The current situation of the company

The company issued an offer: 1) to buy back and write off no more than 392800000 shares (12.83% of the company's current total share capital) at a price of HK $2.80 per share, with a total amount not exceeding HK $1.1 billion. 2) the actual controller and its concerted actors, some senior executives and their families did not accept the offer, involving 42.96% of the shares.

Comment

The current market capitalization is undervalued, and buybacks are conducive to raising valuations: 1) the company's net book assets at the end of 2019 are 16 billion yuan (about HK $17.9 billion), while the company's current market capitalization is only HK $6.5 billion. The company's repurchase price of HK $2.80 per share is equivalent to 48% of its net assets per share. 2) the company's core assets include color TV business, 57.5% holding subsidiary Skyworth Digital 000810.SZ, as well as a large number of valuable properties, such as the three office buildings in the CBD business district of Shenzhen Science and Technology Park, and the international headquarters office building under construction in Qianhai Free Trade Zone. 3) We expect the company's share price to rise to HK $2.80 in the short term, under which investors can buy and sell to the company.

The company has the strength to buy back: 1) the total amount of this repurchase does not exceed HK $1.1 billion.

2) recently, the company sold two subsidiaries, involving the core assets of the Guangzhou plant, we expect to receive 1.307 billion yuan, resulting in a profit of 723 million yuan. This amount is sufficient to support this large-scale buyback activity.

The main industry was negatively affected by the epidemic: 1) according to AVC monitoring, online and offline retail sales in China's color TV market from April to May were + 1% and-23% respectively compared with the same period last year, which was better than that of 1Q20, but the demand recovery was weaker than that of other household appliances. From April to May, the online and offline retail sales of the company's color wires are-2% and-21% respectively compared with the same period last year, which is basically in line with the industry trend. 2) the company's set-top box business is mainly in the overseas market, and 2Q2020 is negatively affected by the overseas epidemic.

Valuation proposal

Regardless of the investment income from the sale of subsidiaries and the impact of the repurchase of cancelled shares, we maintain the 2020 EPS 21 forecast of RMB 0.24 / 0.28. Maintain a neutral rating and consider that share buybacks are good for the company's share price, raising the target price by 44 per cent to HK $2.80, corresponding to 11x/9x 2020amp 21e Pmax E, which is 32 per cent higher than the current share price. The company's current share price corresponds to 8x/7x 2020amp 21e Pmax E.

Risk.

The negative impact of the epidemic exceeded expectations; the risk of market competition.