The rebound in mobile phone customer demand led to a recovery in sales: Thanks to demand for mobile phone TFT LCD modules, Huaxian Optoelectronics (00334.HK) TFT LCD module chain sales and processing business both recorded positive growth in the third and fourth quarters of 2023. In 2023, the Group's main customer was a mobile phone manufacturer. Its order volume during the downturn last year remained consistent, partly offsetting fluctuations in the order volume of other customers, and the revenue contribution of this customer increased to more than half of the total revenue.

At the same time, the customer's order volume and order visibility remained stable in the first quarter of 2024, bringing significant growth to the Group in the first quarter of 2024 under a low base.

Display modules for tablet and smart home products led to an increase in average sales prices: the increase in average sales prices was mainly due to changes in product combinations. In particular, after the Huaxing Optoelectronics T9 factory was put into operation, it was possible to supply custom-sized panels for the group, and the panel sizes previously purchased by the Group were not able to be customized according to requirements. Thanks to the support of Huaxing Optoelectronics, the Group was able to purchase panels of the right size from Huaxing Optoelectronics according to the customer's specified requirements, bringing the possibility of expanding the tablet display module business for Huaxin Optoelectronics (00334.HK). We believe that the contribution of the tablet display module was one of the main factors in the increase in the Group's average sales price in the fourth quarter of 2023. Furthermore, in 2022, the Group acquired Kedat Smart Display Technology to help the Group sell mid-size display modules and related software to consumer electronics customers.

The second half of the fiscal year of 2023 changed, but investors' requirements may be higher: in the second half of 2023, the gross margin of Huaxian Optoelectronics (00334.HK) was 6.5%, down about 1.4 percent from the first half of 2023. The decline in gross margin was mainly affected by changes in product combinations. Higher average sales prices brought better gross profit to the group, but the gross margin of the tablet and smart home product segments was relatively low. As the revenue contribution of these products is expected to increase further, we expect the Group's gross margin to remain at a lower level. Huaxian Optoelectronics (00334.HK) realized net profit and operating profit of RMB 13.086 million and RMB 18.347 million separately in fiscal year 2023, reversing losses in the first half of fiscal year 2023. The improvement in profit levels was mainly due to cost control measures in the second half of fiscal year 2023, which effectively controlled operating costs, including labor costs. At the same time, since derivative financial instruments are no longer being renewed, this year's forecast is that there will be no further large losses due to derivative financial instruments.

We can definitely see that the operating conditions of Huaxian Optoelectronics (00334.HK) have improved, but we believe investors need more evidence to maintain an optimistic attitude. The Group's low gross margin is still what we are most concerned about, weakening the Group's ability to resist market fluctuations. Furthermore, the market for TFT LCD modules is extremely mature, so that horizontal development is beneficial to moderately increase the profitability of the group, but a source of motivation that can give the group long-term investment value is even more important.