Key points of investment
On February 19, 2024, the company issued the “2023 Annual Results Report Notice”.
Demand recovery combined with increased production capacity, and annual performance grew steadily
The company achieved revenue of 1,629 billion yuan in 2023, up 23.71% year on year; net profit to mother was 370 million yuan, up 22.10% year on year; net profit after deducting non-return to mother was 325 million yuan, up 19.93% year on year. The increase in the company's performance in 2023 is mainly due to a recovery in demand for packaging testing of non-display chips such as display driver chips, power management chips, and RF front-end chips in 2023, while the company continues to expand packaging and testing production capacity.
Looking at a single quarter, 23Q4 achieved revenue of 482 million yuan, up 43.56% year on year, up 5.18% month on month; net profit to mother of 125 million yuan, up 122.23% year on year, up 2.02% month on month; net profit after deducting non-return to mother was 109 million yuan, up 106.17% year on year, down 3.79% month on month.
The Hefei factory has officially begun mass production. Taking full advantage of the Hefei Display Industry Cluster, Hefei City is focusing on building a new display industry cluster. It has gathered upstream and downstream companies in the display industry such as BOE, Vicino, Jinghe Integrated, Qizhong Technology, and Shiya Technology. According to news from the Hefei Municipal People's Government in January 2024, the Hefei Qizhong Advanced Packaging Testing and Production Base Project has completed various inspection tasks and has officially begun mass production. According to the company's January 2024 investor survey minutes, the factory's initial production capacity plan is BP/CP about 10,000 tablets/month, COF is about 30 million EA/month, and the production capacity climbing period is expected to be 3-6 months. Furthermore, the company said that in 2024, as mid-range and low-end brand mobile phone and tablet terminal products use AMOLED displays one after another, and domestic panel manufacturers continue to invest in AMOLED production lines, it is expected that the AMOLED penetration rate will increase further in the future. We believe that the company's new plant is located in Hefei, making full use of the collaborative advantages of the Hefei Display Industrial Cluster. As production capacity gradually climbs and demand for downstream terminals gradually recovers, there is sufficient momentum for future growth.
The global display driver chip market is expected to recover, and designers' inventory removal may be completed or production will resume. Demand for the global display driver chip market is expected to return to the growth track in 2024. According to Sigmaintell data, global display driver chip shipments are expected to increase 4% year on year to 7.63 billion units in 2024. Among them, demand for TV/laptop/smartphone display driver chips is expected to increase 5.3%/8.6%/2.7% year on year respectively in 2024. Furthermore, in the second half of 2022, display driver chip designers began to reduce the number of copies sold and adopt active pricing strategies to absorb inventory. By 23Q3, the inventory removal cycle had basically come to an end. It is expected that by 24Q2, inventory will return to a healthy level. After inventory is cleared, designers may begin to gradually resume production efforts, boost foundry operating rates, and thereby stimulate demand for display driver chip packaging and testing.
Investment advice: In view of the gradual recovery in market demand, we will adjust the company's original performance forecast. Revenue is expected to be adjusted from 2023 to 2025 from the original 1,75/19.17/2,311 billion yuan to 1,629/20.37/2,445 billion yuan, with growth rates of 23.7%/25.1%/20.0%, respectively; net profit to mother will be adjusted from 3.39/4.54/566 million yuan to 3.70/4.81/600 million yuan, with growth rates of 22.1%/29.8%/24.9%, respectively; PE 33.5/25.8/20.7, respectively. The company's Hefei plant can make full use of the collaborative advantages of the Hefei Display Industry Cluster. As production capacity gradually climbs and downstream terminal demand gradually recovers, there is sufficient momentum for future growth. Continued recommendation, maintaining a “buy” rating.
Risk warning: the risk that demand in the downstream terminal market falls short of expectations, the risk that new technology, new processes, and new products will not be industrialized as scheduled, the risk that market competition will intensify, the risk that production capacity expansion will fall short of expectations, systemic risks, etc.