Incident: The company released its 2023 annual report and the first quarter report of 2024. In 2023, the company achieved revenue of 2,512 billion yuan, an increase of 11.07% over the previous year; realized net profit of 230 million yuan, an increase of 22.27% over the previous year; deducted non-net profit of 169 million yuan, an increase of 7.15% over the previous year. In Q1 2024, we achieved revenue of 644 million yuan, up 19.88% year on year and 2.95% month on month; realized net profit of 73 million yuan, up 25.42% year on year and 50.60% month on month; realized deducted non-net profit of 47 million yuan, up 5.01% year on year and 28.85% month on month.

Benefiting from the recovery in consumer market demand, there has been a steady increase in performance in 23 years: benefiting from the slow recovery of the terminal consumer market, the booming development of new energy vehicles, and the rapid increase in the market penetration rate of miniLED products, the company's comprehensive revenue achieved steady growth in 2023. While promoting the healthy development of the core business, it also ensured a steady increase in the overall gross margin of the product. The company's gross margin in '23 was 25.68%, +1.48pcts year on year; of these, the gross margin of LED products was 27.39%, +2.09pcts year on year. Net margin was 9.13%, +0.56pcts year over year. The company's gross margin in Q1 in '24 was 24.42%, -0.05pcts year on year, -1.09pcts; net margin was 11.46%, +0.57pcts year on year, and +4.16pcts month-on-month. In terms of expenses, the company's sales, management, R&D, and financial expenses in '23 were 2.86%/5.31%/6.07%/0.55%, respectively, with year-on-year changes of -0.01/-0.19/+0.51/+1.45pcts, respectively. The company's financial expenses in 2023 were 137.623 million yuan, an increase of 167.36% over the previous year, mainly due to the company's high foreign currency exchange earnings in 2022.

Optimistic about the penetration of MiniLED technology applications, the automotive LED business is showing impressive performance: According to the Gaogong LED Research Institute, the miniLED market is expected to exceed 40 billion yuan by 2026, and the compound annual growth rate will be as high as 50% in 2020-2026. According to Astute Analytica, the MiniLED market will reach US$9.343 billion in 2027, with a compound growth rate of 78.3% in 2021-2027. In 2023, the company continued to increase investment in R&D and achieved remarkable results: 1) Automotive-grade backlight LEDs entered the world's major automotive module supply chain system, and automotive-grade exterior lighting LEDs entered the supply chain system of many OEMs including BYD Auto, SAIC Motor, GAC Group, Changan Automobile, Geely Automobile, Chery Holdings, JAC Motors, Great Wall Motor, etc., and reached in-depth cooperation with many important domestic Tier-1 car lamp manufacturers such as Huayu Vision, Jiali Co., Ltd., and Jinye Group. 2) The company provided leading customers with self-developed miniLED backlighting solutions such as the world's first 20,000 partitions and the world's first 4000+ partitions. 3) The company has achieved mass production of several automotive-grade MiniLED light panel projects. For example, all ideal models use the company's MiniLED products. 4) The company's self-developed MiniLED light panels for vehicles have completed vehicle sample verification at a number of customers. Multiple exterior MiniLED direct display COB projects have been mass-produced, including the Asian Games special Geely England LEVC TX5 automobile project. It is the first outdoor Mini COB direct display interactive screen in the industry.

Horizontal and vertical expansion opens up room for growth and continues to pay attention to new business developments: in 2023, the company's business achieved horizontal expansion: the company's infrared products have been used in smart wearables, 3D sensing, biometrics, medical equipment monitoring, medical and aesthetic fields; the company has established close cooperative relationships with many first-tier brand terminals and solution providers in the smart wearable industry to provide a full range of LED and PD for smart wearable products; the company's VCSEL products have made breakthroughs in the consumer electronics, laser sensing, security monitoring, and three watch markets, etc. Mass-produced on food robots and sweeping robots; the high-speed photocoupler products launched by the company have been promoted in the fields of industrial control, consumer electronics, automotive, etc., and strategic cooperation agreements have been signed with customers. While developing and expanding its main LED business, the company is strengthening collaboration with upstream and downstream resources and actively developing new businesses. In the optical film business, the company focuses on developing high-performance products for laptop computers and car machines. With the smooth supply of high-end products, the customer structure is further diversified, and the market share of products in small and medium-sized application terminals has further increased.

Maintaining the “gain” rating: In 2023, the company's traditional LED business achieved steady growth, strengthening the company's leading position in the domestic backlight market; the company's emerging businesses, such as automotive backlight LED products, have entered the supply chain systems of major global customers, and automotive lighting has also entered the supply chain of many OEMs.

At the same time, the company's horizontal and vertical business is progressing smoothly, and the momentum for performance growth is strong. Considering that the company's performance growth rate in 2023 fell short of our expectations, and as LED technology routes matured and market competition intensified, the 2024-2025 forecast was lowered. The company's net profit for 2024-2026 is expected to be 281 million yuan, 373 million yuan, and 465 million yuan respectively, EPS 0.21 yuan, 0.28 yuan, 0.35 yuan, and PE is 24X, 18X, and 14X respectively.

Risk warning: New LED product introduction falls short of expectations, new business development falls short of expectations, market competition risk, technological innovation risk.