Yesterday, TCL Technology (000100.SZ) focused on receiving research from 8 Chinese and foreign investment institutions, including China Merchants Securities, to introduce the company's business conditions for the full year of 2023 and Q1 of 2024, and to answer questions about investors' concerns about the supply and demand and price trends of large panels, and the company's capital expenditure plans.

I. Introduction to business conditions for the full year of 2023

In 2023, TCL Technology achieved operating income of 174.367 billion yuan, up 4.69% year on year, net profit of 4.781 billion yuan, up 167.37% year on year, net profit attributable to shareholders of listed companies of 2,215 billion yuan, an increase of 747.60% year on year, and net operating cash flow of 25.315 billion yuan.

II. Introduction to the 2024 Q1 business situation

In the first quarter of 2024, TCL Technology achieved operating income of 39.908 billion yuan, a year-on-year increase of 1.18%. Net profit attributable to shareholders of listed companies was 240 million yuan, an increase of 789 million yuan over the previous year, and a net operating cash flow of 6.597 billion yuan.

Looking forward to the future, with the continuous optimization of the supply-side pattern and steady growth in demand area, it shows that the industry sentiment is expected to continue to improve, and the operating return of the company's semiconductor display business will further improve; the photovoltaic industry is currently at the bottom of the cycle, downstream demand is still growing rapidly, and the long-term positive trend of the industry will not change. The company's new energy photovoltaic business will strengthen operational resilience and smoothly cross the industry cycle with relative competitiveness. The company will adhere to the spirit of “hitting the mainstream, daring to win”, firmly grasping the opportunities of upgrading the technological manufacturing industry and transforming the global energy structure, and continue to implement the business strategy of “improving the quality and efficiency of operations, making up shortcomings, innovation-driven development, and accelerating global layout” to achieve sustainable and high-quality development and move towards global leadership.

III. Investor Q&A

1. Long-term supply and demand outlook for large panels?

A: First, from the demand side, global TV sales have stabilized at a low level in the past two years. The trend of larger sizes has driven the global average size growth, and the demand area for TV panels has maintained steady growth. According to third-party data, the average global TV size reached 50.7 inches in the first quarter of 2024, an increase of 2.4 inches over the same period last year. Larger size is a long-term trend in the industry and will drive the demand area to maintain steady long-term growth.

Second, from the supply-side perspective, the industry has no new large-scale production capacity investment, and overseas inefficient production capacity continues to be withdrawn, and the supply-side pattern continues to be optimized. As the industry pattern improved, on-demand production gradually became the industry consensus, and the industry entered a new stage of orderly development.

Therefore, in the context of steady growth in the demand area and continuous optimization of the supply-side pattern, the supply-demand relationship for large panels is expected to improve steadily, and the price of large products will also maintain a positive trend.

2. The level of utilization rate of the industry, and the outlook for the price trend of large panels this year?

A: The demand area for large panels continues to grow over a long period of time, but when viewed quarterly and monthly, there will be seasonal fluctuations in demand. Overall, the second and third quarters are peak demand seasons for the industry. In the case of on-demand production on the supply side, it is expected that the operating rate of the industry will increase during the peak season and decrease in the off-season. As a result, panel prices will rise during the peak season and fluctuate slightly during the off-season.

In the first quarter of this year, due to the impact of the Spring Festival holiday and annual repairs, etc., the operating rate of the industry was low. Since March, demand for stocking has led to a marked recovery in the utilization rate and price increases. Currently, the peak stocking season in the first half of the year is coming to an end, and it is expected that the industry's operating rate will decline somewhat by the end of the second quarter. With the arrival of the peak stocking season in the second half of the year, utilization rates and prices still have upward momentum.

From a structural point of view, 65-inch and 75-inch main products will benefit from a more concentrated supply pattern and stronger demand, thereby having better price performance. In the long run, demand for large panels is growing steadily, there is no new production line capacity on the supply side, and the pattern continues to be optimized. The average annual operating rate and profit level of the industry are expected to improve year by year.

