Incident: The company released its report for the first quarter of 2024. In 2024, the company achieved operating income of 7.750 billion yuan, up 0.54% year on year, up 2.35% month on month; net profit to mother - 301 million yuan, up 54.59% year on year, up 2.16% month on month; deducted non-net profit - 563 million yuan, up 38.14% year on year and 31.76% month on month.

Q1 Revenue was basically the same year on month, and profit improved significantly year over year: in the first quarter of 2024, thanks to the gradual recovery of market industry sentiment, the company's main business profit continued to improve. By business, in Q1 this year, the company's automotive display business revenue increased by more than 40% year over year and more than 10% month over month; among them, LTPS technology automotive display product shipments increased by more than 200% year on year, and the automotive electronics business for leading international car companies achieved sales exceeding 100 million in a single month in March, and is expected to accelerate scale growth this year. In terms of AMOLED flexible mobile phone display business, TM17 flexible AMOLED mobile phone display revenue increased by more than 16% year over year and more than 10% month-on-month. Thanks to the more active demand from end customers, AMOLED flexible production line production capacity (TM17 and TM18) is expected to be further increased and released. In terms of profitability, the company's gross margin in Q1 2024 was 11.17%, +5.22pcts year on year; the company's net profit margin for the whole year was -3.92%, +4.67pcts year on year. In terms of expenses, the company's sales, management, R&D and financial expenses in the first quarter of 2024 were 1.14%/2.63%/9.70%/2.73%, respectively, with year-on-year changes of -0.03/-0.08/+0.26/+0.02pct, respectively.

Flexible OLED prices continue to recover, and AMOLED shipments are expected to grow rapidly in 24 years: Thanks to the release of production capacity in high-end technologies such as folding and LTPO and their application promotion in mainstream and flagship models, the structural growth trend of flexible AMOLED technology is obvious. From the supply side, the current production capacity layout for sixth-generation flexible OLEDs, which are mainly used in smartphone screen manufacturing in the industry, has basically taken shape, and the space for additional production capacity is limited. As demand for folding and LTPO products grows, the continuous development of new technologies (such as polarizer, Tandem, etc.) products is taking up mass production capacity, and flexible OLED technology is also gradually penetrating into mid-size fields such as automotive and IT. It is expected that the trend of tight production capacity for flexible OLED phones in the industry will continue for a long time. In the field of AMOLED flexible mobile phone displays, the company has achieved full coverage of mainstream domestic brand customers, and customer stickiness continues to increase. At the same time, the trend of improving product specifications is obvious, and high-end folding, HTD, and MLP products have achieved flagship model delivery. In the first quarter of this year, the two AMOLED flexible production lines (TM17 and TM18) operated and managed by the company maintained good operation. The company said that at present, demand for downstream flexible OLED mobile phone display products is strong, and product prices are still being repaired upward; it is expected that in 2024, the company's flexible AMOLED mobile phone product shipments will continue to grow rapidly and enter more high-end and flagship projects for brand customers.

The penetration of automotive LTPS technology is accelerating, and focus on the pace of micro LED production capacity release: Although the terminal vehicle market is facing pressure such as increased competition and price challenges, the automotive display market still has great potential for development thanks to the growing demand for new energy vehicles, the continuous increase in the penetration rate of intelligent cockpits, and the increase in demand for new scenarios. In the first quarter of 2024, the company's overall client demand increased significantly year-on-year, and the penetration rate of LTPS technical products accelerated, and the automotive display business showed good development vitality. Currently, the company's automotive display business products are mainly modules and have a high degree of customization; the company stated that it will continue to optimize product technical solutions and specifications, promote the penetration of LTPS technology into automotive products and product size upgrades, continuously improve the complexity and integration of product modules, help increase the value of automotive products, and continue to increase the proportion of high-value-added products. In addition, the company introduced advanced production capacity such as the 8.6th generation line (TM19) and the new display module production line (TM20), which was newly built into the automotive display business, will gradually enter mass production within this year. The Micro-LED production line in Xiamen, which uses automotive display as one of the important application directions, will also complete the entire process and have small-batch shipping capacity this year.

The 24-year profit forecast was raised, and the 25-26 profit forecast was raised to a “buy” rating: Looking forward to the future, thanks to the spread of 5G and AIoT technology, the extension of generative AI to various terminal applications, the rise of hybrid office models, and the promotion of environmental protection policies such as carbon neutrality, there are structural opportunities in the global display market. For example, the market penetration rate of high-specification display technology continues to increase, and the new application market represented by new energy vehicles continues to grow. We believe that as a global leader in LTPS mobile phone panels and in-vehicle displays, the company is expected to continue to improve the company's core competitiveness and profit level through production capacity expansion, production line optimization, and breakthroughs in new product research and development, opening up room for long-term growth, so it has been upgraded to a “buy” rating.

Based on the company's quarterly report data, and considering that the company's profitability improved better than expected, the 24-year revenue forecast was lowered and the 24-year profit forecast was raised. At the same time, considering the unanticipated recovery in consumer electronics demand, we lowered our revenue and profit forecast for 25-26 years, and estimated that the company's net profit from 2024 to 2026 was -510 million yuan, 335 million yuan, and 750 million yuan, EPS was -0.21 yuan, 0.14 yuan, and 0.31 yuan respectively.

Risk warning: Vehicle business development falls short of expectations, consumer electronics demand recovery falls short of expectations, market competition risks, and the impact of exchange rate fluctuations.