We hosted an investor call with BOE Varitronix during our Corporate Day on 1 Dec. BOEVx’s strong 1H22 revenue/net profit growth of 51%/164% YoY was mainly driven by solid demand of auto display module, mass production of new capacity and ASP hike of auto display products. Net margin improved 2.2ppts HoH given operating leverage and economies of scale. Looking ahead, mgmt. remains positive on auto display business outlook and expects strong client orders backed by: 1) mass production of high-end display products for both traditional and NEV clients in China and overseas; 2) system products (mainly for China) will start sales contribution in FY23E; and 3) stable industry demand with improving ASP. Reiterate BUY with TP of HK$26.01.
　　No.1 in global auto display shipment; stable demand and ASP upside to drive profitability in FY23E. BOE Varitronix maintained No.1 position in global medium-to-large size automobile display modules shipment and in display areas shipment. Auto display shipment also reached No.1 globally with market share of 15.7% in 2Q22, according to Omdia. Looking into 2023, mgmt. expects more order wins in high-end display including OLED, BD- cell, curved-display, AR-HUD and rear-view from domestic & overseas’ high-end traditional and NEV customers. In addition, mgmt. expects system product mainly for Chinese customers to contribute sales in FY23E. Overall, mgmt. remains positive on stable demand in auto display market and ASP upside to drive profitability in FY23E.
　　Chengdu auto display plant to fuel growth in FY23E. Mgmt. expects Chengdu plant to turn profitable due to its fast ramp-up in capacity in 4Q22E.Mgmt. expected maximum capacity of 15mn pieces could generate RMB5bn sales in FY23E. Mgmt. believes the new Chengdu plant will support robust market demand and improve cost efficiency, leading to better profitability in the long term.
　　Limited impact from recent COVID-19. Mgmt. reiterated limited impact　from recent pandemic thanks to strong internal control and supply chain management. Overall, we remain positive on increasing penetration of high- end auto display products, technology upgrade for intelligent cock-pit and new Chengdu plant to meet strong market demand.
　　Valuation/Key risks. We estimate revenue/ earnings to grow at 33%/47% CAGR over 2021-24E, driven by 37% CAGR in automotive display. Our TP of HK$26.01 is based on 25x FY23E PE. Upcoming catalysts include NEV booming demand, product penetration and capacity expansion.