Incident: The company released its 2024 quarterly report. In 2024, the company achieved operating income of 45.888 billion yuan, up 20.84% year on year, down 4.46% month on month; net profit to mother was 984 million yuan, up 297.80% year on year, down 35.50% month on month; after deducting non-net profit of 597 million yuan, which significantly reversed losses year on year, down 30.58% month on month.

The revenue side grew steadily year on year, and the profit side improved sharply year on year: In Q1 of 2024, thanks to the recovery in the panel industry and the rise in prices of some panel products, the company achieved steady year-on-year growth in revenue, and profits improved sharply year on year. In terms of profitability, in Q1 2024, the company's overall gross margin was 14.48%, +7.64pcts year on year; the net profit margin was 1.05%, +4.30pcts year over year. Among them, the impact of the increase in gross margin on net profit was partially offset by a sharp decline in other earnings. In terms of expenses, the company's sales, management, R&D and financial expense ratios in Q1 2024 were 2.17%/3.17%/5.94%/0.42%, respectively, and the year-on-year changes were -0.26/-0.58/-1.07/-0.76pcts, respectively. Among them, the financial expense ratio and value both declined year on year, mainly due to the increase in net exchange earnings in the first quarter of 2024.

LCD product prices continue to rise, and the overall operating rate of the industry is rising steadily: in terms of product prices, the company said that in the first quarter of 2024, with the recovery of brand-side procurement demand, LCD TV panel prices experienced price stabilization in January and an overall rise in February. The price increase in March expanded markedly, prices continued to rise in April, and the price of medium to large panels continued to rise in May, and the increase narrowed; the upward trend in IT product prices began to show initial signs. Among them, desktop display products began to rise in March Since then, the prices of some size products have risen, rising across the board in April, and increased in May; the price of laptop products has risen slightly since late April. On the LCD demand side, due to the impact of sporting event stocking demand and high price increases expectations, terminal customer orders were released early; on the supply side, manufacturers always insisted on the “on-demand production” strategy. February was affected by the Spring Festival and New Year holidays, and the operating rate remained low. Boosted by the release of orders in March, the operating rate increased rapidly. The company pointed out that according to consulting agency data and analysis, the LCD industry's operating rate in April was around 80%, of which the LCD TV utilization rate was over 85%.

AMOLED shipments continued to grow, and the MLED business progressed smoothly: in 2023, the company's flexible AMOLED product shipments reached a record high, and shipments continued to increase year-on-year in the first quarter of 2024. The target shipment target for 2024 is 160 million pieces, an increase of more than 30% over the previous year. In July 2023, the company became a shareholder of Huacan Optoelectronics Holdings, completed the strategic integration of listed platforms, and achieved rapid layout in key areas of MLED chips. In terms of glass-based active drive direct display products, the company achieved mass production with Pitch 0.9 mm, and Pitch 0.5 mm to open up key processes and produce samples; in terms of backlighting, the company launched products for leading overseas customers, and the company achieved a business breakthrough in the field of glass-based high-end commercial display.

In addition, the number of the company's high-end IT and automotive projects increased by more than 50%; large-scale glass-based splicing products were mass-produced, and MLED glass-based high-partition product design verification was completed. While further consolidating its leading edge in LCD products and technology, the company invested in the construction of the 8.6th generation AMOLED production line and simultaneously developed the MLED business. This will help the company achieve wider technical coverage in the high-end IT field and further consolidate the company's overall leading position in the IT field.

Raise profit forecast and maintain “gain” rating: The company has a deep layout in the semiconductor display industry and has become a leading enterprise in the global semiconductor display industry. In 2023, the company maintained the number one shipment volume for mainstream LCD applications in the world, and many technologies and products achieved global launches; ADS Pro technology products sold nearly one million pieces in the high-end TV market; shipments of flexible OLED products increased dramatically year-on-year, achieved key breakthroughs in technology, and completed product introduction with self-developed platform technology. In addition, the company actively seized market opportunities, initiated the construction of the first 8.6th generation AMOLED production line in China, and continued to consolidate its leading position in the semiconductor display industry. The company said that according to the consulting agency's analysis and forecast, the reshaping of production capacity and stabilizing the industrial pattern will provide an opportunity for the healthy development of the panel industry, and 2024 is expected to be a turning point for the panel industry to break out of its trough.

Looking forward to the future, as consumer electronics demand recovers and panel prices rise, the company's profitability is expected to continue to recover; at the same time, benefiting from the continuous increase in OLED penetration and the rapid growth of the new display market such as MLED, the company is expected to open up room for performance growth through product restructuring and product performance optimization. Combined with the financial indicators of the company's quarterly report, considering that the company's profitability recovery was better than expected, the profit forecast was raised. We expect the company's net profit to be 4.712 billion yuan, 8.761 billion yuan, and 12.440 billion yuan respectively, EPS 0.13 yuan, 0.23 yuan and 0.33 yuan respectively, and PE is 33X, 18X, and 12X respectively.

Risk warning: Exchange rate risk, increased risk of market competition, risk of panel prices falling short of expectations, risk of downstream demand falling short of expectations.