Incident: The company released its three-quarter report. In the first three quarters of 2024, the company achieved operating income of 5.847 billion yuan, an increase of 41.95% year on year; realized net profit to mother - -1.797 billion yuan, an increase of 29.22% year on year; deducted non-net profit - -1.965 billion yuan, an increase of 23.76% year on year. In 2024, Q3 achieved operating income of 1.914 billion yuan, up 34.22% year on year, down 10.42% month on month; net profit to mother - -0.62 billion yuan, up 31.41% year on year, down 13.57% month on month; after deducting non-net profit - -0.656 billion yuan, up 28.89% year on year, up 0.62% month on month.

Product volume and price have risen sharply, and profitability has improved dramatically year over year: In the first three quarters of 2024, thanks to increased market demand for the company's products and rising product prices, the company's revenue grew rapidly year on year. In terms of profitability, the company's overall gross margin for the first three quarters was -8.05%, up 28.51 pcts year on year, mainly due to rising product prices and product structure optimization; net margin was -37.41%, up 38.29 pcts year on year. In terms of expenses, the company's sales, management, R&D and financial expense ratios for the first three quarters of 2024 were 1.40%/6.13%/14.01%/11.50%, respectively, with year-on-year changes of +0.27/ -1.24/-7.06/-3.70pcts, respectively. Among them, sales expenses and values both increased year on year, mainly due to the increase in the company's product sales scale.

The AMOLED market share continues to increase, and the technology moat continues to expand: in 2024, H1, the company comprehensively enhanced the customer experience, continuously expanded its diversified brand customer base, began operating an American subsidiary to accelerate the expansion of overseas markets, maintain a balanced customer structure, and deepen cooperation with leading brand customers to increase the supply share of high-end customer product lines. The scope of cooperation covers smartphones, smart wearables, and medium-sized AMOLED products such as tablets, laptops, and in-vehicle displays. The company's interim report shows that according to CINNO Research data, in 2024 H1, Vicino AMOLED smartphone panel shipments continued to increase, and the global market share rose to 11.3%. At the same time, in the first half of the year, the company launched the industry's first MLA+ COE and UBA+COE low-power high-performance combination solution, the world's first mid-size broadband LTPS technology, and released intelligent zonal multi-frequency LTPO technology, AMOLED full-oxide mid-size solution, 12.6-inch AMOLED transparent all-in-one solution, AMOLED smart surface in-cell display solution, and the industry's first AMOLED Real In-Cell integrated screen and other innovative technologies. In addition, the “Hongqi · Vicino Joint Innovation Laboratory” was completed, and the world's first 14.2-inch automotive sliding curved AMOLED screen was mass-produced, and it will be applied to the central control screen of the “Hongqi Guoya” high-end executive sedan.

Construction of 8.6-generation AMOLED production line, fixed increase acquisition of Hefei Vicino: On August 30, '24, the company announced that in order to respond positively to AMOLED mid-size market demand, the company signed a “Memorandum of Investment Cooperation for the 8.6th Generation AMOLED Production Line Project” with the Hefei Municipal Government. The design and production capacity of the project is 32K/month, and the glass substrate size is 2,290 mm x 2,620 mm. By laying out high-generation OLED production lines and actively expanding mid-size application fields represented by tablets, laptops, vehicles, etc., the company is expected to further explore the positive benefits of AMOLED growth and seize new product technology. In addition, on November 20, 2024, the company issued the “Report on Issuance of Shares and Payment of Cash to Purchase Assets and Raise Supporting Funds and Related Transactions (Draft)”. The company plans to issue shares and pay cash to purchase 40.91% of its shares in Hefei Weixinuo. The aforementioned shares correspond to the registered capital of Heping Company, Xinping Fund, and Xingrong Company have paid up 5.96 billion yuan of registered capital and 3.04 billion yuan of Xingrong Company's unpaid registered capital; prior to this transaction, the company held Hefei Vicino's shares are 18.18%. After the transaction is completed, the company will hold 59.09% of Hefei Vicino's shares, and Hefei Vicino will become the company's holding subsidiary. Hefei Vicinuo has obvious technical and mass production advantages in the domestic AMOLED field. On the one hand, the 6th generation Quanrou AMOLED production line it has built is currently an advanced domestic small to medium sized flat panel display production line. It is a further technical improvement compared to the production line that the company has already built. It can adapt to higher-end terminal application scenarios and enhance the company's competitiveness in technology and products; on the other hand, Hefei Vicino plans to have a production capacity of 0.03 million pieces/month. After the restructuring, it can increase the company's overall production capacity and asset size, give full play to its scale advantages, and also in production, R&D, procurement and Strong synergy effects have been achieved with listed companies in terms of sales, etc. Therefore, this transaction is of great significance for the company to increase the overall AMOLED shipment scale, take advantage of the scale effect of operating costs, expand downstream customers and new application fields, and seize and consolidate AMOLED's leading position in China.

First coverage, giving an “additional” rating: The company is mainly engaged in R&D, production and sales of OLED small and medium size display devices and micro-LED displays. The product application areas cover smart phones, smart wearables, tablets, laptops, in-vehicle displays, oversized, etc., and has pioneered applications and services in smart homes, industrial control and medical care, and innovative commerce. In 2024 H1, the company continued to consolidate its leading edge in the emerging display field and continuously optimize the product structure around the “one strong, two new” mid-term development strategy and annual operating goals. With OLED display products from leading customers as the focus direction, the company supplied customers with a variety of products, and achieved a significant increase in shipments. Looking forward to the future, as the boom in the consumer electronics industry continues to pick up, the company's profitability is expected to be further restored; at the same time, as the AMOLED penetration rate continues to increase and the production capacity of the company's 8.6th generation AMOLED production line construction project progresses steadily, the company is expected to further open up the growth ceiling. We expect the company's net profit for 2024-2026 to be -2.197 billion yuan, -1.587 billion yuan, and -0.714 billion yuan, respectively, and EPS of -1.58 yuan, -1.14 yuan, and -0.51 yuan, respectively.

Risk warning: Risk of new display technology falling short of expectations, increased risk of market competition, risk of failure of Hefei Vicente acquisition, risk of industry fluctuations and changes in demand.