The 2023H2 profit improvement trend is uncertain, awaiting a steady recovery in 2024
Based on the changes in the competitive landscape of the automotive display module industry, we lowered the company's net profit forecast for 2023-2025 from HK$63/8.3/1.05 billion to HK$48/5.9/670 million respectively. The corresponding year-on-year growth rate was -18%/22%/14%, and the corresponding EPS was 0.6/0.8/0.9 HK$0.8/0.9, respectively; the current stock price of HK$7.68 corresponds to 12.0/9.8/8.6 times PE in 2023-2025. The price competition trend in the 2023H2 vehicle screen industry is likely to continue. The focus is on waiting for the accelerated expansion of overseas business in 2024, and the gradual advancement of the “three-step” strategy of the vehicle display system-level business is expected to drive a steady recovery in overall profit, and downgraded to the “increase in holdings” rating.
2023H1 Price competition in the industry has led to a decline in gross margin, and an increase in non-operating income to ease profit pressure
2023H1's revenue rose 7.85% year on year to HK$5.2 billion, and the slowdown in growth rate was mainly due to industry price competition; by business, the company's 2023H1 TFT and touch screen display module business accounted for 89% of revenue, and PSV revenue accounted for 11%, with year-on-year increases of 10% and -9%, respectively; by region, the company's revenue mainly comes from China, and the share of revenue from China and overseas markets stabilized at 70%/30%. Due to price competition in the industry, the company's gross margin fell 3 pct month-on-month from 9.3% in 2023H2 to 6.3% in 2023H1. Thanks to increased non-operating income, including government subsidies and asset income, easing performance pressure, the company's net profit margin only fell 1.7 pct month-on-month from 5.6% in 2022 H2 to 3.9% in 2023H1.
The domestic car screen competition pattern is tight, waiting for overseas high-end projects to increase in 2024
The competitive landscape of the automotive display module industry is still stuck, and the 2023H2 profit improvement trend is still unclear. Waiting for the increase in overseas high-end projects in 2024 may be expected to drive a steady recovery in overall performance. The company's overseas market is expanding smoothly, and its position in the overseas supply chain is gradually improving. The number of designated high-end screen projects in Europe and the US in 2023 is expected to remain in line with 2022. Currently, the number of designated European and American brands has exceeded that of the whole of 2022, and the company aims to achieve 50% of overseas revenue by 2025. In the medium to long term, the company continues to promote the “three-step” strategy of in-vehicle displays, in-vehicle display systems, and smart cockpit solutions, which is expected to open up profit space. In 2023, it achieved a breakthrough in system-level orders from North American core OEMs.
Risk warning: Product launch is not as good as expected, production capacity and supply chain risks, and the growth rate of new energy vehicles is not as good as expected.