2Q24: The combined scale effect of production capacity release was highlighted. The company's profit increased year-on-year. 2Q24 achieved revenue of 0.733 billion yuan (yoy: +11.81%, qoq: +22.13%), net profit to mother of 0.065 billion yuan (yoy: +98.92%, qoq: +35.07%), net profit of 0.064 billion yuan (yoy: +1332.53%, qoq: +57.80%). The year-on-month increase in revenue was mainly due to a clear recovery in demand for terminals in the market, the release of the company's production capacity, and strong production and sales of high-end products represented by products such as backlighting, high light efficiency, and silver mirror reversals. Due to the steady increase in product prices and the effect of compounding scale, the company's net profit to mother and net profit after deducting non-return to mother both achieved significant year-on-month growth. We maintain our 24/25/26 revenue forecast of 2.832/3.265/3.752 billion yuan, referring to 24 PS, which is 2 times that of comparable companies. Considering that the company is already in a leading position in the industry and that the scale effect of the company's production capacity is gradually being scaled up, we have given 3 times 24 PS and a target price of 12.6 yuan, maintaining the “buy” rating.

2Q24 review: Revenue in a single quarter reached a record high. Since 1H24, production and sales of high-end products were booming, the company produced and sold high-end products represented by backlights, high light efficiency, and inverted silver mirror products. The main business revenue of LED chips and epitaxial films increased 12.92% year on year, and gross margin increased 8.39pct to 23.50% year on year. In terms of production capacity, 1H24's LED chip production capacity reached 11.69 million pieces (yoy:

+8.54%, all folded to 2 inches), the capacity utilization rate is 96.47%, and the production capacity is 5.3 million pieces under construction.

2Q24 raised the company's net interest rate to 8.86% (yoy: +3.88pct, qoq: +0.85pct). In addition to the month-on-month increase in revenue and gross margin, the company's economies of scale were prominent, manufacturing costs continued to decline, and the four rates (sales+management+R&D+finance) fell 0.38 pct to 4.35% month-on-month. As of 2Q24, the company's inventory was 0.234 billion yuan, down 0.013 billion yuan from the end of the previous quarter.

Outlook for 2024: A rich product matrix+cost control is the main theme in the long term. We believe that with the further release of production capacity, the company's revenue is expected to continue to grow year-on-year in the second half of the year. Specifically: 1) On the demand side, we believe that the three major fields of lighting, backlighting, and display are expected to open up broad market space, and the LED market has slowly returned to a growth path; 2) On the production capacity side, we see the progress of the “Mini/Micro LED chip R&D and manufacturing expansion project” and High-end high-priced products such as mini LED, in-vehicle lighting, and direct display are being launched one after another, and the company's product categories will be further enriched. We are optimistic that the company will continue to invest in R&D, and will continue to improve equipment utilization, product yield, and production efficiency.

Investment advice: Give a “buy” rating, target price of 12.6 yuan. We expect the company to achieve revenue of 2.832/3.265/3.752 billion yuan in 24/25/26, referring to 24 PS, which is 2 times that of comparable companies. Considering that the company is already in a leading position in the industry, and the company's production capacity is gradually increased, and the scale effect is gradually realized, 3 times 24 PS, corresponding to the target price of 12.6 yuan, a “buy” rating.

Risk warning: Market competition intensifies, production capacity release falls short of expectations, R&D progress falls short of expectations.