We hosted NDR meetings with BOE Varitronix on 12 Jan. Mgmt. maintained positive view on automotive intelligence and smart-cockpit, and expected limited impact from recent industry updates (China NEV subsidy expiry and Tesla price cut) thanks to its focus on both traditional and NEV customers, pricing strategy and cost advantage. In addition, Chengdu auto display turned profitable in 4Q22 and is on track to reach maximum capacity of 15mn by 2024E. Overall, we remain positive on auto display upgrade trend, new client wins, and Chengdu plant to drive growth. Reiterate BUY with TP HK$26.01 based on 25x FY23E P/E.
　　Limited impact from China NEV subsidy expiry; auto intelligence trend　to drive display demand. Mmgt. believed smart-cockpit is not only driven by NEV but more by auto intelligence trend. Mgmt. expects China NEV subsidy expiry and Tesla price cut will have limited impact on its business given its focus on both traditional automotive and NEV customers, pricing strategy and cost structure advantage. In addition, BOEVx collaborated with BAIC motor in developing Camera Monitor System (CMS) and mgmt. expects product mass production in 2H23E after new regulation approval of CMS-enabled vehicles on the road after 1 Jul 2023. Overall, we remain positive on auto intelligence to drive display demand and ASP upside in FY23E.
　　Chengdu auto display plant’s capacity ramp-up on track. Mgmt. stated　that Chengdu plant turned profitable in 4Q22 and expects all key customers’ verification completion in 2023. Mgmt. believed that the Chengdu plant’s capacity ramp-up of ~12mn pieces will be driven by client order wins in FY23E and remains confident on maximum capacity of 15mn pieces to generate RMB 5bn sales in FY24E.
　　No negative impact on operations from recent COVID-19 in China.　Mgmt. reiterated limited impact on production from the recent pandemic thanks to its strong supply chain management. Mgmt. believed little impact on client order delivery since soft auto demand during holiday seasons in January.
　　Valuation/Key risks. We estimate revenue/ earnings to grow at 33%/47% CAGR over 2021-24E, driven by 37% CAGR in automotive display. Maintain BUY with TP HK$26.01. Upcoming catalysts include capacity expansion, technology upgrade and product penetration.