Incident: The company released its 2024 mid-year report. In 2014, H1 achieved operating income of 15.897 billion yuan, a year-on-year decrease of 0.66%; net profit to mother -0.489 billion yuan, a loss of 0.935 billion yuan compared to the same period in '23; net profit without deduction of 1.038 billion yuan, a loss of 1.003 billion yuan compared to the same period in '23.

Comment:

24Q2 revenue increased month-on-month, and the profitability of the mobile display business improved year-on-year: in Q2, the company achieved revenue of 8.147 billion yuan, -1.77% year-on-year, and +5.13% month-on-month; net profit after deducting non-return to mother -0.475 billion yuan, all reducing losses year-on-month. Thanks to good demand and product specification upgrades, the company's mobile display business profit improved significantly year-on-year. Furthermore, based on the continuous increase in revenue share of the flexible AMOLED mobile phone business, the mobile phone display business structure was further optimized. Relying on the company's diversified customer layout and continuous improvement of production line capacity, the shipment volume of flexible AMOLED mobile phone display products (including TM18) increased by more than 80% year-on-year.

The company's new production capacity climbed smoothly: the company accelerated the construction of the new production line. The first phase of H1's TM18 production line achieved full production, and high-end flagship products such as folding and HTD were delivered to target leading customers; the second stage is in the production capacity climbing stage. It is expected that batch delivery capacity will be achieved in the second half of the year, and multi-brand flagship models will be launched simultaneously; the first IT module product in the TM20 production line was illuminated, and the TM19 production line and micro-LED production line were illuminated on the same day. The above production lines have all entered the trial production stage to help small and medium-sized companies in the mainstream field of size display. The technical layout was further improved.

Actively promote diversification of LTPS business and accelerate transformation to automotive and IT products: the competitiveness of the company's IT business products has been further consolidated, the share of LTPS NB display products in leading clients has increased significantly, and the LTPS PAD display business stabilizes the basic market for high-specification products. In 24 years, H1's automotive display business developed rapidly, and shipments continued to rank first in global vehicle regulations. The company's automotive business revenue increased by more than 40% year on year. Among them, the automotive electronics business for leading international automakers began to enter the mass delivery stage, and the continuous increase in the share of leading NEV customers all strongly supported the rapid growth of the company's automotive display business. At the same time, thanks to the rapid penetration of LTPS technology in the automotive display field, the company's LTPS automotive display revenue increased by more than 200% year on year. In the first half of the year, the fixed project amount obtained by the company's automotive business reached a new high in the same period in recent years, continuing to cover hot market technologies such as AMOLED, LTPS, and Local Dimming.

Profit forecast, valuation and rating: Considering that the company's performance in the first half of the year and the recovery of mobile phone panel prices fell short of expectations, we lowered the company's 24-25 net profit to -0.427 billion (original value was 0.654 billion billion yuan) /0.619 billion yuan (down 66%), and the net profit forecast for the additional 26 years was 1.042 billion yuan, corresponding to the 25/26 PE to 26x/16x, respectively, and the 24-26 PB was 0.6x/0.6x, respectively Considering that the company's OLED business is in a period of rapid growth and that the overall valuation is currently low, it maintains an “gain” rating.

Risk warning: New business development falls short of expectations, and the downstream market continues to be sluggish.