother of 73.12 million yuan, up 169.05% year on year; gross margin increased 5.28 percentage points year on year to 33.77%; and net margin increased 7.38 percentage points year on year to 17.30%.
Display testing: Successfully developing the Japanese and South Korean markets, the production capacity of the Hefei factory climbed steadily. In 2023, the company's display driver chip packaging and testing revenue was 1,463 billion yuan, up 25.29% year on year; gross profit margin was 36.43%, down 4.28 percentage points year on year. The company is the highest-grossing display driver chip packaging and testing company in China, and ranks third in the global display driver chip packaging and testing field. The company already has the most advanced 28nm process display driver chip sealing and measurement production capacity in the industry; the forward-looking “125mm large-format crystal coating technology” can exponentially increase the number of pins in the packaged chip and is suitable for high-end smartphone AMOLED screens. Furthermore, the company shows that the sealed testing business has successfully entered the Japanese and Korean markets.
The initial production capacity of the Hefei plant, which focuses on the 12-inch wafer sealing and testing business for display driver chips, is about 10,000 pieces/month for bump and wafer testing, and about 30 million crystal-coated films (COF) per month. Construction of the plant was completed in August 2023, and commissioning began in September 2023. Customer certification was carried out in 23Q4 and mass production began in 2024. The production capacity climbing period is expected to be 3-6 months. Currently, there are more than 150 fertilizer companies in the display industry, including leading companies such as BOE, Vicino, Corning, Rainbow LCD, Crystal Integration, Qizhong Technology, and Vision Technology. With the gradual release of production capacity at the Hefei plant, the company can make full use of the advantages of the Hefei Display Industrial Cluster, and the scale of production and sales is expected to increase dramatically.
Non-display package testing: The second growth curve is becoming more mature. Actively expanding to the upper end of the value chain, the company's non-display chip sealing revenue in 2023 was 130 million yuan, up 8.09% year on year; gross profit margin was 31.65%, up 1.69 percentage points year on year; the revenue share was 7.97%, and the company aims to reach 30% of non-display business revenue within five years. The company actively lays out back-end processes for non-display businesses and expands to the upper end of the value chain. In the future, the company's Suzhou plant will focus on expanding non-display products, such as power management chips, RF front-end chips, and second-generation and third-generation compound semiconductors. By the end of 2023, the investment progress of the high-density micro-sized bump packaging and testing technology transformation project in Suzhou by Qizhong had reached 31.53%, which is in line with the planned schedule.
Investment advice: In view of the rapid penetration of AMOLED products in various fields and the smooth progress of the company's projects, we adjusted the original performance forecast for the company. From 2024 to 2026, the company's revenue is estimated to be RMB 2,037/25.62/32.39 billion (the original forecast value for 24/25 was RMB 20.37/RMB 2,445 million), with growth rates of 25.0% /25.8/ 26.4%, respectively; net profit to the mother was RMB 481/6.43/888 million (the original forecast value for 24/25 was RMB 481/600 million), respectively; growth rates were 29.5%/33.5%/36.6%, respectively; PE was 25.2/18.9/ 13.8.
The company's Hefei plant can make full use of the synergetic advantages of the Hefei display industry cluster. At the same time, the second growth curve does not show that the business is becoming more mature. As production capacity gradually climbs and downstream terminal demand gradually recovers, there is sufficient momentum for future growth. Continued recommendation, maintaining a “buy-A” rating.
Risk warning: the risk that demand in the downstream terminal market falls short of expectations, the risk that new technology, new processes, and new products will not be industrialized as scheduled, the risk that market competition will intensify, the risk that production capacity expansion will fall short of expectations, systemic risks, etc.