3. IT panel price outlook, the company's IT business progress?

A: Since display panels are close in size to TV panels, production capacity will be affected by TV panel production capacity utilization rates. As higher generation line production capacity increases, display panel production capacity also tends to be tight. At the same time, downstream display terminal shipments are picking up, so there has been a slight upward trend in display panel prices recently.

The current price of laptop panels is relatively stable, and there is a slight structural increase in price. In the long run, on the demand side, the AI wave is expected to catalyze an increase in demand for laptop terminals; on the supply side, the superior production capacity of domestic manufacturers is expected to continue to replace inefficient overseas production capacity, and the supply-side structure will be further improved. The company maintains a positive attitude towards long-term trends in laptop panels.

The IT business is one of the engines of TCL Huaxing's growth. As the Guangzhou T9 production line climbed smoothly, the company's IT business developed rapidly, and the display shipment ranking rose to the top three in the world. Among them, the e-sports display market share is the highest in the world, and laptop and automotive products were introduced and gradually expanded by brand customers as planned.

4. OLED product demand outlook, the company's OLED business progress and production capacity?

A: The penetration of flexible OLED panels in the mobile phone sector continues to grow. At the same time, high-end technology products represented by LTPO pose challenges to supply-side production line capacity, further driving the balance between supply and demand for OLED panels.

Beginning in the fourth quarter of last year, the company's flexible OLED products were in short supply, and flexible OLED mobile phone panel shipments rose to third place in the world in the first quarter of 2024. The flexible OLED production capacity design of the company's T4 is 45k/month. Due to the impact of new product development and the introduction of new technology and new processes, etc., the actual production capacity will be slightly reduced. In order to better meet customer needs, the company partially modified the production line to maximize capacity utilization and increase the proportion of high-end production capacity such as LTPO.

The company firmly implements differentiated and high-end strategies, continuously increases the proportion of high-end products, and the operating efficiency of the OLED business has improved markedly. This year, the company will also further improve the product structure and cost optimization to accelerate the performance improvement of the OLED business.

5. Show future trends in business depreciation and capital expenditure?

A: At present, most of the company's 8-generation production lines have ended depreciation, but it has climbed down with new production capacity such as T9. According to the current production line situation, depreciation in 2025 is expected to increase slightly compared to 2024, and peak in 2025. Beginning in 2026, it is indicated that business depreciation will show a downward trend. Subsequently, as depreciation of the 11th generation line and OLED production line expires one after another, depreciation will be further reduced.

However, from the perspective of depreciation as a share of revenue, as new high-value-added lines such as T9 drive rapid revenue growth, the long-term perspective shows a downward trend in the depreciation of the business as a share of revenue.

The company shows that the production capacity layout of the business is getting better. Subsequent capital expenses are mainly concentrated on the construction of phase 2 of the T9 production line and the construction of part of the T3 production capacity expansion, which are planned capital expenses; there are currently no investment plans for new production line companies, and overall capital expenditure will show a downward trend in the future.

6. How is the company's printed OLED production line progressing?

A: The company plans to invest in a 5.5-generation OLED printing test line in Wuhan. It is currently carrying out production line equipment installation, installation and commissioning. It is expected that small-batch mass production will be achieved within 2024. The company's printed OLED technology development and production line investment progress is in line with expectations. We will carefully promote the printed OLED industrialization process based on this test line. The company currently has no plans for further capital expenditure or new production lines.

7. Does the company have plans to invest in the 8th generation OLED production line?

A: The company currently has no plans to invest in the 8th generation OLED production line. Since 2014, TCL Huaxing has been actively exploring R&D in the field of printing OLED technology. With the joint efforts of partners in the material and equipment industry chain, preparations for the printing and printing industry have improved in recent years, and as a result, the company has also promoted the construction of a 5.5-generation test line. However, the current demand for downstream OLED medium size products, the maturity of the printing industry chain, and the company's technological progress have not yet met the conditions for large-scale mass production, and the company will proceed with a prudent attitude.