The company continues to expand the market and steadily improve its market position. As a leader in the domestic panel industry, while further consolidating its leading edge in LCD products and technology, the company simultaneously develops OLED and MLED businesses to help achieve wider technical coverage in the high-end IT field, thereby meeting more customer technology and product needs, and further consolidating the company's overall leading position in the IT field. Specifically, in the company's 2023 display device business revenue, TV products accounted for 27% of revenue, IT products accounted for 34% of revenue, LCD mobile phones and innovative application products accounted for 14% of revenue, OLED Mobile phones and innovative application products account for 25% of revenue. Overall, in 2023, the company continued to rank first in the world in terms of product shipment volume and shipping area in the five major mainstream fields; product shipments in IoT innovation segments such as low power consumption, splicing, and advertising machines continued to rank first in the world; flexible OLED shipments reached a record high of 0.12 billion pieces in a single year, and built the first 8.6th generation AMOLED production line in China.

Benefiting from the gradual recovery of the terminal market, the company's net profit to mother resumed growth in Q1 in '24. According to the 2023 annual report, the company achieved net profit of 2.547 billion yuan in 23, a year-on-year decrease of 66.22%; net profit loss after deducting non-return to mother was 0.633 billion yuan, a year-on-year reduction of 71.74%. The overall terminal market was weak in 2023, and sales of the five major traditional application terminals declined. With the arrival of the peak consumer electronics season in the second half of the year, the terminal market picked up somewhat. Entering 2024, the company's LCD and product prices in the five major fields gradually stabilized or rebounded, and shipping volume and shipping area expectations improved, leading to an improvement in the company's profit situation. 2024Q1 achieved net profit of 0.984 billion yuan to mother, an increase of 297.80% over the previous year. Specifically, in terms of various products, LCD, the recovery in demand for TV terminals and panels is expected to accelerate in 2024, benefiting from the hosting of major sporting events. Especially in the context of continuing the trend of larger TVs, TV panel shipments and area are expected to double increase. In terms of price, the prices of LCD TV products continued to rise, the prices of IT products gradually stabilized, and an upward trend began to show. Furthermore, while product prices are rising, the company continues the “on-demand production” business strategy, following the industry rationally increasing the operating rate of production lines and promoting the improvement of the company's performance. On the OLED side, the company has built up production capacity scale and technical advantages, accumulated good customer resources, and maintained good cooperative relationships with mainstream mobile phone brand customers around the world. The company's flexible AMOLED shipments have maintained a significant increase in recent years. In 2023, flexible AMOLED shipments were nearly 0.12 billion pieces throughout the year, an increase of nearly 50% year-on-year, setting a new high in single year shipments. In 2024, the company's flexible AMOLED shipment target will continue to grow year on year. It is expected to increase by more than 30%, with a total target volume of 0.16 billion films.

LCD price side: TV LCD panel product prices continued the 23-year upward trend, and prices of all sizes have collectively rebounded. LCD panel prices will enter a new upward cycle in 2023, and the overall price of TV/MNT monitor/laptop panels of all sizes showed an upward trend. According to WitsView data, TV panel prices began to rise in March 2023 and reached a high of $169 per film in September. The fourth quarter declined due to off-season effects. Prices of 2024H1 and LCD TV sizes continued to rise month by month. In early June, the average price of 32/43/55/65-inch panels was 37/65/130/178 US dollars/piece, respectively, up 9.2%/6.6%/6.5%/8.8% from the price at the beginning of the year. The upward trend in IT product prices has also begun to show initial signs. Among them, the price of desktop display products has risen since March, the increase has increased in May, and the increase has narrowed in June; the price of laptop products has risen slightly since late April. Although the price increase for products entering 24H2 is slowing down, the arrival of the traditional peak season in the third quarter is expected to maintain current price levels.

LCD demand side: TV panel shipping area has resumed growth, and the IT and laptop markets are recovering. Along with proper control of the operating rate of panel manufacturers, TV panel inventories have returned to a healthy low level in early 2024. The expected price increase, as well as the drop in preparations for festivals and sports events, combined with the lengthening shipping time and rising freight rates due to the Red Sea conflict, led to a marked recovery in demand starting in January. According to EN's “Global TV Panel PSI Monthly Data Report” statistics: 24Q1 global LCD TV panel shipments were 58.1M, down 2% year on year, with a shipping area of 41.2M square meters, an average increase of 5% year on year. The size reached 50.7 inches, a year-on-year increase of 1.6 inches. Although shipments are still shrinking year on year, the process of increasing size is still accelerating, and the shipping area is once again shifting to positive year-on-year growth. Demand for TV panels in April and May was also supported by the 618 festival promotion and the preparation momentum of the French Olympics. Shipments all reached 21.9M, with year-on-year increases of 8.2% and 2.1%, respectively.

