Incidents:

On August 29, 2024, Vision Electronics released its 2024 semi-annual report: the company achieved operating income of 0.889 billion yuan in the first half of 2024 (January-June), an increase of 36.47%; net profit to mother was 19.3126 million yuan, a year-on-year decrease of 47.11%.

Comment:

The company's revenue continued to grow in the first half of 2024. Revenue increased 36.47% year on year, net profit to mother fell 47.11% year on year, and net operating cash flow changed from negative to positive compared to the same period last year. In the first half of 2024, the company achieved revenue of 0.889 billion yuan, gross margin of 12.65%, a year-on-year decrease of 5.21ct; net profit to mother was 19.3126 million yuan, a year-on-year decrease of 47.11%. Mainly based on (1) backlight modules and smart display components, several new mass-produced products were added, leading to an increase in revenue. However, since production of these new mass-produced products is still in the climbing stage, their share of fixed costs and labor costs are high, and the gross margin is lower than that of the company's other mature mass-produced products, thus lowering the overall gross margin level of the business. (2) Due to changes in market demand, the company's backlight display module products for consumer products failed to be sold as planned. The decrease in sales volume led to an increase in its apportionment of fixed costs, thereby reducing the semi-annual gross margin level. In terms of cash flow, net cash flow from operating activities in the first half of 2024 was $10.8856 million, which changed from negative to positive in the first half of 2023. Construction completion progress at the Kunshan and Huai'an subsidiaries increased. The number of projects under construction in the first half of 2024 was 191.8438 million yuan, an increase of 46.97% over the end of the previous year.

Deeply cultivate the field of backlight display modules and accurately position the direction of research and development. The company continues to promote the development and investment of smart cockpit dynamic anti-peeping backlight modules, smart cockpit oversized screen backlight display modules, multi-screen full fit and curved 3D bonding technology, Mini LED style backlight display modules, and Mini LED VR backlight technology. Among them, the development of a dynamic anti-peeping backlight module for smart cockpits has already been fixed for an actual mass production project, and mass production is expected to begin in the second half of 2024. In terms of developing backlight display modules for large screens in smart cockpits, the company's wholly-owned subsidiary has purchased large die-cast machines, which can produce important backpanel components, which can basically meet the production dimensions of large backlights in all vehicles. In terms of the development of multi-screen full lamination and curved 3D bonding technology, the company has mass-produced a variety of dual-screen and triple-screen LCD laminating modules, and curved 3D laminating equipment has already been put into use; simultaneous testing of multi-point 12.3+27-inch curved instrument integrated display modules will be tested in the second half of 2024.

The Vietnamese company completed registration to help expand overseas markets. The company invested in the establishment of Vietnam Weishi Technology Co., Ltd., with a total investment of 15 million US dollars, and completed establishment registration in July 2024. Its main business scope is: production of backlight display modules and related electronic components, light guide plates and backlight accessories, production of rubber parts, mold design and production, and import and export of goods. This move is conducive to strengthening the implementation of geo-regional risk diversification strategies, reducing logistics and capacity risks in the supply chain, and helping the company to respond more flexibly to the potential adverse effects that macroeconomic environment fluctuations, industrial policy adjustments, and changes in the international trade pattern may have on the company.

Company profit forecast and investment rating: The company is a leading automotive backlight module company, benefiting from the penetration of the Mini LED industry and actively expanding overseas markets. The company's EPS is expected to be 0.70 yuan, 1.03 yuan and 1.39 yuan respectively in 2024-2026, maintaining the “recommended” rating.

Risk warning: (1) the downstream industry is declining; (2) the introduction of Mini LED products falls short of expectations; (3) competition in the industry is intensifying.