Key points of investment:
Large LED display suppliers have doubled their revenue in the past 3 years, and their growth rate far exceeds that of the industry. Abbison specializes in LED displays, which are the lowest in the LED display industry chain. The product types include six categories: advertising, stage, commercial display, data visualization, iCON brand smart screens, and professional audiovisual solutions. According to the company's performance report, the company's revenue in 2023 was about 4,045 billion yuan, up 44.7% year on year. After the 2020 epidemic, the company's performance continued to pick up. Revenue in 2023 increased 85.5% compared to 2019, and net profit to mother in 2023 was 323 million yuan, up 58.9% year on year, surpassing 241 million yuan in 2018 to a record high.
The display market is 100 billion dollars, and Abbison has set a 10 billion subscription target. The company reached 5.3 billion yuan in 2023, and issued an announcement aiming to reach 8 billion yuan in 2024 and 10 billion yuan in 2025 (double that of 23 years). Chairman Abbison has optimized corporate governance in recent years to strengthen control over the company, relying on the company's refined digital management to strengthen supply chain management capabilities. He has a strong voice in the industry chain. The net business cycle and net profit cash content are all better than his peers. It is expected that changes in the company's internal governance are expected to drive the company's growth rate to continue to greatly surpass the industry as a whole.
Overseas revenue accounts for more than 60%, driving increased profitability. Overseas business accounted for 63% in 2022, and is expected to rise further in the next few years; the gross profit margin of overseas business is 38% in 2022, which is significantly higher than the domestic gross profit margin of about 20%.
The brand has been overseas for 19 years, has brand recognition, and serves global benchmark events such as the World Cup and NBA. The company has two major advantages in overseas markets: large sales/service network and high brand awareness. Since developing overseas business in 2005, the company has now formed a channel cooperation network of about 6,000 companies in more than 140 countries and regions, and has strong technical service and after-sales service capabilities. The company's many global benchmark projects raise brand barriers. Qatar World Cup fence advertising screens, 2022 Indonesia G20 summit stage screens, and NBA floor LED screens are all supplied to the company.
Technological innovation drives small-pitch/micro-pitch LEDs to reduce costs and expand application scenarios, and the company's layout COB and MIP keep up with industry trends. LED display growth in recent years is dominated by small-pitch LEDs (point spacing ≤ 2.5mm), and the global small-pitch LED market share reached 60% in 2021. In the future, as micro-pitch (point spacing ≤ 1.0mm) display technology gradually matures and manufacturing prices continue to decline, LED displays are expected to further open up the market in a wider range of professional displays, commercial displays, and household use. The company's COB production line has been mass-produced, and MIP has completed process verification and small trial production, keeping up with the cutting edge of the industry.
Investment analysis opinion: First coverage gives the company a “buy” rating. The company's revenue for 2023-2025 is estimated to be 40.4, 60.2, and 8.0 billion yuan respectively, corresponding to year-on-year growth rates of 44.7%, 48.9%, and 32.8%, and net profit to mother of 3.23, 4.69, and 635 million yuan respectively, corresponding to year-on-year growth rates of 58.9%, 45.4%, and 35.4%. The current stock price corresponds to the 2023-2025 dynamic PE of 20, 14, and 10 times, respectively. Using the dynamic PE relative valuation method, the company was given 19.2 times the 2024 dynamic PE, corresponding to a target market value of 90.0 billion yuan and a target price of 24.74 yuan, with room for an increase of 39.9% from the closing price on March 1, 2024.
Risk warning: Increased competition has led to a decline in gross profit margin and net interest rate; the company's overseas business is mainly settled in US dollars, and exchange rate fluctuations may have an impact on revenue.