1H21 performance is in line with our expectations
The company announced 1H21 results: operating income 22.57 billion yuan, year-on-year + 41.2%, return to the mother net profit of 410 million yuan, + 4.6% year-on-year. Corresponding to 2Q21 operating income of 12.63 billion yuan, year-on-year + 37%, home net profit of 240 million yuan, + 26% year-on-year. The performance is in line with our expectations.
The growth rate of the main overseas business is eye-catching: 1) 1H21 multimedia business year-on-year + 45.4%, including overseas TV revenue + 68.4% to 4.76 billion yuan, sales + 6.6%, corresponding to the average price + 58%; domestic TV revenue + 13.7% to 5.87 billion yuan, sales-15.6%, corresponding to the average price + 35%. 2) affected by the increase in panel prices, the profit margin of the multimedia segment is 0.7%, compared with the same period last year-2.1ppt. 3) 1H21 overseas TV gross profit margin year-on-year + 0.9ppt, mainly due to the company's strategic abandonment of some low-margin projects to focus on emerging consumer countries, while benefiting from the development of overseas e-commerce channels, own-brand business + 13% year-on-year.
4) the growth of the domestic TV industry is weak, and the company actively adjusts its sales strategy to develop OLED high-end TV products. According to AVC, the company's OLED market share is year-on-year + 4.4ppt. Kukai Internet business is growing rapidly: 1) 1H21's Internet value-added service income is 610 million yuan, + 19.6% year-on-year, and business gross profit margin is 51.9%, year-on-year + 9.7ppt, mainly from the substantial increase in advertising revenue under the "residential economy". 2) as of 1H21, Kukai system has covered a total of 96 million smart terminals in the Chinese market, an increase of 48 per cent compared with the end of 2020. 3) the net profit of 1H21 subsidiary Skyworth Digital (set-top box) is + 59% compared with the same period last year, and the overseas profit level has declined significantly, mainly due to the shortage of raw materials and overseas logistics.
Other businesses: 1) the company has newly added photovoltaic business, and plans to gradually expand to industrial and commercial photovoltaic, intelligent energy management and other businesses with household photovoltaic as the entry point, with 1H21 achieving an income of 830 million yuan. 2) the business income of White Power is + 17% compared with the same period last year, which basically returns to the level of the same period in 19 years, but affected by the increase in the price of raw materials, the segment profit margin is year-on-year-1.1ppto Development trend Company plans to spin off Skyworth Electric Appliances to be listed on the gem, mainly including ice washing and other white power businesses, which are expected to reflect the intrinsic value of the business and enhance brand awareness through independent listing. The pressure on raw materials is still there, and the company's profitability in the second half of the year is under pressure. Earnings forecasts and valuations remain unchanged in 2021 and 2022. The current share price corresponds to 5.5 times 2021 / 2022 / 4.6 times earnings. Maintain a neutral rating and a target price of HK $2.59, corresponding to 5.9 times 2021 earnings and 5.0 times 2022 earnings, with 8.8 per cent upside from the current share price.
Risk.
RMB exchange rate fluctuation risk; Sino-US trade friction risk; new business expansion risk.