Incident: The company released its 2023 annual report and 2024 quarterly report. The company achieved revenue of 4.697 billion yuan in 2023, a year-on-year decrease of 20.97%; realized net profit of 48 million yuan, a year-on-year decrease of 89.01%; and realized deducted non-net profit of 62 million yuan, a year-on-year decrease of 82.57%. In Q1 2024, we achieved revenue of 1,289 billion yuan, a year-on-year increase of 51.13% and a year-on-month decrease of 11.21%; realized net profit of 30 million yuan, which turned a loss into a profit year-on-year and month-on-month; realized deducted non-net profit of 12 million yuan, which turned a loss into a profit year on year, with a year-on-year decrease of 87.24%.

23 years of performance under pressure, rapid year-on-year growth in Q1: The company's performance for the full year of 2023 is under pressure, mainly due to: 1. The overall consumer electronics market is sluggish, and recovery is slow; 2. The industry is strongly willing to stock up, and price competition is intensifying. The company's performance in Q1 in 2024 achieved rapid year-on-year growth, mainly due to: 1. The consumer market recovered, and the company's high-pixel single-chip product shipments increased; 2. After the completion of the fund-raising project, no start-up fees will be charged; 3. The company accrues a reduction in inventory price depreciation. In Q1 2024, the company's gross margin was 25.26%, down 13.10 pcts year on year and -0.87 pcts month on month; the company's net margin was 2.34%, up 17.48 pcts year on year, up 2.44 pcts month on month. In terms of expenses, the company's sales, management, R&D and financial expenses in Q1 2024 were 2.43%/4.18%/15.60%/2.66%, respectively, with year-on-year changes of -1.18/-11.59/-0.88/ -4.05pct, respectively. The company's expense ratio declined year-on-year during the period, and the company achieved remarkable results in reducing costs and increasing efficiency.

Continuing to expand the field of non-mobile CMOS, display driver chips can be expected in the future: in the field of non-mobile CMOS image sensors, in 2023, the company further improved product specifications. Following the introduction of 4 megapixel products to brand customers and mass production, the company officially released a wide dynamic, low-power 4K image sensor GC8613. The product has a pixel size of 1.5 μm, can achieve high resolution in a 1/2.7 inch optical format, and has excellent dynamic range, and can achieve full color starlight night vision imaging. In the field of automotive electronics, with mature pixel technology and advanced circuit design, the company's products have made breakthroughs in the clarity of imaging effects in low light and the stability of image quality at high temperatures; the company's products are mainly used in driving recorders, reversing images, 360 surround view, rear view, etc., and achieved sales of more than 200 million yuan in the rear assembly market in 2023.

In the field of display driver chips, the company has greatly enhanced product competitiveness through a series of core technologies such as self-developed design without external components and image compression algorithms, covering resolutions from QQVGA to FHD+. The company's LCD TDDI products have received orders from internationally renowned mobile phone brands, and the sales share has increased markedly, which will continue to enhance the competitiveness of TDDI products. The company already has relevant technical reserves for AMOLED driver chip products, and will soon launch AMOLED display driver IC products. AMOLED display driver ICs will also become an important growth point for the company in the future.

The CIS mobile phone market has broad prospects, and high-pixel products continue to be released: According to the TechInsights report, although the global smartphone market experienced a year-on-year decline in 2023, the sales scale of the global smartphone image sensor market increased slightly year-on-year, reaching 14 billion US dollars. According to Frost & Sullivan statistics, applications in emerging fields will drive the continued growth of CMOS image sensors until 2025, but with the continuous development of the smartphone multi-camera trend, CMOS image sensors for mobile phones will maintain their key market position. In 2023, the company achieved mass production and shipment of 13 million, 16 million, and 32 megapixel image sensor products. Among them, the 32 megapixel product uses Gecko's latest patented FPPI technology GalaxyCell? The 0.7 μm process, combined with the 4Cell Bayer architecture, can achieve equivalent 1.4 μm pixel performance, and also supports sHDR video recording, providing a mature high-pixel solution for high-end smartphone front-end camera requirements. In Q1 2024, the company successfully expanded its high-pixel products based on a single-chip architecture. 32 megapixel products were mass-produced and shipped in many brands of phones, and 50 megapixel products were shipped normally in branded phones. Over 13 million pixel products contributed more than 200 million yuan in cumulative revenue. The company mass-produced and shipped 32 megapixel image sensor products. The company's product positioning was raised from the traditional 2 to 8 megapixel to 50 million pixels and above, providing a strong guarantee for the company to enter the high-pixel image sensor market.

Lower the profit forecast and maintain the “gain” rating: The company's high-pixel product 32M is gradually being released. As the company's market share in the high-pixel field gradually increases in the future, market competitiveness will continue to improve. At the same time, the company continues to expand the non-mobile CIS market, which also provides an important increase in future performance growth. However, due to the slow recovery of the consumer electronics market, the company's 2023 performance was under pressure, so we lowered our profit forecast. The company's net profit for 2024-2026 is 255 million yuan, 476 million yuan, and 631 million yuan respectively, and EPS is 0.10 yuan, 0.18 yuan, and 0.24 yuan respectively. The corresponding PE is 138X, 74X, and 56X, respectively.

Risk warning: risk of exchange rate fluctuations, downstream demand recovery falling short of expectations, risk of technological innovation, risk of market competition.