Incident: Wright Optoelectronics released its 2024 three-quarter report. In the first three quarters, it achieved operating income of 0.356 billion yuan, and realized net profit of 0.13 billion yuan, or +131.7% year on year; of these, the third quarter achieved operating income of 0.111 billion yuan, +95.5% year over year, and -15.81% month on month, achieving net profit of 37.2686 million yuan, +204.0% year over month.

Growth remained high in the first three quarters, and profit levels continued to improve

The company's revenue and net profit for the first three quarters of the year 24 were +79.9% and +131.7% year-on-year, respectively. Operating income and net profit to mother continued to grow at a high rate in the third quarter, +95.5% and 204% year-on-year, respectively. Profitability also showed a significant increase compared to '23. The gross margin/net margin for the first three quarters of '24 was 66.39%/36.34%, respectively, up 2.78/8.14PCT from '23, and profitability continued to increase. The gross profit margin in Q3 '24 was 66.80%, up 6.38 PCT from 23Q3, and 0.11PCT from 24Q2. Profitability in the single quarter was still improving slightly.

Increased month-on-month expenses and impairment dragged down profits, but affected the overall company's Q3 and Q2 revenue and profit. Revenue and net profit to mother were -15.81% and -23.90% month-on-month, respectively. The month-on-month decline in profit was higher than revenue, and the increase in the cost ratio was the main reason. The company's Q3 expenses were 32.1597 million yuan, accounting for 29.06% of revenue, while Q2 expenses accounted for 23.60% of revenue; financial expenses increased significantly by 2.088 million yuan over Q2; in terms of R&D expenses, the proportion of R&D expenses in Q3 was 12.53%, and Q2 was 11.99%. Due to the rapid increase in revenue in the first three quarters of the company, based on the principle of prudence, the company carried out impairment tests on relevant credit and assets and calculated corresponding impairment provisions. The total impairment preparation for the first three quarters of 2024 was 8.5441 million yuan, of which the inventory impairment preparation was 7.067 million yuan, and impairment preparations had an impact on the company's profits.

Domestic shipments of OLED panels increased rapidly in the first half of the year, BOE's share of the company's main customers increased, and new product development and verification accelerated

According to CINNO Research statistics, the global market shipped about 0.42 billion AMOLED smartphone panels in the first half of 2024, an increase of 50.1% over the same period last year. Global demand for AMOLED smartphone panels continued to be strong in the first half of 2024. On the one hand, it was due to the recovery in the global smartphone market, and on the other hand, due to the continuous release of domestic AMOLED production capacity and continuous penetration into the low-end product market. Shipments from the company's main customer, BOE (BOE), increased by 31.4% year on year, ranking second in the world and number one in the country with a market share of 16.1%.

In terms of product development and verification, RP materials have continued to iterate the mass production application of 7th generation devices, and continue to lead the industry; GH materials continue to iterate the mass production application of second-generation devices, successfully verified in next-generation devices and have reached the international advanced level; RH materials have passed customer mass production tests; GP materials and blue light series materials are in the client verification process.

Profit forecast: Due to impairment preparations in 24 and RH materials passing mass production tests, we adjusted the 2024-2025 profit forecast to 0.176/0.3 billion yuan (previous value 0.195/0.259 billion yuan), and forecast net profit to the mother of 0.384 billion yuan in 2026, maintaining the “hold” rating.

Risk warning: The consumer electronics sector is declining; material verification falls short of expectations; and costs are rising rapidly.