Main points of investment

Event: when the company released its semi-annual report of 2021, the operating income in the first half of the year was 380 million yuan, an increase of 4.0% over the same period last year. The net profit belonging to the parent company was 10.869 million yuan, down 4.1% from the same period last year, and the net profit per share was the same as the same period last year. In the second quarter, the company's operating income was 210 million yuan, down 9.9% from the same period last year, and the net profit belonging to shareholders of listed companies was 8.699 million yuan, down 55.9% from the same period last year.

LED shows restorative growth, film and television shooting / Mini LED has become an important engine: the company's operating revenue increased by 4.0% to 380 million yuan in the first half of 2021, of which LED showed business income of 170 million yuan, an increase of 59.9% over the same period last year, and the business gradually returned to normalization. In the first half of the year, under the dual pressure of repeated overseas epidemics and shortage of upstream raw materials, the company increased its market development, and overseas markets showed signs of recovery (overseas revenue increased by 23.0% compared with the same period last year). The film and television shooting market reached an all-time high and exceeded the total contract amount for the whole year of 2020. At the same time, the company shifted its business focus, actively opened up the domestic market, and achieved good results in major transportation, education, government, enterprise and other market segments. In the first half of the year, film and television shooting revenue accounted for 20.7%, education, government and enterprises accounted for 9.0%, and large transportation accounted for 5.1%, becoming an important segment of LED business growth. On the other hand, Mini LED shows that the relative share and absolute quantity of products continued to grow in the first half of the year. Mini LED accounted for more than 60% of LED display orders, an increase of 12 percentage points compared with the whole year of 2020, and became another important engine for LED display business to resume growth. While smart landscape lighting business and network intelligent business are still affected by the epidemic, failed to achieve a full recovery, sales revenue in the first half of 2021 fell 37.5% and 8.4% respectively compared with the same period last year.

The pressure on the cost side greatly affected profits, and the Q2 gross profit margin hit bottom: in the first half of 2021, the company's gross profit margin was 30.5%, down 6.9% from the same period last year, mainly due to the sharp increase in the price of upstream raw materials, especially the display-driven IC, which put greater cost pressure on the company and reduced the overall profit margin. Among them, Q2 gross profit margin hit a record low of 28.4%, down 4.6 percentage points from the previous quarter, Q2 became the largest cost pressure in the quarter. Under the pressure of gross profit margin, the company still maintained its efforts in R & D investment, with R & D expenditure of 36.962 million yuan in the first half of 2021, an increase of 12.0% over the same period last year, accounting for 9.7% of operating revenue, an increase of 0.7% over the same period last year. In terms of net profit, despite the greatest pressure on the cost side of Q2, the net profit of Q2 still increased by 6.529 million yuan from the previous month, and the net profit margin of Q2 increased by 3.0% from the previous month to 4.2%.

The application field has been renovated in the post-epidemic period, and the integrated development of "hardware + software + content": the company has not given its performance forecast from January to September in 2021. Judging from the current industry trend and the company's business strategy, we judge that the third quarter is expected to be an important turning point. The LED industry has experienced the impact of the epidemic for more than a year, both at home and abroad are showing a recovery trend, especially the gradual recovery of overseas demand, the company as the first echelon of the industry is expected to benefit. After the epidemic period, LED segments coruscate new machines, and scenes such as film and television shooting, government and enterprise education, and conference all-in-one have become important driving forces. Combined with the further improvement of Mini LED penetration, the company has occupied an important market position in the above areas by virtue of its technological leadership, and is expected to become the key to the continuous development of LED display business. In the first half of the year, the company established Creative Digital Sub-company as a content platform to form an integrated solution strength of "hardware + soft armor + content", providing a differentiated competitive advantage for the company's continued efforts to LED market segmentation and intelligent transformation of financial technology.

Investment advice: our company forecasts earnings per share of 0.10 yuan, 0.25 yuan and 0.38 yuan per share from 2021 to 2023, respectively. The return on equity is 4.8%, 10.2% and 13.7% respectively, maintaining the buy-B recommendation.

Risk hints: the recovery of overseas demand is not as expected; the penetration of the Mini LED market is not as expected; the cost of upstream raw materials continues to rise; and increased competition leads to a decline in profit margins.