Report summary:

Rainbow Display Devices Co., Ltd. was founded in 1992 and listed on the Shanghai Stock Exchange in 1996. It is mainly engaged in R&D, production and sales of glass substrates and LCD panels, and has an 8.6-generation LCD panel production line. In 2023, the company achieved operating income of 11.465 billion yuan, a year-on-year increase of 27.86%, of which the LCD panel business achieved revenue of 10.168 billion yuan, a year-on-year increase of 31.52%, and the substrate glass business achieved operating income of 1,193 billion yuan, an increase of 33.04%; in 2023, the company achieved net profit of 661 million yuan, reversal of losses over the previous year; in 2023, the company's gross sales margin was 14.95%, up 36.91 pcts year-on-year, and net sales The interest rate was 5.80%, up 35.49pcts year-on-year;

With the optimization of the competitive pattern of LCD panels, the industry will usher in an upward cycle. LCD panel prices entered a 2-year cycle of decline after reaching a high in 2021. The entire industry generally lost money, and the South Korean manufacturer Samsung officially withdrew from the LCD industry in 2022. Looking at the supply side, according to Omida statistics, Chinese manufacturers BOE, TCL Technology, and Huike currently account for nearly 75% of the production capacity of the world's 8-generation and above production lines. Consulting agency CINNO said that South Korean manufacturer LG is preparing to sell its 8.5-generation line factory in Guangzhou to mainland manufacturers in the first half of 2024, and Sharp Japan's SDP Sakai 10th generation line factory is preparing to close in the first half of 2024 due to perennial losses, and the industry competition pattern continues to be optimized; from the demand side, production lines of generation 8 and above are mainly used to produce TV LCD panels. According to Lotu Technology data, global TV shipments in 2023 are at a low level of nearly 10 years. As the Federal Reserve is expected to shift from interest rate hikes to interest rate cuts in 2024, the US real estate market will stabilize, and Europe will host major sporting events such as the Olympics and the European Cup in 2024, which will drive a rebound in TV sales. At the same time, TV sales will continue to rebound. The average size of TV sales in 2024 is expected to increase 0.7 inches from 2023 to 51.1 inches, which will further drive the steady growth of LCD panel shipping area. Leading manufacturers will continue to control production and stabilize prices during the off-season, and the supply pattern will continue to be optimized as demand recovers, and the company will enter a period of continuous growth; high-generation production of substrate glass will be put into operation, and localization of the industry will accelerate. As the only enterprise in the global flat panel display industry with the “substrate+panel” upstream and downstream linkage effect, the company has achieved high-generation (G8.5+) industrialization, and substrate glass has become the main supplier for some domestic panel manufacturers. In 2023, the scale of the company's substrate glass industry was further expanded. Currently, 10 production lines are operating steadily. The Hefei base completed the second phase of the G8.5+ substrate glass project, and the first G8.5+ substrate glass production line at the Xianyang base was ignited and quickly transferred to production and operation, laying a solid foundation for further market expansion.

First coverage, giving a “buy” rating. The company's revenue for 2024-2026 is estimated to be 132.94/147.67/16.070 billion yuan, net profit to mother is 11.50/17.44/2,460 billion yuan, respectively, and the corresponding PE is 22.12/14.59/10.34, respectively.

Risk warning: downstream TV sales fall short of expectations; LCD panel price increases fall short of expectations