With the expansion of the 2024Q1 automotive business, Fengmi's business continued to reduce losses, maintaining the “buy” rating. In 2023, the company achieved revenue of 2,213 billion yuan (-12.9%, same below), net profit to mother of 103 million yuan (-13.61%), and deducted non-net profit of 42 million yuan (-37.18%). 2023Q4 revenue was 563 million yuan (-15.42%), net profit attributable to mother - 25 million yuan (-190.34%), net profit after deducting non-net profit - 35 million yuan (-427.47%). 2024Q1 revenue of 445 million yuan (-3.04%), net profit attributable to mother of 45 million yuan (+226.21%), after deducting non-net profit of 101 million yuan (2023Q1 -11 million yuan). The household display business is under pressure. We lowered our 2024-2025 profit forecast and added a 2026 profit forecast. We expect net profit of 1.76/2.23/272 billion yuan for 2024-2026 (the original value for 2024-2025 was 2.51/368 million yuan), EPS was 0.38/0.48/0.59 yuan, respectively. The PE corresponding to the current stock price is 51.4/40.7/33.3 times, respectively. Looking ahead to the future, the company's vehicle/cinema business is expected to continue to perform well as the penetration of lasers increases At the same time, focus on reducing losses and improving performance in the Fengmi business, and maintain a “buy” rating.

The cinema/vehicle business continued to perform well. Under internal business adjustments, Fengmi reduced the 2023 core device and machine business revenue of 2.01 billion yuan (-12.99%) under internal business adjustments. The cinema business is developing well, and the home display business phase is under pressure. In terms of specific business segments: (1) The automotive business received 6 front-mounted fixed points in 2023. The 2024Q1's first fixed-point model, the M9, entered the intensive mass production and delivery stage. The 2024Q1 automotive optics business had revenue of 48 million yuan, and automotive business orders gradually increased. (2) Cinema business: Achieved revenue of 369 million yuan (+37.24%) in 2023. The 2024Q1 cinema business had revenue of 153 million yuan (+21%), and the positive demand in the domestic TV market drove the company's cinema business to continue to perform well. (3) Fengmi Technology: Demand for household displays is relatively weak. In 2023, Chongqing Fengmi's revenue was 766 million yuan (-34%), and net profit - 190 million yuan. In 2023, the business and personnel structure were actively adjusted, and expenses were controlled and optimized. 2024Q1 losses decreased by 15 million yuan year-on-year.

Under continuous optimization and control of expenses, the 2023Q4-2024Q1 expense ratio improved markedly by 36.22% (+3.58pct) in 2023, or mainly an increase in the share of high-margin cinema business.

2023Q4/2024Q1 gross profit margin 30.63% (-5.5pct)/32.44% (-2.93pct). On the cost side, the cost rate for the 2023 company period was 32.5% (+1.75pct), and the expense ratio for the 2023Q4/2024Q1 period was 36.22% (-2.61pct)/30.12% (-6.66pct), respectively. In 2023, sales/management/R&D/finance expense ratios were +0.41/-0.52/+2.38/-0.52 pct year on year, 2023Q4 was -5.7/+2.18/+2.09/-1.18 pct year on year, and 2024q1 was -3.15/-0.41/-1.68/-1.41 pct year on year, respectively. 2023Q4-2024Q1 continued to optimize costs, and the cost reduction effect was obvious. Under the combined influence, the company's net interest rate due to mother in 2023 was 4.66% (-0.04pct), after deducting the non-net interest rate of 1.88% (-0.67pct). 2023Q4 attribution/deduction of non-net interest rates were -4.51% (-8.73pct)/-6.19% (-7.79pct), respectively,

The 2024Q1 attribute/deducted non-net interest rate was 10.01% (+7.03pct)/0.14% (+2.62pct), respectively.

Risk warning: Demand for home displays continues to be under pressure; automotive business expansion falls short of expectations; industry competition intensifies, etc.