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    Arcvideo announced on January 9 that it signed an agreement to sell an integrated video processing technology system to Al Arabiya valued at US$17.93mn （about Rmb114mn）。 This is the record largest order for the firm, and a benchmark order for the firm’s overseas business expansion.

    We believe the firm’s overseas business expansion is beating market expectation, and is evidence of a third growth driver taking shape.

    Comments New orders valued at more than Rmb100mn from Al Arabiya to drive

    rapid earnings growth in 2022. Al Arabiya is one of the most influential TV stations in the Arab World. Arcvideo could provide a comprehensive solution for Al Arabiya, covering video coding & decoding as well as recording systems, etc. Given the project progress of Al Arabiya, we think a majority of the order will be booked in 2022, which should boost Arcvideo’s 2022 earnings. We foresee rapid revenue and profit growth in 2022.

    A benchmark project with a top client; overseas business expansion

    to become a third growth driver. In the past, Arcvideo’s revenue was mostly from domestic business （only Rmb4mn overseas revenue in 2020）。

    We believe Al Arabiya’s order will become a benchmark project for the overseas expansion of the firm’s ultra-high-definition （UHD） video business. The broadcasting & TV sector is the main downstream for the firm’s UHD video coding & decoding business, and the business growth has slowed in recent years due to rising penetration rate of UHD video in China. However, GME data shows that globally the UHD video coding & decoding market approached US$2bn in 2020, and the firm is a tier-1 global participant for UHD video coding & decoding technologies and products. The firm’s products support common global standards such as H.265, and it boasts technological advantages in 8K video over mainstream overseas firms such as Harmonic. We see large upside for the firm’s overseas business expansion, and we expect the project to improve the firm’s international influence. We think that overseas business expansion will likely become a third growth driver for the firm along with UHD video and edge computing.

    Valuation and recommendation We keep our 2021 earnings forecast unchanged. We think the majority

    of the new order will be recorded in 2022; thus, we lift our 2022 forecast

    revenue and net profit 12% and 6% to Rmb806mn and Rmb196mn. We introduce our 2023 forecast revenue and net profit at Rmb981mn and

    Rmb235mn. We maintain an OUTPERFORM rating. We roll over valuation to 45x 2022e P/E, and raise TP 36% to Rmb110 （with 29% upside） as the firm’s overseas business expansion beats expectation and this may boost its growth potential. The stock is trading at 35x and 29x 2022-2023e P/E.

    Risks

    Uncertainty in overseas business.

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