TCL Technology: the world's leading intelligent technology company TCL Technology in 2020 shows that the shipping area of large-size products increased by 32.9%, the number of shipments increased by 11%, and the shipping area of small and medium-sized products increased by 4.2%. The market share of TV panel occupies the second place, of which 55 inch panel product share is the first in the world; LTPS notebook panel shipments are the second in the world, and the semiconductor display leading position is further stable.
Large size: medium-and long-term stable profit cattle + cash cattle
Since prices bottomed out in June 2020, large TV panels have experienced the highest increase and the longest price cycle in a decade.
We believe that the long-term tight situation between supply and demand will continue to extend to the third quarter of 2021. The sharp fluctuations in the past liquid crystal cycle come from the supply side, and the future cycle fluctuations are expected to converge with the cessation of industrial transfer and the improvement of industry concentration. In the future, the gross profit margin of the company's large panel business is expected to remain in the range of 15% Mel 25%, fluctuating with the demand fluctuation of the industry in the off-peak season. In the next 1-2 years, the traditional main business will achieve the growth of both volume and price in the upward cycle of LCD, and gradually develop into a stable profit cow and cash cow.
Small and medium size: OLED volume, IT refers to the high-end market
OLED has the characteristics of low power consumption, wide viewing angle, fast response speed, high resolution, light weight and good flexibility. Flexible OLED has great potential in 3C high-end display fields (smart phone / folding phone / curved screen phone) and AR/VR. According to the forecast of TrendForce, TCL technology will continue to erode the market share of Samsung and LG Display in the future, and the strong competition pattern of flexible OLED is also expected to bring better profitability to the leading enterprises in the future. TCL Technology currently has two sixth-generation lines cut into small and medium-sized production lines, and a high-generation oxide technology panel production line-T9 project is under construction. The after-tax internal rate of return of the project is expected to reach 10.94%, and the after-tax static investment payback period is 8.54 years.
Photovoltaic & material: open up the second track with long slope and thick snow
In July 2020, TCL Technology publicly acquired shares in Central and completed the merger in the fourth quarter. Central Co., Ltd. is a leading manufacturer of photovoltaic semiconductor materials in China, covering the whole chain of photovoltaic industry. TCL acquires Central shares to endow its semiconductor display business and expects to open up a new path for companies to gain new growth opportunities in the photovoltaic sector. The mixed reform of Central shares has achieved remarkable results, through the introduction of TCL market-oriented management concept and system, superimposed incentive scheme, effectively mobilize the enthusiasm of managers and technicians. At the same time, the central share debt structure was optimized. According to the mid-2021 report, the company's short-term borrowing decreased by 29.8% compared with the beginning of the period, long-term borrowing increased by 56.1% compared with the beginning of the period, and interest expenses decreased significantly.
Key recommendation: two-wheel drive, two-wing development
Based on the following three points of logic, we mainly recommend semiconductor display and semiconductor material leader TCL technology: 1) large-size LCD industry transfer is coming to an end, industry cycle fluctuations converge, leading profitability will be more stable under duopoly competition, and large-size LCD business is expected to switch from PB to PE valuation system. 2) the T9+T5 project cuts into the high-end IT display market, with advanced oxide technology and new exposure machines and other advantages, to share the high demand for IT in the "post-epidemic era", it is expected that TCL Huaxing's global share of IT is expected to increase rapidly from 2023; 3) the acquisition of semiconductor photovoltaic leading Central shares to open the second track with thick snow on the long slope.
G12 single crystal silicon wafer + stacked tile components + intelligent manufacturing to create a low-cost industrial chain, the global competitiveness continues to improve. Through the mixed reform, the management concept of Central has been changed, the incentive mechanism has been strengthened, and vitality has been quickly stimulated. We estimate that the EPS of the company from 2021 to 2023 is 0.72,0.65,0.84 respectively, and the PE from 2021 to 2023 is 8.24,9.17,7.03 respectively.
Risk hint
1. The price correction pressure of large-size LCD panels in the off-season
2. The progress of the introduction of T9 high-end products into customers is not as expected.