3Q19 performance is lower than we expected.
The company announced 3Q19 results: 1-3Q19 operating income of 62.21 billion yuan, an increase of 7.6% over the same period last year; net profit of 38 million yuan, down 81.2% from the same period last year, corresponding to a profit of 0.0083 yuan per share. Of this total, 3Q19's operating income was 22.242 billion yuan, an increase of 15.9% over the same period last year, and its net profit was-13 million yuan, down 128.5% from the same period last year. The company's performance is lower than we expected, mainly due to the fierce price war in the color TV market.
3Q19 financial analysis: 1) gross profit margin 11.9%, down 0.3ppt from the same period last year, mainly due to fierce competition in the color TV market, 11.9% is very close to the all-time low gross profit margin of 11.5%. 2) the management fee is stable,-0.1% year-on-year, corresponding to the management expense rate of 1.8%; in order to open up the market, the sales cost is + 16.5% year-on-year, and the corresponding sales expense rate is 6.9%; in addition, the company increases its R & D investment, accounting for 1.7% of the income, which is at a low level in home appliance companies. 3) the exchange rate fluctuated sharply, resulting in a significant reduction in exchange losses, and the net income from fair value changes increased by 27% compared with the same period last year.
Trend of development
The domestic color TV market remains depressed. 1) under the impact of low-price dumping by XIAOMI and other enterprises, the price war in the color TV market is fierce. According to AVC data monitoring, the online and offline retail quota of 1Q-3Q19 color TV sets is-4.5% and 16.4% compared with the same period last year, and the average online retail price is still much lower than that of the same period last year. 2) from July to August 2019, the global TV market shipped 35.58 million units, which was the same as the same period last year. Among them, the shipments of China's TV market in July / August were-11% and 7% respectively compared with the same period last year, still declining.
The performance of the Changhong color TV market needs to be improved: 1) according to AVC data, the online and offline retail sales of 1Q-3Q19 Changhong color wires are-5.5% and-21% respectively compared with the same period last year, which are weaker than those of the color TV industry. 2) the global shipments of Changhong color TV sets in July / August were-19% and 28% respectively compared with the same period last year, which continued to decline sharply and the market share decreased. 3) under the pressure of the demand of the color TV market and the intensification of competition in the industry, the competitiveness of the company's products is not prominent enough, and we expect the company's business to continue to face greater pressure in the short term.
Profit forecast and valuation
As the performance is lower than we expected, the forecast of EPS in 2019 / 2020 will be reduced by 21% to 0.06 yuan / 0.07 yuan. The current stock price corresponds to 45.5 times / 39.5 times earnings in 2019 / 2020. Maintain a neutral rating and a target price of 2.88 yuan, corresponding to 47.3 times 2019 price-to-earnings ratio and 41.0 times 2020 price-to-earnings ratio, which has 4% upside compared to the current stock price.
Competition in the risk color TV market aggravates the risk.