2021 and 1Q22 results in line with market expectations

Leyard Optoelectronic announced its 2021 results: Revenue rose 33.4% YoY to Rmb8.852bn, attributable net profit turned positive at Rmb611mn, and recurring attributable net profit was Rmb555mn, within the preannounced range and in line with our forecast. In 4Q21, revenue rose 41% YoY to Rmb3.018bn, a new quarterly high, while attributable net profit turned positive at Rmb90mn.

In 2021, revenue from smart display business grew 33% YoY to Rmb6.898bn, with a gross margin of 30.2%; revenue from landscape lighting and cultural businesses grew 39.1% YoY to Rmb1.628bn, with a gross margin of 21.6%; revenue from virtual reality (VR) business grew 17% YoY to Rmb315mn, with a gross margin of 74.5%; and revenue from other businesses grew 58.1% YoY to Rmb12mn, with a gross margin of 25%.

The firm also announced its 1Q22 results: Revenue rose 18.2% YoY to Rmb1.762bn, attributable net profit rose 10.8% YoY to Rmb115mn, and recurring attributable net profit rose 7.6% YoY to Rmb103mn, in line with our forecast.

Trends to watch

The firm focuses on the smart display business, and maintains growth momentum by entering lower-tier markets. The firm’s smart display business accounted for 88% of its revenue in 1Q22, the highest in five years. Considering downstream customers’ higher requirements for cost-effective LED display products, the firm entered the mid and lower-tier markets with its cost-effective fine-pitch products under the Glux brand. In addition, it built a smart display industrial park in Changsha, which had reached a monthly production capacity of 6bn lamp beads by end-2021. In terms of micro-LED, the firm expanded its monthly production capacity by 800mn lamp beads and received orders of Rmb320mn in 2021.

The VR business continues to grow rapidly, and the firm provides core hardware for VR content production. The firm’s subsidiary, Virtual Point, saw its business grow 72% YoY in 2021 and 25% YoY in 1Q22. Virtual Point has self-developed OptiTrack motion capture products and is a leading solution provider in the motion capture industry. We believe that amid the boom of metaverse and ARVR content development, Virtual Point will continuously advance the construction of virtual space through self-developed technology, helping the firm’s VR business achieve high growth.

Financials and valuation

We keep our 2022 and 2023 EPS forecasts unchanged at Rmb0.42 and Rmb0.52. The stock is trading at 13.6x 2022e and 10.9x 2023e P/E. We maintain OUTPERFORM rating. Considering the decline in sector valuation, we lower our TP by 33% to Rmb8, which implies 19.3x 2022e and 15.5x 2023e P/E and offers 42% upside.

Risks

Disappointing demand for LED displays; disappointing development of new businesses such as micro-LED and VR.