Sales volume stopped in the next quarter, and a rebound is expected in the second half of the fiscal year: Huaxian Optoelectronics (00334.HK) achieved total revenue of RMB 91 million in the second quarter of 2024, an increase of 43.3% over the same period last year. Total display module shipments (including processing modules) decreased by 25.5% year-on-year to 8.949 million pieces, and the average sales price of partial offsets increased by 92.2% per year. The sales volume of display modules fell 29.1% year on year to 8.248,000 units. Among them, sales of display modules applied to smart phones plummeted 51.0% to 5.658 million units, accounting for about 63.2% of the display module sales volume. Smartphone sales in the second quarter showed that on the one hand, the sales volume of modules was affected by factors such as major customers leaving inventory. At the same time, the loss of key customers this year also put pressure on the group. However, it can be seen that orders from major customers remained relatively flat in the second half of the year. Coupled with the Group's successful acquisition of an item order from a Chinese mobile phone manufacturer, it is expected to drive the Group's display module sales volume to pick up in the second half of the year.

Develop the tablet and learning device display module market: Thanks to Huaxing Optoelectronics's support for medium-sized panels, the first half of the 2024 fiscal year contributed particularly significantly from the sale of tablet and learning machine display modules. In the second quarter of 2024, the revenue generated by Huaxian Optoelectronics (00334.HK) from the tablet and learning machine display module sales business increased further to 31.3% of total display module sales. The Group gained new revenue streams by developing the tablet and learning device display module market to offset the pressure brought about by the smartphone market. However, due to the long product cycle of tablets and learning devices, the estimated revenue contribution to the group will fluctuate.

The profit ratio remains a key point: in the first half of 2024, the gross margin of Huaxian Optoelectronics (00334.HK) declined further to 3.8%, mainly due to i) pressure from mobile phone manufacturers, ii) an increase in the sales volume of tablets and learning devices, which led to the Group's net profit ratio being reduced to 0.4% during the same period. The profit ratio of the group remains our focus on the operation of the group. Too low profit ratio weakens the group's ability to resist market fluctuations. More importantly, the Group's bargaining power is relatively weak. The actual profits of the various display modules are similar according to each piece of calculation, and the new line of business suitability has not brought about a healthy improvement in the group's profit level.

It is still too early to be optimistic: Huaxian Optoelectronics (00334.HK) has once again recorded operating losses, and the increase in sales volume is expected to restore the Group's profitability in the short term. Furthermore, despite the recent revaluation of the market, we still believe that the Group can only bring about major changes through methods such as i) the business launched and ii) finding ways to improve bargaining power and profit space.