In the IT product segment, driven by domestic promotion festivals, while the rise in panel prices boosted brand procurement, overall panel shipments maintained a year-on-year growth trend in May. According to NEWEN's “Global MNT Panel PSI Monthly Data Report”, global MNT panel shipments were 14.4M in May 2024, an increase of 9% over the previous year. The laptop market entered an off-season low in 24Q1 after the Q4 inventory wave in '23. Brand inventory remained high, and terminal demand was uncertain. However, HD TN models began to rise in April, and demand for the second quarter recovered compared to the first quarter.

LCD supply side: Panel manufacturers have accelerated the transformation of the size structure of TV products, and IT product shipments have recently grown rapidly.

The LCD panel supply-side driving effect in January 2024 was remarkable: on the one hand, panel factories' production cuts and maintenance plans have a low inventory level; on the other hand, the overall industry continues the “on-demand production” business strategy. In March and April, due to strong stocking demand from downstream brand manufacturers, the LCD utilization rate, especially TV utilization, remained high; as phased stocking demand declined, the LCD industry's operating rate declined slightly in May, but considering that the third quarter is about to enter the traditional peak season of the industry, downstream brand manufacturers are still expected to further release stocking demand. Looking at major manufacturers, there is a clear trend of larger TV panels. Most companies' products under 50 inches have shrunk to varying degrees, while in the oversized field, 85 inches have continued to grow, and 100 inches have gradually been introduced to brand customers, which has led to an increase in the overall supply of panels. In the IT market, shipments increased 9% year-on-year in May '24 due to demand for stocking compounded by shipping risks. Due to ongoing geopolitical conflicts, the Red Sea crisis has caused ships to detour for a long time, and some regions will begin to raise tariffs in 24Q3. Some shippers or companies are willing to ship ahead of schedule, centralized shipping has led to an increase in shipping costs and an extension of the order cycle, and the brand's in-transit volume has increased. Among them, the number of weeks in transit inventory increased by about a week compared to the previous one, leading to an increase in supply volume for some 24H1 suppliers. Specifically, BOE/LGD/CSOT MNT panels increased 31%/19%/34% year-on-year respectively in May.

In summary, we believe that although the short-term decline in actual panel demand has weakened the momentum of rising TV and MNT panel prices, the LCD supply-side shipping area growth trend combined with changes in the shipping structure will drive long-term profit growth for panel manufacturers.

OLED panel shipments have been rising year after year, and the company's OLED production capacity will soon be released. According to TrendForce Jibang Consulting's forecast, shipments of OLED panel displays last year were 508,000 units, an increase of 323% over the previous year, and shipments of OLED displays are expected to reach 1 million units in '24. According to statistics from market research company Omdia on June 25, the share of 2024Q1, OLED displays in the global smartphone market reached 51%, surpassing 49% of LCD screens for the first time, and shipments increased 39% year-on-year to 0.182 billion units. The industry generally expects that with the launch of the Apple iPhone 16 series, OLED shipments will increase dramatically in the fourth quarter of this year. Furthermore, the penetration rate of flexible AMOLEDs in the IT and automotive sectors will continue to increase as the economy recovers, bringing new room for growth for panel manufacturers. BOE plans to take the lead in the OLED panel field in recent years. Its new OLED panel factory, B16, started construction in late March. The goal is to complete plant construction within 2024, and mass production is expected in 2026 to produce 8.6 generation OLED panels. The OLED panel production capacity is expected to increase by more than 50%. Therefore, we expect the company's OLED business to continue to benefit from high demand growth and will become a new production capacity explosion.

Profit forecast, valuation and rating: Considering that the current boom in the panel industry has recovered significantly, the company's OLED business is still unprofitable and the depreciation amount is still large. Combined with the company's 24-25 Q1 performance, we adjusted the 24-25 net profit forecast to 5.08 billion/9.44 billion yuan, an adjustment range of -63%/-46%, and added a 26-year net profit forecast of 13.558 billion yuan. The corresponding PE valuation is 32X/17X/12X, respectively.

Considering the marginal recovery in the company's panel boom and the growth of the OLED business, the company's “buy” rating was maintained.

Risk warning: Downstream demand continues to fall short of expectations, OLED demand falls short of expectations, and the development of new technologies such as MLED, folding screens, and VR falls short of expectations.