TCL Electronics: Forging ahead in the midst of improvements
What changes have taken place in the company's operations? TCL Electronics announced an impressive share award plan on 24/1, aiming for an adjusted profit of 800 million yuan in 2023, with growth of 50-65%, 70-100%, and 90-150% in 24/25/26. In the past, the company's shortcomings were low net interest rates, excessive losses in non-core businesses, and complicated related transactions. However, the introduction of share awards shows that these doubts will gradually be eliminated, and we will welcome a new look of TCL Electronics.
How exactly can it be improved? ① One-off factors affecting performance have been eliminated, and performance stability will improve: The company's asset injection and sale in 2022 have been completed. Furthermore, the small to medium business, which is one of the company's biggest bleeding points, is expected to drastically reduce losses in 24, and the amortization of Internet equity incentive expenses will also be drastically reduced. 2024 is the first critical year for the company to start a new chapter.
② Organizational structure adjustment, efficiency improvement and fee reduction: In the past, the front-end sales department had a high degree of freedom under the direction of scale, leading to high sales rates.
In 2023, the company gradually switched to an efficiency orientation, splitting the 2 Chinese and foreign regions into 6 marketing headquarters. Under the new flat sales structure and the goal of each department bearing its own profits and losses, it is expected to improve the company's previous extensive expense allocation method.
Core growth points: Where is the main TV industry growing?
① High-end: The penetration of high-end products such as MINILED and large screens accelerates profit growth. We expect TCL's MINILED global sales to increase in 2024. Domestic large screens have become rapidly popular in recent years. More than half of sales come from 60-inch+ screens, which can still contribute 20-30% of the average price increase in the future.
② Comprehensive: Thunderbird helps the company make up for shortcomings in cost performance. Thunderbird is positioned as the ultimate “storage” TV. The company has accelerated promotion in recent years, with sales CAGR reaching 161% in 21-23. MINILED products were added in '24. Relying on this, the company is expected to increase its growth and profit. Compared to the VIDDA benchmark, Thunderbird is expected to have 38% room for growth.
③ Globalization: The global market share has reached 13%, and the company has entered a new stage of development, deepening the high-end share to become the core of the “Chinese brand” strategy. Looking at the subregions, North America is the company's base; in Europe, the company has channel resources brought by Alcatel of France; and emerging markets have been the company's main source of growth in the past three years. Looking at the medium to long term, TCL's future direction focuses on structural adjustment. The main strategies are to increase investment in middle and high-end channel resources and increase the channel distribution rate of high-end TVs; launch new high-quality and cost-effective products to form a cost-effective advantage with Korean brands. Most of the products listed by 24Q1 are positioned in the middle to high-end, significantly increasing TCL's overall average sales price; and sponsoring local events and teams in terms of marketing to break through local sales.
Internet business: consolidated business, strong profit and fast growth rate
Internet business: High profitability is remarkable, and gross margin is stable at 50% +. In the past five years, the company's revenue CAGR of this business has been driven by an increase in ARPU to reach 44%. The growth rate is expected to continue as consumers gradually develop unconscious consumption habits.
Photovoltaics, all-category marketing (distribution of white electricity), and smart home: The TCL electronic platform positions the retail terminal brand business. The company uses channel synergy to expand diversified businesses. Driven by accelerated entry into TCL sales outlets and white electricity catalyzed by new full-time sales of white electricity, there is a high room for growth.
Profit forecasts and investment advice
In the short term, the company reduced losses in non-core businesses such as small-scale ones, and organizational reforms emphasized that each business segment covered its own profits and losses to improve operating efficiency, and the main medium- to long-term black power business also entered the profit improvement stage. The company began a new era of growth after announcing the share award plan in early '24, which can give the company a certain premium. The company's net profit for 24-26 is estimated to be HK$13, 1.6, and 2 billion (YOY +77%, 24%, 23%), corresponding to PE of 12, 10, and 8. Covered for the first time, giving a “buy rating”.
Risk warning: Increased domestic competition, increased overseas competition, continued increase in panel costs, foreign exchange fluctuations, and risks of untimely updates to research information.