Summary of Qizhong Technology Conference Call Company Overview - **Company**: Qizhong Technology - **Date**: April 29, 2025 Key Points Financial Performance - **Net Profit Decline**: Qizhong Technology's net profit for Q1 2025 dropped over 60% year-on-year, primarily due to increased depreciation, stock incentive expenses, R&D costs, underutilization of the Hefei plant, and price reductions from competitors, resulting in a historic low operating net profit margin of 7% [2][6][7] - **Revenue**: Q1 2025 revenue reached 474 million yuan, a 7% increase year-on-year but a 9.5% decrease quarter-on-quarter. The first quarter is expected to be the lowest point for the year, with gradual recovery anticipated in subsequent quarters [3] - **Gross Margin**: The gross margin for Q1 2025 was 23.7%, down from previous quarters and the same period last year. Operating expenses rose to 74 million yuan, influenced by stock incentive expenses and increased depreciation from the new Hefei plant [4] Business Segment Performance - **LCD Business**: The large-size LCD business maintained an 80% utilization rate, although the Hebei plant performed poorly at below 50%. The COP packaging technology showed strong performance, accounting for 26% of the business [2][8] - **Sales Distribution**: Export sales accounted for 36% while domestic sales made up 64%. There is potential for an increase in domestic sales proportion in the future [2][9] - **OLED Business**: OLED accounted for approximately 19% of revenue in Q1 2025, with expectations to approach 30% in the first half of the year. However, growth in the European and American markets was hindered by geopolitical events [2][18] Market Dynamics - **Impact of Tariffs**: The Trump administration's tariff policies are expected to lead to a decline in large-size TV shipments in June, although overall production demand is projected to grow by 10% in Q2 2025. The demand for small-size displays and mobile repair markets is also increasing significantly [2][17] - **Copper-Nickel Technology**: The rise in gold prices has accelerated the development of copper-nickel technology, with production capacity in Suzhou at 18,000 pieces and Hefei at 10,000 pieces, expected to start mass production by the end of May [2][13] Future Outlook - **Capacity Expansion**: Qizhong Technology plans to expand production capacity, with capital expenditures estimated at 600 million yuan for 2025. The Hefei plant is expected to reach a capacity of 20,000 pieces, with further expansions planned [5][22] - **Non-Display Business**: The non-display business is expected to contribute to revenue in the second half of 2025, with ongoing efforts to enhance production efficiency and reduce costs [14][25] - **Market Trends**: The display industry is anticipated to grow, particularly in the LCD and mobile device display sectors, with a shift towards domestic production and self-sufficiency [30] Challenges and Risks - **Profitability Pressure**: Increased depreciation and operating expenses are expected to exert pressure on gross margins over the next two years, particularly due to investments in non-display processes [24][25] - **Price Competition**: The ongoing price competition in the market, particularly from Taiwanese manufacturers, poses a risk to profitability and market stability [26][27] Conclusion - Qizhong Technology is navigating a challenging environment with significant declines in profit margins and revenue in Q1 2025. However, the company is strategically positioned for recovery through capacity expansion, technological advancements, and a focus on both display and non-display markets. The outlook remains cautiously optimistic, contingent on market conditions and geopolitical developments.