Net profit to mother increased 127% year over year in 2023. The company's revenue for 2023 was 7.410 billion yuan (YoY 4.73%), net profit not attributable to mother was 144 million yuan (YoY 127.06%), net profit not attributable to mother was 153 million yuan (YoY 187.10%); of these, 4Q23 revenue was 2,341 million yuan (YoY 8.37%, QoQ 32.26%), net profit attributable to mother -47 million yuan (year-on-year loss of 144 million yuan, month-on-month loss of 0.16 million yuan), net profit without return to mother was -0.69 million yuan (year-on-year loss of 135 million yuan). (A loss of 0.25 billion yuan compared to the previous month). 2023 gross profit margin 28.80% (YoY 2.00pct), 4Q23 gross profit margin 27.32% (YoY 2.09pct, QoQ -1.48pct).

Revenue and profit for the first quarter of 2024 are under pressure. The company's 1Q24 revenue was 1,492 billion yuan (YoY -8.31%, QoQ -36.27%), mainly due to the increase in the share of orders from major customers, high initial delivery standards, and extended shipping cycles. 1Q24 gross profit margin of 32.31% (YoY 0.17pct, QoQ 4.99pct), net profit to mother of 0.19 million yuan (YoY -86.56%, month-on-month reverse loss), net profit after deducting net profit of 0.09 million yuan (YoY -93.55%, month-on-month reverse loss), mainly due to: 1) loss of 40.93 million yuan in gross profit due to declining sales; 2) loss of 44.26 million yuan in investment income confirmed by the equity law; 3) sales management and research expenses increased by 44.27 million yuan.

New orders and orders in hand at the end of the period are in good condition. Judging from the order situation, the company received new orders of 7.031 billion yuan in 2023, with orders in hand at the end of the 2023 period; 1,743 billion yuan of new orders in the first quarter of 2024, an increase over the previous year; active orders reached 2,424 billion yuan at the end of the first quarter of 2024.

Comprehensively promote COB and MIP technology routes, and actively deploy Mini/Micro production capacity. The company achieved full coverage and large-scale mass production of Mini/Micro LED products from P0.3-P1.8 products, successfully developed MIP lamp beads 0404 and achieved mass production of modules, opened up key steps in 0202 device manufacturing with self-developed substrate-free packaging technology, and promoted continuous rapid reduction in product costs. The total production capacity of the company Smart Display has reached 20,000 KK/month, of which Mini LED production capacity is 3000 KK/month; Mini/Micro LED production capacity is scheduled to be expanded to 10,000 KKK/month by the end of 2024 (COB production capacity 4000 KK/month, MIP production capacity 6000 KK/month).

Released “AI+ multi-display terminal” technology and strategically laid out the LED+AI field. The company launched an LED+AI multi-product matrix, and the AI application obtained official GPT-4 access license, and carried out various collaborations with leading companies such as Microsoft, Dell, Baidu, and iFLYTEK. The digital human solution already has star IPs such as Qi Xiaowei and Mark Cat to create a full-link digital broadcast solution of “LED hardware+digital assets+virtual system+animation+AI”.

Investment advice: Adjust performance expectations and maintain a “buy” rating. Considering that LED demand at home and abroad remains resilient, the company's overall operating quality has been steadily improving; based on expenses and impairment during the period, we adjusted the company's performance expectations. We expect the 2024-2026 revenue to increase 8.4%/12.1%/14.0% year on year to 80.33/90.06/10.265 billion yuan (previous value: 80.09/9.065 billion yuan), and net profit to mother increased 95.1%/32.2%/28.8% year on year to 2.82/3.70 billion yuan (previous value 3.50/4.50) 100 million yuan). The current stock price corresponding to PE is 22.0/16.6/12.9, respectively, maintaining a “buy” rating.

Risk warning: Demand falls short of expectations, risk of impairment of goodwill, risk of exchange rate fluctuations, and increased market competition.