Benefiting from the industry's recovery dividend, Colorlight's performance in 2023 will increase highly

On April 19th, Colorlight (301391. SZ) released its 2023 annual report. This is the company's first full annual report since it landed on the main board of A-shares, and it has handed over a bright "report card" of both revenue and net profit to the market.

According to the annual report, in 2023, Colorlight will achieve an operating income of 1.02 billion yuan, a year-on-year increase of 50.16%, and a net profit attributable to the parent company of 203 million yuan, a year-on-year increase of 54.29%. At the same time, the company's gross profit margin was stable and improving, and its profitability continued to improve. The gross profit margin in 2023 will be 48.08%, an increase of 5.9 percentage points from the same period last year.

Colorlight attributed the growth to the increase in the penetration rate of small-pitch LED displays, the acceleration of the trend of LED ultra-high definition, and the strong demand for LED display and control systems at home and abroad, driving the demand for LED display and control systems and equipment upward. According to the analysis, looking forward to 2024, driven by small pitch and Mini LED display products, it is expected that the global LED display market will continue to grow, and leading enterprises are expected to continue to benefit.

The growth of video processing equipment has accelerated, becoming the company's largest source of revenue

Colorlight is a high-tech company with video processing algorithms as the core and hardware equipment as the carrier, providing global customers with professional display control products in the field of video images. Since its establishment in 2012, Colorlight has been based on the LED display control system, continuously accumulating R&D experience and market reputation, and gradually extending to the field of video processing and playback. With the development of cloud networking and communication technology, Colorlight conforms to the market trend of mobile display and launches a cloud networking playback product series for remote wireless management needs.

Through the production of LED display control system, video processing equipment, cloud networking player three categories of products, Colorlight has realized the coverage of the back-end of LED video playback. At present, the first two products are the company's main source of revenue, accounting for 35.61% and 48.85% of the overall revenue in 2023, respectively.

It is worth mentioning that thanks to the development of 5G+8K technology, the sales of video processing equipment with high added value and stronger profitability have grown rapidly, and the revenue of video processing equipment during the reporting period was 498 million yuan, a year-on-year increase of 84.57%, and the proportion of overall revenue has increased by 9.11 percentage points, which has become the company's largest source of income.

It is reported that the video image display control industry where Colorlight is located is an industry with high technical barriers, with a high degree of industry concentration, and there are only a few leading manufacturers in the domestic market that can form large-scale sales. By constantly breaking through the boundaries of visual technology, Colorlight has grown into one of the leading enterprises in the field of video image display control in China.

The highly concentrated market pattern also enables the head LED control system suppliers like Colorlight to have a high bargaining power, and the profit margins brought by the superimposed technology upgrading have been steadily improved. From 2019 to 2023, the gross profit margin of video processing equipment increased from 58.96% to 63.77%, driving the overall gross profit margin to 48.08%, which is at the leading level in the industry.

Driven by two incremental logics, Colorlight's growth potential is promising

At present, the recovery of downstream demand is becoming the main driving force for the development of the industry. Tianfeng Securities believes that the development of the video image display control industry is inseparable from the development of the downstream customer display market and the richness of application scenarios. At present, the users of the display market are distributed in all walks of life, and the application of ultra-high-definition products in various fields is becoming more and more extensive, which has broadened the downstream application market of video processing equipment to a large extent, and the popularization and application of 5G+8K will provide a good environment for the development of the video processing equipment industry.

With the recovery of the market and the economic recovery, new forms of entertainment will drive new application scenarios, and the market demand for downstream conferences, commercial displays and other applications is expected to continue to recover. According to the LED Research Institute of Advanced Engineering Industry and Research, China's LED display market will reach 82.5 billion yuan in 2025.

In terms of policies, the mainland has successively issued a series of supporting policies such as the "14th Five-Year Plan for the Development of the Digital Economy" and the "Notice on Carrying out the Promotion Activities of "100 Cities and 1000 Screens" Ultra-HD Video". Under the double dividend of market demand and policy empowerment, the LED display industry will also usher in healthy, stable and rapid development.

