Key points of investment

Incident: The company released its results report for the third quarter of 2024. The company achieved operating income of 2.371 billion yuan in the first three quarters of 24, up 10.6% year on year; net profit to mother was 0.461 billion yuan, up 10.03% year on year; non-net profit withheld from mother was 0.447 billion yuan, up 9.48% year on year. Among them, net profit to mother was 0.136 billion yuan in the single third quarter, a decrease of 25.56% year on year, net profit of 0.134 billion yuan year on year. Decreased by 25.26%.

Weak domestic market demand is the main reason for weakening revenue growth

In the third quarter, the company achieved revenue of 0.808 billion yuan, a year-on-year decrease of 0.76%. The main reason for the lack of revenue growth in Q3 was weak domestic demand, but overseas markets continued to grow well. The 24-year semi-annual report data of several LED display manufacturers also showed this trend. Abison/ Lyad/ Zhouming Technology 24H1 sales decreased by 13%/15%/16.5% year on year, respectively, but overseas sales increased 24%/13%/19% year on year, respectively. In addition, benefiting from a significant increase in COB penetration, the company's COB-related product revenue also grew well, but considering that traditional SMD technology still occupies a major market share and that the company's business strategy guarantees gross profit margin, Q3 showed the final result of a slight decline in revenue.

Increased expenses are the main reason for the decline in net profit

With domestic demand weak and the company's Q3 revenue not growing, the increase in the company's expenses was mainly due to the decline in Q3 net profit. In 24Q3, the company's sales/management/R&D/finance expenses increased by 987/11.45/22.3/3.27 million yuan, respectively, a total increase of 46.89 million yuan (+18.3%) year-on-year. The main reasons for the increase in the company's expenses were: 1) The company strengthened its overseas market layout and continued growth in overseas sales outlets and personnel; 2) The company continued to grow in market-leading fields such as COB Technical investment; 3) The company's projects under construction are converted to fixed assets after reaching the expected usable state, which in turn increases depreciation and amortization; 4) Exchange gains and losses due to fluctuations in the US dollar exchange rate also have a certain impact on the company's financial expenses.

Significant leadership in the COB technology field and development in fields such as high-end video processing systems are the fundamental guarantee for the company to maintain high gross profit and continuous growth

1) The company has strong technical and market advantages in the COB segment: in a situation where overall LED directly shows weak market demand, the COB penetration rate increased rapidly, the application process accelerated significantly, and applications continued to sink. 24H1 COB sales increased by more than 100% year on year (according to DiXian data). With leading technical advantages and longer industrial chain coverage, the company's display control market share in the COB segment is higher than in the traditional field. Therefore, the company can fully enjoy the main increase brought about by the increase in COB penetration rate, and related products in the COB field also have a better gross margin level. The rapid growth in the company's COB related revenue will drive the increase in the gross margin of the display control business line, thus hedging the weak development trend of the traditional LED display control market to a certain extent.

2) The company continues to extend the length of the industrial chain, entering fields such as MLED equipment and ASIC chips, while actively expanding high-value fields in downstream application scenarios, such as virtual shooting, high-end leasing, etc.: Through long-term technical efforts, the company continues to expand to the front end of the LED display industry chain. For example, the company pioneered MLED core chips and intelligent equipment to solve the technical problems of MLED displays, and domestic competitors have yet to lay out in this field. In addition, the company continues to make efforts in high-end and complex application scenarios to enhance the competitiveness of products and solutions. For example, the H20 Super Splice Control launched by the company in 2020 is more competitive than the products of established European and American manufacturers in terms of carrying capacity, number of supported input and output cards, and in terms of product ease of use and friendliness. However, due to slow product iteration, it is difficult for established European and American manufacturers to obtain Moore's Law dividends, making it more difficult to meet the latest customer needs. Already entered Deep water area.

In summary, the company's strong technical advantages in the COB field and active expansion in high-value segments are the foundation for its ability to outperform the industry's independent growth α during the downturn, and the company's current independent growth in the field of MLED equipment and MLED chips is also very impressive. Looking forward to the future, it directly shows that the industry is a barometer of the commercial economy. On the basis of domestic local government debt and gradual economic recovery, there will be predictable room for recovery, and the company's profit growth will also return to elasticity.

Profit forecasting and valuation

The estimated revenue for 2024-2026 is 3.958 billion yuan, 5.145 billion yuan, and 6.549 billion yuan, respectively, and the corresponding net profit is 0.73 billion yuan, 0.99 billion yuan, and 1.33 billion yuan respectively. The PE corresponding to the current market value is 23.96, 17.64, and 13.17 times, respectively. We believe that the company's dominant position and leading technology in the field of display control are important guarantees for its continued growth, and the current market is weak and reshuffling. Instead, it further increased the company's market share and maintained the company's buying rating.

Risk warning

Downstream direct display demand falls short of expectations; market competition risk; new product market development risk.