All-color LED chip leader, endogenous epitaxial begins a new journey Qianzhao Optoelectronics is the leading LED epitaxial chip leader in China. In recent years, it has entered Mini/Micro LED and other fields to open up new tracks. Qianzhao Optoelectronics was founded in 2006 and listed on the Shenzhen Stock Exchange in 2010. Since its establishment, the company has continued to be deeply involved in the LED industry and is the leading company with the highest share of the domestic red and yellow chip market. After Hisense took a share in 2022, it joined hands with Hisense to open up a long-term growth channel for Mini/Micro LED.
LED direct display has entered an upward channel and mini/micro-LED has accelerated development. With the support of Hisense, a new journey of economic recovery has brought about a recovery in terminal demand. The gradual implementation of new display technologies and emerging applications centered on small-pitch direct display and Mini/Micro LED has become a new direction for the LED industry to grow. The small-pitch LED direct display market will usher in a new round of upgrades in technology and application fields. As demand for cloud office/education, re-display and collaboration gradually increases, demand for all-in-one LED displays continues to grow in enterprises and education markets; at the same time, as virtual reality applications centered on MR and VR equipment continue to be implemented, and forms of home video and entertainment diversification, virtual reality, home theaters, and even cinemas are in urgent need of more high-end display technology; with the gradual recovery of commercial activities, demand for shopping mall advertising, tourism, and large-scale cultural and artistic activities continues to rise. It is also increasing, and the demand for small-pitch LEDs has further strengthened as a result. As the LED display industry continues to shrink in spacing and continue to expand in applications, Qianzhao Optoelectronics is expected to continue to develop rapidly as a leading domestic LED direct display chip company, and overall profitability is expected to further increase. At the same time, with the continuous optimization of industrial costs and the continuous advancement of brands, the increase in the penetration rate of mini-LED is already a general trend. Trendforce expects the shipment volume of Mini LED backlit TVs to reach 24.4 million units by 2027, reaching a penetration rate of about 12.1% in the overall TV market. Hisense is the number one domestic and second leading TV brand in the world, and continues to increase investment in mini-LED TVs. It is expected that in the future, they will join hands with Qianzhang Optoelectronics to embark on a new journey of new displays.
The space economy is a sea of stars. Gallium arsenide solar cell epitaxial sheets light up space-based energy low-orbit satellite technology is at the forefront of a new round of space revolution, and its development prospects are broad and full of potential. As technology continues to mature and costs are reduced, low-orbit satellite networks are expected to achieve high-speed Internet access around the world, provide stable network services to remote areas, and narrow the digital divide. At the same time, low-orbit satellites have broad application prospects in various fields such as military communications, Earth observation, the Internet of Things, and aviation navigation. It is expected that in the future, low-orbit satellites will complement terrestrial communication technology such as 5G to jointly build an efficient and reliable global communication network with seamless coverage. Furthermore, with the addition of commercial space companies and the gradual improvement of space regulations, the deployment and operation of low-orbit satellites will be more standardized, promoting the vigorous development of the space economy. The company is a leading supplier of gallium arsenide solar cell epitaxial wafers in China. In recent years, shipments of gallium arsenide solar cell epitaxial wafers have continued to increase rapidly.
In terms of commercial aerospace, gallium arsenide solar cell epitaxial wafers will continue to lead product performance and adapt to the rapid development of the industry; newly developed flexible thin-film battery epitaxial wafer products will continue to enhance product competitiveness, and will fully enjoy the growth momentum brought by the space economy in the future.
Investment advice
We expect the company's net profit from 2024 to 2025 to be 1.25, 2.05, and 324 million yuan, corresponding to PE of 45, 27, and 17 times, covered for the first time, and given a “buy” rating.
Risk warning
1. The risk that LED downstream demand falls short of expectations;
2. The risk that the development progress of the satellite Internet industry falls short of expectations; 3. The risk that profit forecasting assumptions are not true or fall short of expectations.