3Q24 results are in line with our expectations

Wright Optoelectronics announced 3Q24 results: revenue of 0.111 billion yuan, a change of +95.5%/-15.8%; net profit to mother of 0.037 billion yuan, corresponding to profit of 0.09 yuan per share, a year-on-month change of +204%/-23.9%, in line with our expectations. Due to the recovery in demand for downstream consumer electronics, the increase in demand for OLED panels and upstream materials, and the year-on-year sales volume of the company Green Host's new products, 3Q24 profit increased sharply; due to the pace of downstream procurement and accrued impairment, 3Q24 profit declined month-on-month. In terms of gross margin, 3Q24 was basically flat at 66.8% year on month, maintaining a high level.

1-3Q24 achieved revenue of 0.356 billion yuan, up 79.9% year on year; net profit to mother of 0.13 billion yuan, up 131.7% year on year; deducted non-net profit of 0.116 billion yuan, up 188% year on year; and net cash flow from operating activities of 0.143 billion yuan, up 255% year on year.

Development trends

Focus on the continued growth of the OLED industry bringing opportunities to localize light-emitting materials. We believe that downstream OLED demand is still growing rapidly: 1) In terms of traditional downstream phones, according to IDC, 3Q24 global smartphone shipments continued to pick up at 0.316 billion units, with a year-on-year increase of 4%. On the other hand, with the release of Huawei's tri-folding phones, we believe that the penetration rate of Tandem technology using double-layer light-emitting materials is expected to continue to increase, or it may directly drive an increase in demand for light-emitting materials. 2) In terms of mid-size screens, starting in 2024, considering the sale of Apple iPad Pro on the demand side and the release of the MacBook Pro in the future, and BOE and others on the supply-side plan to build 8.6-generation AMOLED production lines, we believe OLED shipments in tablets and PCs are expected to enter a stage of rapid growth, which in turn will drive up demand for materials. With the release of downstream demand, the target market that can be reached by domestic material suppliers is expected to expand further. The company is deeply tied to BOE, the leader in downstream panels, and we are optimistic about long-term growth.

Follow the progress of the launch of new products. According to the announcement, as of 3Q24, the company has achieved stable mass production and supply of the two Red Prime/GreenHost light-emitting materials, which we believe can effectively prove the company's “1 to N” R&D and expansion capabilities; looking ahead, Red Host, the third material, has now passed customer mass production tests, and the company expects to achieve batch supply this year. In terms of new technology, the company has developed key core CGL materials and sensitized green TADF materials for Tandem devices, and is collaborating with customers to industrialize blue phosphorescence technology, which we believe is expected to contribute to long-term growth.

Profit forecasting and valuation

We keep our 2024/25 earnings forecast unchanged. The current stock price corresponds to the 2024/25 46.2/31.5 price-earnings ratio. We keep our target price of 22.5 yuan unchanged, corresponding to a price-earnings ratio of 50.6/34.6 times in 2024/25 and an upward margin of 10%, and maintain our ranking of outperforming the industry.

risks

Major customers are highly dependent, the volume of new products released is lower than expected, and the OLED panel boom falls short of expectations.