Core views

Omar plans to change the company's name to “TCL Smart Home” for short. We believe that in the future, we should re-understand the investment value of listed companies from the perspective of TCL Group's smart home platform. Omar's ODM+TCL OBM main business will give full play to their respective leading advantages and form a more obvious synergy effect. TCL Baidian has successfully reached the forefront of the market and has built strong ecological and technological competitiveness by relying on Honghu AI, which is expected to help the company develop its advantages and gain a considerable market share in the smart home era.

occurrences

On April 15, 2024, the company issued a notice concerning the proposed change of the company name, stock abbreviation, and amendments to the “Articles of Association”. It intends to change the company name to “Guangdong TCL Smart Home Appliance Co., Ltd.” and the stock abbreviation to “TCL Smart Home”.

Brief review

1. TCL enters the market and devotes itself to business, and the picture of the beginning of a new journey is already there

After this name change, the picture of TCL white power's comprehensive layout is already there. We believe it is necessary to re-understand Omagh's investment value from the perspective of TCL Group's smart home platform.

Since TCL joined the company, Omar's operating efficiency has improved markedly, and its performance has increased year by year. At the same time, the Group is gradually promoting the integration and injection of its high-quality white power assets. Currently, the smart home platform has been fully displayed.

TCL's layout was resumed. In May 2021, TCL Home Appliance Group obtained control of Omar Electric Appliances and boosted and optimized business operations. The annual results were close to reversing losses. The company's net profit to mother increased by 630% and 69% in 2022 and 2023, respectively. In December 2023, Omar completed the acquisition of “Hefei Home Appliances”, a platform under TCL that specializes in refrigerators and washing machines. In addition to operating its own TCL brand, Hefei Home Appliances also provides ODM services to customers.

On April 15, 2024, Omar issued an announcement on the proposed change of the company name, stock abbreviation, and amendments to the “Articles of Association”. It intends to change the company name to “Guangdong TCL Smart Home Appliance Co., Ltd.”, which means that it will officially announce that it will become a comprehensive smart home platform under TCL, and also operate the two main businesses of Omar ODM and TCL's own brands.

2. How do you view the synergy of TCL+ Omar?

After TCL assets are injected, Omar ODM+TCL OBM's two main businesses will give full play to their respective leading advantages and form a more obvious synergy effect. Listed companies' refrigerator business production capacity will increase markedly, add production bases in Hefei, optimize business layout, and use the supporting advantages of Hefei's cold washing industry chain to strengthen the scale effect, thus further consolidating the core competitiveness of the refrigerator business. Listed companies added a washing machine business to the refrigerator business, shifting from a single product structure to a multi-category product matrix, and optimizing the product structure, which is conducive to providing overall solutions from a higher perspective of cold washing products, improving customer stickiness, forming a more stable profit model, and enhancing profitability and overall competitiveness. TCL White Electric will rely on Omar's high-quality production capacity to expand its own brand business. In the domestic market, TCL's own brand refrigerators and washing machines are well known, and domestic sales rank 5th in the industry in 2022. Combined with Omar's leading production capacity and technology growth, it is expected to further expand its market share.

3. How do you view the present and future of TCL white batteries?

TCL Industrial has achieved great results in the development of a full range of home appliances. In 2022, TCL Industrial achieved revenue of 106.09 billion yuan, net profit after deducting non-return to mother of 1.24 billion yuan, an increase of 149.7% over the previous year. According to data from authoritative third parties such as Industry Online, Omdia, and IDC, TCL smart screens, air conditioners, washing machines, refrigerators, and Android tablets ranked 2, 4, 5, 5, and 5 respectively, ranking among the highest in the market overall.

Specifically, the TCL category already covers various combinations such as air washing, smart screens, door locks, and wearable devices to fully meet consumers' household appliance packaging needs. In 2022, TCL air conditioning achieved revenue of 20.9 billion yuan, up 14.8% year on year, of which 12.9 million units were shipped, up 10.6% year on year. In 2023, the company's air conditioner shipments successfully exceeded 16 million units, an increase of more than 24% year on year. TCL Baidian achieved revenue of 3.84 billion yuan, an increase of 5.2% over the previous year. Of these, 2.24 million washing machines were shipped, up 3.1% year on year; refrigerator shipments: 2.05 million units, up 10.4% year on year.

We believe that according to the company's announcement to “fully realize the interconnection of various household appliances through technological innovation and seasonal self-learning and optimization of operation collaboration”, we expect that more categories under TCL Industrial will appear at the level of listed companies in the future.

How do you see the future of TCL appliances: The share gripper is intelligence. The company name of TCL Smart Home indicates that the company will take AI smart home appliances as its development direction, and the intelligent accumulation achieved over the years of development of black electronics and chips is also a competitive point of differentiation between the company and current white electronics leaders.

TCL Group has its own excellent large-screen capabilities, Zhonghuan Semiconductor's chip capabilities, and Honghu's AI capabilities, and has 25 R&D centers and 6 ecological laboratories around the world, building strong ecological and technological competitiveness around Mini LED display technology, artificial intelligence, IoT, AR/VR, cloud computing, etc. Among them, Honghu Laboratory has set up 4 technology centers around the world. More than 200 big data cloud platforms and cloud platform teams focus on technology research and commercialization innovation such as AI, IoT, and cloud services, providing strong technical research support for the implementation of TCL's AI×IoT strategy. With the development and popularization of AI technology, intelligence is an important direction for the future of home appliances. It is expected to disrupt the current pattern. TCL occupies a leading position in the market in related technology fields, and is expected to use its advantages to gain more users and market share.

Investment advice: We expect the company to achieve revenue of 174, 196, and 21.6 billion yuan respectively in 2024-2026, with year-on-year increases of 14.88%, 12.23%, and 10.31%; net profit to mother of 8.83, 10.14, and 1,129 billion yuan, up 12.20%, 14.84%, and 11.39% year-on-year respectively. Corresponding PE is 13.28X, 11.56X, and 10.38X respectively, maintaining the “buy” rating

Risk warning:

1. The macroeconomic growth rate fell short of expectations. Household appliances are durable consumer goods and are closely related to residents' income expectations. If macroeconomic growth slows down, it may have a big impact on the company's product sales;

2. The decline in raw material prices falls short of expectations: the company's raw material costs account for a large share of operating costs. If the bulk price rises again, the company's profitability will weaken; according to sensitivity analysis, if the company's 24-year gross margin falls by 2 pct/1pct/0pct, respectively, from a 23-year basis, the net profit growth rate to the mother is -7.41%/2.39%/12.20%, respectively, against the backdrop of no changes in other assumptions.

3. Overseas market risk: Uncertainty in the overseas environment has intensified in recent years, and the company's export sales account is relatively high. If external demand falls, performance will be impacted accordingly; 4. Market competition has intensified: in a weak market environment, industry competition is more intense, and the company has the risk of losing share and low price competition dragging down profits.