KTC TECHNOLOGY(001308)：DEVELOPING NEW TECHNOLOGIES AND BUILDING A DIVERSIFIED SMART DISPLAY PORTFOLIO

　　KTC Technology recorded 1H23 revenue/attributable net profit （ANP） of Rmb4,970mn/544mn, -13.3%/-21.0% YoY; the declines were mainly due to lower shipments of intelligent interactive tablets and product selling prices. In the short term, we expect the Company's average selling price （ASP） to rebound amid the recovery in panel prices, which should drive a revenue improvement in 2H23. From a long-term perspective, on the one hand, there remains large room for development of the global education/conference intelligent interactive tablet markets, and KTC Technology's professional and innovative display products are likely to inject new impetus into its growth; on the other hand, the Company's　differentiated competitive strategy in the smart TV business should allow it to stand out from the red sea market. We lower our forecasts for KTC Technology's 2023E/24E/25E EPS to Rmb1.80/2.19/2.46 （previous: Rmb3.02/3.74/4.36）。 With reference to the valuations of comparable companies in the industry, we assign 14x 2024E PE to derive a target price of Rmb31, and retain the "BUY" rating.
　　 1H23 review: Performance hurt by lower shipments of intelligent interactive tablets and product selling prices.
　　1） Revenue: The Company's operating revenue declined by 13.3% to Rmb4,970mn in 1H23, mainly due to a YoY decline in ASP and lower shipments of intelligent interactive tablets during the period. 2Q23 revenue fell by 6.76% to Rmb2,805mn; the decline was much narrower than in 1Q23, which we attribute to the Company's price hikes amid the recovery of panel prices. By business, revenue from intelligent interactive display products/smart TVs/design & processing/component sales accounted for 40.81%/50.18%/5.15%/3.87% of the total in 1H23. 2） Profit and expenses: The Company's selling gross margin remained relatively stable in 1H23, dropping by 0.9ppts to 18.7%; ANP fell by 21.0% to Rmb544mn, and ANP after non-recurring items declined by 11.6% to Rmb531mn. In 1H23, selling/administrative/R&D expense ratios reached 2.45%/2.97%/5.55%, +0.45/+0.85 /+1.17ppts YoY, the higher expense ratios were mainly due to lower revenue and a higher operating leverage.
　　 Intelligent interactive display products: Intelligent interactive tablets may recover over the long run; sales of professional and innovative products surged.
　　In 1H23, revenue from the Company's intelligent interactive display products fell by 19.9% to Rmb2,029mn, and gross margin dropped by 1.1ppts to 24.2%. Specifically: 1） Intelligent interactive tablets: Shipments declined by 32.3% YoY in 1H23 mainly due to the macroeconomic impact and the high comparable base last year, but KTC Technology's revenue is likely to improve amid the recovery of panel prices, as the Company has a solid lead in an industry with broad prospects. 2） Professional display products: Shipments jumped by 117.4% YoY in 1H23 with strong performance of esports, medical and commercial displays. 3） Innovative display products: With a focus on technologies such as AI, AR and VR, KTC Technology has been actively
　　developing new technologies and improving its presence in innovative display products, which have been well received: shipments grew by 127.1% YoY in 1H23.
　　 Smart TV: Revenue remained stable; tapping into emerging markets. KTC Technology's operating revenue from smart TVs rose by 0.1% to Rmb2,495mn in 1H23, and gross margin dipped 0.2ppts to 15.7%. Shipments grew by 14.4% YoY thanks to new orders in North America and effective client expansion in emerging markets such as Latin America and the Middle East. The Company maintained its leading position in 1H23, with a market share of 6.4% by shipment volume, ranking it fifth globally. We believe KTC Technology will continue to benefit from the relatively robust demand for smart TVs in emerging markets.
　　 Design, processing & component sales: Optimized structure and stabilizing development.
　　Revenue from design & processing/component sales reached Rmb256mn/192mn in 1H23, -52.2%/+8.6% YoY. 1） The contraction of the design & processing business was mainly due to the Company's optimization of business structure by shifting from design & processing clients to the intelligent display business. 2） The component sales business has been relatively stable in recent years. In the future, the Company will focus on the development of the manufacturing technology order （MTO） cooperation model, and provide localized purchasing services to LocalKing customers by leveraging its advanced production and manufacturing advantages.
　　 Potential risks:
　　Global economic recovery missing expectations; risks of international trade frictions; fluctuations in major raw material prices; market fluctuations in the industries of downstream customers; exchange rate fluctuations.
　　 Investment recommendation:
　　KTC Technology recorded revenue/ANP of Rmb4,970mn/544mn in 1H23, -13.3%/-21.0% YoY mainly due to lower product prices. In the short term, we expect the Company's ASP to rebound amid the recovery in panel prices, which should drive a revenue improvement in 2H23. From a long-term perspective, on the one hand, there remains large room for development of the global education/conference intelligent interactive tablet markets, and KTC Technology's professional and innovative display products are likely to inject new impetus into its growth; on the other hand, the Company's differentiated competitive strategy in the smart TV business should allow it to stand out from the red sea market. Given the short-term pressure on KTC Technology's revenue and profit in 1H23 and the conversion of capital reserves into share capital （three new shares for every ten existing shares）， we lower our forecasts for KTC Technology's 2023E/24E/25E EPS to Rmb1.80/2.19/2.46 （previous: Rmb3.02/3.74/4.36）。 With reference to the valuations of comparable companies in the industry, i.e., 15x PE for Shiyuan Electronic （002841.SZ）， 18x PE for China Reform Culture （600636.SH） and 10x PE for Hitevision （002955.SZ） （all from CITICS Research forecasts）， and considering the rapid development of KTC Technology's professional and display businesses, we assign 14x 2024E PE to derive a target price of Rmb31, and retain the "BUY" rating.
【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。

   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。