Incident: The company released 1H24 results, achieving revenue of HK$6.157 billion, up 18% year on year. Among them, vehicle display revenue increased 24% year over year to HK$5.752 billion, mainly benefiting from significant increase in domestic customer orders and continuous development of overseas markets; industrial display revenue decreased 28% year over year to HK$0.406 billion, mainly due to a decline in demand for industrial instruments and high-end consumer products for home applications. 1H24 achieved net profit of HK$0.1721 billion, a year-on-year decrease of 15%. It was mainly affected by increased operating expenses due to overseas expansion, increased depreciation at the Chengdu factory, and reduced government subsidies and exchange earnings, corresponding to a net interest rate of 2.79%.

The global automotive display leadership continues to stabilize, and the release of high-end products+production capacity drives increased profitability:

1) In terms of shipment volume: According to Omdia statistics, as of 1Q24, the company continued to rank first in the top three global vehicle display shipments, medium and large size (≥8 inch) shipments, and total shipping area. Among them, the total global vehicle TFT shipment market share increased to 17.6%, medium and large (≥8 inch) vehicle TFT market share was 21.1%, and the total vehicle TFT shipment area reached 19.6%. 2) In terms of high-end products: The share of OLED product revenue doubled in the first half of 2024, and the share of shipments further increased. The market share of LTPS products in the Chinese market increased by more than 15%. Revenue from Oxide products achieved double-digit growth, increasing the market share by 50% +, demonstrating the strong market demand for the company's high-end products. 3) Profit side: The Chengdu base was fully put into operation in 1H24, and the company's gross margin increased from 9.1% of 1H23 to 11.4%. The company's profitability is expected to continue to improve as production increases at the Chengdu base and the release of the 8.5-generation oxide line and LTPO/LTPS 6th generation line.

The Tier 1 system business is developing steadily, and overseas business is accelerating: 1) System business: The company's system business mainly focuses on four main business lines (overseas display systems, intelligent display systems, advanced display systems, and smart cockpit systems). Among them, the smart cockpit has made new progress. The company's self-developed first localized domain controller equipped with a high-standard display assembly was unveiled at the Beijing Auto Show in 2024; at the same time, the company established an overseas smart car solution BG on 1H24 to enhance system business production, R&D and customer service capabilities, and continue to help its own brand customers go overseas. In addition, the company has been awarded a central control large screen project for the Xiaopeng Huitian split flying vehicle “land aircraft carrier”. In the future, it will cooperate with Xiaopeng to jointly explore new industries in the low-altitude economy. 2) Overseas business: 1H24's overall revenue and ASP in overseas markets maintained double-digit growth. Among them, new business revenue in the US market contributed significantly, and the rapid development of the Japanese and South Korean markets entered a period of growth. Furthermore, for the first time, the company received orders for next-generation platform-based projects from first-tier international brands such as Japan's Toyota and Korea Hyundai. On the other hand, the company actively continues to invest in overseas R&D and production bases to help the company continue to advance overseas markets, including establishing additional development research institutes in Japan and South Korea, and establishing a production base in Vietnam. The Vietnamese production base will have mass production capacity in 2025.

Profit forecasting, valuation and ratings: It is expected that as the price war of domestic car companies stabilizes, the price pressure on 2H24 products will ease somewhat as the price war of domestic car companies stabilizes. Furthermore, the company relies on the parent company BOE Group and has technology+resources+cost advantages. Tier 1 business and overseas business are expected to continue to grow, and the medium- to long-term development logic is clear. Considering that the company's performance in '23 exceeds expectations and that future overseas business development will drive up personnel remuneration and R&D expenses, we lowered our 24-25 net profit forecast to HK$0.39/0.51 billion (a reduction of 44%/47%) and added a 26-year forecast of HK$0.68 billion to maintain the company's “buy” rating.

Risk warning: Industry growth falls short of expectations, market competition intensifies, and price reduction pressure from downstream customers increases risk