Focus on LED display applications, and the products are exported to overseas markets. Abbison was founded in 2001 and successfully launched in 2014. It has now become the world's leading true LED display application and service provider, providing a full range of LED large-screen display products and professional audition solutions. Downstream applications include sports events, stage performances, and advertising. In 2023, the company achieved operating income of 4.05 billion yuan, a year-on-year increase of 45%; net profit to mother was 320 million yuan, an increase of 59% over the previous year. We believe that the company has a high brand image at home and abroad, and is expected to fully benefit from the recovery in industry demand. Furthermore, the company's new layout of energy storage business is expected to bring about a large incremental market.

Driven by cost reduction and technological innovation, Mini/Micro LED has entered the release period. We see that the current LED display market demand is gradually picking up. According to the China Business Industry Research Institute, the market size will reach 63.4 billion yuan in 2024, an increase of 18% over the previous year. Looking at industry catalysts, 1) The price of small-pitch LEDs is gradually declining, and demand and share are growing rapidly. According to Lotu Technology data, the average price of small-pitch LED screens in mainland China in 23Q3 was 14,000 yuan/square meter, down 5.3% month-on-month. The decline in cost drove LED products from the high-end market to sink, bringing about incremental demand. The market share in the P1.6 segment below P1.6 in 23Q3 was 30%, an increase of 6% over the previous year. 2) Mini LED has entered the emission period. Compared with traditional LCDs, Mini LED backlights have higher brightness, lower power consumption, and better natural display effects. While the display effect is close to OLED, they are also more economical. We believe that its future development will mainly accelerate penetration into the medium and large screen market and replace small-pitch screens. 3) Micro LED was the first to be implemented in large displays and smartwatch applications. Micro-LED is a high-density integrated LED array. The LED pixel point distance in the array is 10 microns, and each LED pixel can self-illuminate. Currently, it is first used in large displays and smartwatches. According to TrendForce, the production value of Micro LED chips will reach 600 million US dollars in 2027.

The cutting-edge layout of COB/MIP packaging technology significantly enhances competitive advantage. The COB packaging model laid out by the company has great advantages in terms of reliability, viewing angle, and light efficiency. Through research and development, the display effect is continuously improved and costs are reduced. In the MIP field, products have also completed verification and trial production, and it is expected to have a strong synergy effect with COB products. In terms of market performance, the company's revenue and net profit flexibility is significantly higher than that of comparable companies, and is expected to seize more market share in the incremental market. Furthermore, the company is deeply involved in overseas markets, and the scale of orders recovered rapidly after the epidemic. It has reached 3.5 billion yuan in 2022, an increase of 17% over the previous year. High-scale signing indicates that the company's good growth momentum will continue.

Profit forecast and investment advice: We expect the company to achieve operating income of 40.5/60.9/8.27 billion yuan in 2023/2024/2025, up 44.7%/50.5%/35.8% year on year, and achieve net profit to mother of 3.23/4.61 billion yuan, up 58.9%/42.8%/35.3% year on year. As a leading LED company at home and abroad, there is strong certainty about performance growth brought about by the recovery of the industry. Furthermore, the company's layout of the energy storage business has opened a second growth curve. The current valuation is significantly lower than the average of comparable companies, making it highly attractive. Covered for the first time, giving it a “Highly Recommended” rating.

Risk warning: Energy storage business falls short of expectations; LED downstream demand recovery falls short of expectations; industry competition intensifies.