Incident: The company released its 2023 annual report. In 2023, the company achieved revenue of 2,387 billion yuan, a year-on-year increase of 40.63%; realized net profit to mother of 0.32 million yuan, an increase of 162.77% over the previous year; and realized deduction of non-net profit of -28 million yuan, an increase of 80.58% over the previous year. Close to the upper limit of the previous performance forecast (net profit range returned to mother was profit of 0.23-0.33 billion yuan). On a quarterly basis, Q4 achieved revenue of 550 million yuan in 2023, up 14.69% year on year, down 19.28% month on month; realized net profit of 119 million yuan, up 515.28% year on year, up 478.70% month on month; realized deducted non-net profit of 119 million yuan, an increase of 346.41% year on year, far exceeding expectations.
Demand has picked up+cost reduction, and Q4 profitability has increased significantly: in 2023, the domestic consumer market gradually picked up, demand in the LED terminal market increased steadily, and the company's performance achieved rapid growth. In 2023, the company's gross margin was 12.38%, -4.20pcts; the net margin was 1.32%, +4.34pcts yoy. In Q4 2023, the company's gross margin was 20.68%, +13.66 pcts year on year and +6.78 pcts month on month; net margin was 21.61%, +27.61 pcts year on year, and +18.60 pcts month on month, which greatly improved profitability. In terms of expenses, the company's sales, management, R&D and financial expenses rates in 2023 were 0.96%/5.19%/5.08%/1.90%, respectively, with year-on-year changes of -0.37/-3.71/-1.63/-1.25pcts, respectively.
In 2023, the company dug deep into space to reduce costs and increase efficiency. The sales cost of a single product fell 6.3% year on year, management expenses were reduced by 18.03% year on year, and financial expenses were reduced by 15.33% year on year. The cost control results were remarkable, and the company's performance is expected to continue to improve.
LED+ solar cell two-wheel drive, the share of high-end products increased: in 2023, the company's RGB direct display market share was further increased: in the field of mini RGB displays, the company successfully mass-produced 0407 and 0306 series products, which were unanimously recognized by customers and sold in bulk; key performance indicators such as photoelectric conversion efficiency, reliability, and half-wave width of small-pitch RGB display chip products are at the leading international level of similar products, and are widely used in household displays, professional displays, commercial displays, rental displays, sports displays and creative displays field. In the field of lighting, the company continues to expand its market share of high-efficiency lighting. Currently, it has served many domestic listed companies and overseas customers, and various high-efficiency products have been produced and shipped in large quantities to clients. In 2023, the overall revenue of the company's new business increased 50% year on year: 1) The company's backlight chip products have been arranged in 5 segments, which can be applied to vehicle backlighting, TV backlighting, MNT backlighting, NB backlighting and mobile phone backlighting, and have been successfully introduced into TV manufacturers; backlight chip revenue doubled year-on-year in '23. 2) Shipments of gallium arsenide solar cell epitaxial film products increased dramatically over the same period last year; the company's newly developed flexible thin-film battery epitaxial film products were produced in stable batch production in 2023, achieving mass delivery, and excellent performance; the CPV performance of concentrated bandgap matching three-junction batteries continued to improve, and they have been used in customers' concentrated photovoltaic new energy projects.
Continued optimism about Mini/Micro LED technology applications, equity incentives show development confidence: according to GGII, the global Mini LED market will reach 5.3 billion US dollars in 2025, with a compound annual growth rate of more than 85%; by 2025, the global micro LED market will exceed 3.5 billion US dollars, and the global micro LED market is expected to break the $10 billion mark in 2027. In 2023, Hisense became the controlling shareholder of the company. Relying on Hisense's advantages in the display industry chain, the company is expected to make greater progress in R&D and product promotion of new technologies such as Mini/Micro LED, and explore more application scenarios. In addition, the company released the 2024 Restricted Stock Incentive Plan (draft). The incentive plan involved a total of 186 incentive recipients, and the number of restricted shares to be granted was 32 million shares; the target net profit for 2024-2026 was not less than 1.17, 1.40, and 170 million yuan, respectively, and the trigger values were not less than 1.06, 1.26, and 153 million yuan, respectively. The equity incentive plan uses net profit as the assessment target, reflecting management's confidence in the company's long-term development.
Raise profit forecast and maintain “buy” rating: In 2023, thanks to the gradual recovery in LED market demand and the company's deep exploration of cost reduction and efficiency, the company's performance exceeded expectations. The company's proposed equity incentive plan reflects confidence in the long-term development of the company's business. As Mini/Micro LED technology continues to penetrate and the solar cell business continues to expand, the company is expected to open up broad room for growth. We raised the company's 24-25 profit forecast and added a 26-year profit forecast. It is estimated that the company's net profit for 2024-2026 will be 205 million yuan, 281 million yuan, 318 million yuan, EPS 0.22 yuan, 0.31 yuan, and 0.35 yuan respectively, and PE will be 31X, 23X, and 20X respectively.
Risk warning: LED market demand recovery falls short of expectations, new product market expansion risk, market competition risk, technological innovation risk.