For Colorlight, which has the dual advantages of products and customers, it is also expected to fully benefit from the recovery dividend of the industry. It is reported that through continuous improvement of product technical level, strengthen technical support, Colorlight in the industry has gradually won a good market reputation and product popularity, has formed a deep binding relationship with a number of well-known manufacturers in the LED industry, the main customers include strong Jucai, Leyard, Unilumin Technology, Changchun Xida, Planar, etc. Stable cooperative relations and high-quality customer resources have also become the most prominent competitive advantages of Colorlight.

It is worth mentioning that the continuous increase in the penetration rate of LED small-pitch displays is expected to bring new increments to the development of the industry. It is reported that the trend of small spacing has led to an exponential increase in the number of pixels, and the demand for corresponding receiving cards will also increase exponentially. Tianfeng Securities believes that with the introduction of the spacing below 1.0 and entering mass production, the application of products below 1.0 will increase in the future, and the market share of the display screen corresponding to the smaller spacing will continue to increase. Assuming that the sales area remains unchanged in 2023~2027, only considering the change in the spacing of LED dots for industrial applications, the compound growth rate of the number of corresponding pixels will reach 12.87%. At the same time, under the trend of ultra-high definition, the number of pixels corresponding to 8K is more than 9 times that of 2K, which will also promote the demand for display and control systems.

The "globalization" strategy has achieved remarkable results, and overseas business has increased by 94.5% year-on-year

During the reporting period, the continuous improvement of the overseas LED display market has also become a boost to the high performance of Colorlight. According to customs statistics, in 2023, the export value of LED displays will reach 10.254 billion yuan, continuing the high level in 2022.

During the reporting period, Colorlight adhered to the "globalization" strategy, strived to increase the proportion of overseas markets and optimize the contribution of gross profit, and improved the market layout in the Middle East, Europe and the United States, which brought good help to the company's overseas performance. In 2023, the proportion of Colorlight's overseas sales will increase by 3.05% year-on-year, and overseas sales will increase by 94.50% year-on-year to 136 million yuan.

In terms of specific measures, Colorlight has adopted the two-wheel drive model of direct sales and distribution to deepen the expansion of overseas markets. On the one hand, the company has strengthened its direct sales channels and successfully increased the market share of receiving cards in overseas markets through in-depth cooperation with domestic and foreign screen manufacturers. On the other hand, on the basis of increasing the market share of receiving cards, the company has deepened market penetration and product distribution through distribution channels, accurately connected with the specific needs of project integrators and distributors, and provided customized solutions according to the actual situation of the project, which effectively promoted the sales and market share of video processing equipment.

In terms of global market expansion, Colorlight actively participates in a number of large-scale exhibitions, including the ISE2023 and Spain Barcelona Exhibition, with its Dutch and American subsidiaries as the fulcrum, and has held large-scale product promotion meetings in Dubai, Malaysia and other places, attracting many international customers to negotiate with the company and reach a contract.

At the same time, the company's high-quality, high-performance video processing equipment has a cost-effective competitive advantage in overseas markets, and in 2023, the company will increase the construction of marketing outlets in North America and Europe, improve pre-sales and after-sales services, and expand the coverage of overseas markets for mid-to-high-end products.

Not only that, Colorlight has also actively extended its business to Vietnam, Malaysia, the Philippines, Russia, South Korea, the United Arab Emirates, India and other places around the world, so that the sales volume of products continues to grow and the market share has increased steadily. The application scenarios of Colorlight products in overseas are gradually diversified, and they are used in competitive events, commercial advertisements and virtual shooting, and the future business growth is expected.

Based on Colorlight's competitiveness in the industry and the development potential of the industry, a number of brokerages have given "buy" or "overweight" ratings. Tianfeng Securities believes that Colorlight as the head manufacturer of LED display and control equipment, and video processing equipment has become the company's second growth pole, and we are optimistic about the company's profitability to further improve with the volume of high-end super main control products in the future.

Kaiyuan Securities said that Colorlight accelerated the expansion of overseas markets, and the high growth of overseas business income will further increase the company's comprehensive gross profit margin. It is optimistic that the company's market layout in the Middle East, Europe and the United States will continue to improve, which is expected to bring good help to the company's overseas performance.