CIS technology is leading the world, opening a new round of growth curve through the cycle: the company's smartphone CIS leads the world in indicators such as low power consumption and wide dynamic noise reduction, and has invested in R&D to further accumulate technology and build up the core competitiveness of products to help the company go through the cycle and return to growth. Following the company's release of 48M fist products in 2019 and the release of 64M blockbuster products in the first half of 2020, the new 50MP series of 23Q3 products achieved mass production and delivery, and surpassed the rear main camera for models over 4,000 yuan. At this point, the company has completed the layout of rear main camera products for a full range of models. In 2023, more than 60% of the CIS phones are 50MP and above products. Looking back at the company's quarterly performance elasticity after breakthroughs in blockbuster products in the past, we believe that the gradual upgrade of 50MP series chips (including OV50H-high-end flagship rear camera/OV50K-LOFIC technology world leader/OV50D, etc.) and rear configurations such as mobile phone backup cameras to 50MP will help the company return to the growth track through the cycle. In the automotive CIS field, it continues to lead the industry. The 8M pixel penetration rate is increasing year by year. Relying on the far leading position of domestic NEVs in the global market, it is expected that it will continue to achieve a high growth rate.

CIS industry inventory has returned to normal, and the company's 24Q1 profitability has improved markedly: According to Samsung's recent performance briefing and our industry research, CIS has experienced low gross margin price reductions over the past year, and industry inventory has basically returned to normal. The company has actively removed inventory over the past period, and inventory has returned to a very healthy level. On the supply side, Hynix has withdrawn from the low-end market. The high-end market production capacity is being squeezed by HBM, and the supply-side pattern is gradually being optimized. The demand side gradually eased, and most product prices began to rise from the bottom. 24Q1 achieved net profit of 558 million yuan. The gross margin was 27.89%, up 4.91 percentage points from last year's Q4. We believe that relying on the company's continued leadership in products and technology, it is expected to help the company continue its 24Q1 profitability growth trend.

The touch display business is gradually improving, and the analog product line is becoming richer: the company has achieved full product coverage in the field of touch display (TDDI), while also laying out automotive TDDI products. In the OLED field, the company cooperated closely with leading panel manufacturers in China to successfully develop OLED DDIC suitable for smartphones; with the gradual commissioning of domestic OLED production lines, the company's OLED DDIC is expected to usher in more opportunities for introduction. Through continuous mass production of original TED products and introduction of new products for brand customers, the company is expected to obtain more mass production opportunities in customer laptop display projects. The company's power management chip product portfolio has covered various applications in consumer electronics products and the Internet of Things. At the same time, it has acquired Xinlitel to add a new automotive analog IC product line. As the analog product layout continues to be rich, the company's system-level solutions are becoming more and more mature, and product competitiveness is further enhanced.

Profit forecast and investment advice: We maintain our previous performance forecasts. It is estimated that in 2024-2026, the company's revenue will be 280.84/327.17/38.50 billion yuan, respectively, with growth rates of 33.6%/16.5%/16.3%, respectively, and net profit to mother of 33.08/45.19/5.850 billion yuan, respectively, with growth rates of 495.4%/36.6%/29.5%, respectively; PE 37.9/27.7/21.4, respectively. Weir Co., Ltd. adheres to the “3+N” product layout strategy and has achieved full range coverage in the CIS product matrix. Various core technologies continue to be refined to provide ultra-high quality imaging and enhance the core competitiveness of products; with the gradual release of domestic OLED panel production capacity, the touch and display business is expected to contribute new impetus to performance growth; the analog business product layout continues to be rich, providing system-level solutions. Continued recommendation, maintaining a “buy-A” rating.

Risk warning: Risk of industry and market fluctuations; risk of new technologies, new processes, and new products not being industrialized as scheduled; risk of market competition; risk of information lag in the data quoted in the report.