Incident: In 2023, H1 achieved revenue of 3.374 billion yuan, an increase of 5.03%; realized net profit of 220 million yuan, a year-on-year decrease of 39.77%; achieved net profit of 153 million yuan after deducting non-net profit of 153 million yuan, a year-on-year decrease of 55.34%. In 2023, Q2 achieved revenue of 1,903 million yuan, up 27.20% year on year, and 29.26% month on month; realized net profit of 115 million yuan, down 37.02% year on year and 10.79% month on month; achieved non-net profit deduction of 70 million yuan, down 58.74% year on year and 14.58% month on month.

Demand is sluggish, H1, and the profit side is under pressure, waiting for the industry's prosperity to pick up: in recent years, due to continued weakness in global consumer electronics demand, the prosperity of the company's industry has declined, and the company's profitability has declined year-on-year. In 2023 H1, the company's gross margin was 12.20%, year-on-year -8.97 pcts; net interest rate was 7.24%, year-over-year -4.38 pcts. In terms of expenses, H1's sales, management, R&D and financial expenses rates in 2023 were 0.62%/2.55%/4.04%/-1.28%, respectively, and the year-on-year changes were -0.66/-0.38/-0.82/+0.01pcts, respectively. Among them, the H1 sales expense ratio and absolute value declined year-on-year, mainly due to the reduction in H1 customs fees, sales staff remuneration, and the company's reduction in anticipated liabilities based on actual conditions. According to the company's interim report, at present, the company's automotive electronics business customers have covered more than 70% of the world's vehicle brands; in terms of thinning business, the company's business scale ranks first in China, and the company is the only thinning business supplier in the mainland that has passed Company A certification; in terms of ultra-thin glass cover (UTG) business, the subsidiary Dongxin Optoelectronics has become the first domestic enterprise that can mass-produce UTG for folding mobile phones, and has obtained project targets from major domestic leading brand customers. In 2023 H1, the company's leading position in business fields such as automotive electronics and consumer electronics was established and further consolidated; in the future, as downstream demand continues to pick up, the company is expected to gradually restore profitability.

Continuing to expand the technological moat, VR+ wearables inject growth momentum: The company's main business includes in-vehicle electronics business and consumer electronics business. Among them, the company's automotive electronics business includes: vehicle sensors, vehicle sensor modules, vehicle covers (2D and 3D), vehicle display modules, vehicle screen modules (including central control screens, rearview mirrors, instrument panels, B-pillars, head-up displays, front and passenger displays, armrest screens, etc.); the consumer electronics business includes: ultra-thin LCD panel thinning business, ultra-thin glass cover, UTG (UTG, UTG, etc.) UFG) business, ITO conductive glass, and VR Smart hardware products such as display modules, smart wearable display modules, mobile phone display modules, NB and PAD display modules, light guide boards, and electronic paper driver boards. According to the company's 2023 mid-year report, in terms of H1 and VR display modules in 2023, the company achieved virtual brightness comparison detection and 0.07mm automatic recognition of 3D glasses through automatic visual inspection technology for AOI cameras. Currently, it is providing Quest3 VR headset module products to North American VR flagship customers; in terms of wearable modules, the company has been able to provide various high-generation flexible OLED wearable display modules in batches to North American consumer electronics giants. Currently, it is exclusively for Little Genius Z series and Huawei GT Series and Xiaomi flagship watches. In order to further consolidate its technical advantages and broaden the technological moat, the company is currently actively promoting the development of projects such as glass-based Mini-Led backpanels; Micro-Led modules and components; outdoor low-power display technology; flat sensors, next-generation flexible UTG, large automotive dual screens, and curved triplets with fully integrated touch display modules, HUD components, electronic paper, X-Ray ray driver substrates, and LCD antennas.

The business layout caters to industry trends, and is optimistic about the broad scope of e-paper+automotive electronics: According to the company's 2023 interim report, the China Industrial and Information Technology Work Conference revealed key tasks for the year, and e-paper ranked in the forward-looking display industry layout that needs to be strengthened. At the same time, since carbon peak and carbon neutrality were written into the “Government Work Report”, e-paper products have been recognized as one of the outstanding solutions under the global goal of “double carbon”, which is deeply in line with the design concept of environmental friendliness and environmental sustainability. According to RUNTO's “Global ePaper Market Analysis Quarterly Report (Global ePaper Market Analysis Quarterly Report)”, global e-paper module shipments in 2022 were 260 million pieces, an increase of 23% over the previous year; at the same time, the application and promotion of electronic paper labels in mainland China is still in the early stages, with a penetration rate of less than 10%. In order to cater to the development trend of low-carbon technology, the company set up a fifth division specializing in electronic paper and X-Ray driver substrates. Currently, it has achieved small-batch shipments and completed customer verification work, and is expected to cultivate new profit growth points in the future. Furthermore, the company's 2022 annual report shows that in the Chinese passenger car market from January to July 2022, in the Chinese passenger car market, central control multi-screen models sold 276,000 units, up 51.5% year on year, and 1,059,000 units of central control connected screen models were sold, up 17.5% year on year. According to Omdia's forecast, with car intelligence and visualization becoming a new development trend and the rapid spread of new energy vehicles, global vehicle display shipments will reach 240 million units by 2026.

Covered for the first time, with a “increase in ownership” rating: The company's main business includes in-vehicle electronics business and consumer electronics business. Among them, the company's automotive electronics business includes: vehicle sensors, vehicle sensor modules, vehicle covers (2D and 3D), vehicle display modules, vehicle screen modules (including central control screen, rearview mirror, instrument panel, B-pillar, head-up display, front and passenger display, armrest screen, etc.); The consumer electronics business includes: ultra-thin LCD panel thinning business, ultra-thin glass cover (UTG, UG) business, ITO conductive glass, and VR display module Smart hardware products such as smart wearable display modules, mobile phone display modules, NB and PAD display modules, light guide boards, and electronic paper driving boards. In 2023 H1, the company's leading position in business areas such as automotive electronics and consumer electronics was established and further consolidated. Benefiting from a recovery in consumer electronics demand, increased usage of automotive displays, and continued development of the e-paper market in the future, the company is expected to gradually repair its performance and further open up profit space. The company's net profit for 2023-2025 is estimated to be 646 million yuan, 779 million yuan and 969 million yuan respectively, EPS is 0.26 yuan, 0.32 yuan, and 0.39 yuan respectively, and PE is 22X, 19X and 15X respectively.

Risk warning: risk of macroeconomic fluctuations, exchange rate risk, risk of technology iteration, risk of increased competition.