Description of the event

BOE announced its 2024 quarterly report. During the reporting period, the company achieved operating income of 45.9 billion yuan, an increase of 20.84% year on year; achieved net profit attributable to mother of 984 million yuan, up 297.80% year on year, close to the forecast limit; realized net profit withheld from non-return to mother of 597 million yuan, which significantly reversed losses year on year; and net operating cash flow of 162 billion yuan, up 60.34% year on year. Non-recurring profits and losses were mainly government subsidies of $449 million.

Incident comments

According to Omdia statistics, the operating rate of LCD panels in January-March (including IT) was 75%, 64%, and 82%, respectively, an average increase of 2.31 pct over Q4. Therefore, there was less month-on-month downward pressure on the company's LCD business in the first quarter, which can also be reflected from the perspective that minority shareholders' profit and loss remained flat month-on-month. It was mainly due to a high decline in the stocking demand of high-end flexible OLED customers.

Looking ahead to the 2024Q2 to 2024Q3 traditional panel stocking season, the European Cup will be held in mid-June, the America's Cup will be held at the end of June, and the Paris Olympics will open at the end of July. We believe that the continued price increase of large-size LCDs, driven by the demand for stocking events, will be the main driving factor in the month-on-month performance. The price of large 65-inch and above TV panels, which are mainly cut by the company's 10.5 generation line, has broken through the high of last year's peak season, and there is still a further upward trend. In addition, some IT products also showed signs of slight price increases due to production line capacity squeeze, which is also beneficial to BOE, which accounts for a relatively high IT business. In terms of flexible OLEDs, the company's annual shipment target is 160 million pieces, an increase of more than 30% over the previous year, and there are expectations for a new round of price increases for entry-level Android products. The company's flexible OLED business is expected to reduce losses or achieve break-even.

We expect that considering the restoration of the price center, the company's net operating cash flow is expected to exceed 45 billion yuan in 2024. If capital expenditure remains at last year's level, free cash flow will exceed 20 billion yuan. We expect that as the company's capital expenditure requirements decline in the future, depreciation is reduced, and the profit statement is repaired, there is great potential to increase dividends, and it is expected to become a high-dividend asset in the future. We expect the company's 2024-2026 EPS to be 0.18, 0.29, and 0.40, respectively, and the corresponding PE will be 24.20X, 15.03X, and 10.86X, respectively.

Risk warning

1. The recovery in TV demand falls short of expectations;

2. The downward pressure on flexible OLED prices in the second quarter.