Investment summary
OLED sales continued to rise, driven by increased penetration rates and a recovery in downstream demand. With their advantages of lightness, high contrast, and low power consumption, OLED panels are rapidly increasing their penetration rate in the smartphone market, which is expected to reach 55% (+7 pcts year over year) by 2024. At the same time, OLED also continues to expand into the field of medium and large size displays. With the gradual recovery of downstream application markets such as smartphones and PCs in 2024, and the continued rise in OLED penetration, we expect sales of OLED panels to grow steadily. Judging from the competitive landscape, domestic OLED panel manufacturers have made significant progress in product technology, production capacity, and cost performance, which has made China's voice in the OLED market continue to increase. According to Omdia data, in 2023, BOE, Vicino, Tianma Microelectronics, and Hehui Optoelectronics's combined share of the small-size AMOLED market reached 38%, an increase of 11 pcts over the previous year. At the same time, China is not lagging behind in the layout of OLED high-generation production lines.
Olaide is the earliest OLED terminal materials company in China and is expected to fully benefit from the trend of localization of OLED materials. In the field of OLED terminal materials with high technical barriers, China's market share is still low. We believe that the pace of domestic replacement of organic OLED materials in China is expected to accelerate in the future due to reasons such as the expiration of overseas patents, the localization of OLED panels, and the outstanding cost performance advantages of domestic terminal material suppliers. Under this wave of domestic substitution, the company's light-emitting materials business has progressed markedly — G', R', and B' materials have been introduced into production lines and stable supply; red and green main materials and mixed light-emitting materials are under development and have been sent to customers for verification. In addition, the company also laid out packaging materials and PSPI materials, all of which were supplied on production lines.
Olaide's 6th generation AMOLED linear evaporation source has broken foreign monopolies, and new products such as higher generation evaporation sources and perovskite evaporators are expected to be launched one after another. The company has strong technical strength, and the 6th generation AMOLED evaporation source has been replaced by imports. We estimate that the company's domestic market share will be about 66% as of the end of March 2023. Although construction of the 6-generation AMOLED production line has now come to an end, demand such as maintenance, replacement of spare parts, and upgrading is still expected to bring stable income to the company. Furthermore, the company is actively deploying advanced products such as 8-generation evaporation sources and perovskite evaporators. We believe that the launch of these new products may make the company's equipment business revenue sustainable in the future.
Investment advice
The first coverage gives a “buy” rating. Benefiting from the rise in OLED sales, the launch of the OLED high-generation line construction, the acceleration of domestic material replacement, and the increase in demand for maintenance and upgrading of the 6th generation AMOLED production line, the company's material and equipment revenue is expected to continue to rise. The company is expected to achieve net profit of 2.07/2.85/430 million yuan in 2024-2026, corresponding to PE 23/17/11 times, respectively.
Risk warning
The pace of passing material verification fell short of expectations, market competition intensified, and R&D progress fell short of expectations.