Incident: 24H1 achieved operating income of HK$45.49 billion, +30.3% YoY; realized gross profit of HK$7.75 billion, +19.2% YoY; and realized adjusted net profit to mother of HK$0.65 billion, +147.3% YoY.

The Q2 tournament boosted the global TV market, and the global leading edge continued to expand. On the industry side, according to Ovirevo data, global TV shipments in the first half of 2024 were 90.2M, up 1.1% year on year. Of these, Q2 shipments were 47.0M, up 2.8% year on year. Global color TV market shipping performance improved sequentially in the second quarter, driven by preparations for events such as the European Cup, Paris Olympics, and America's Cup in Germany. Looking at the subregions, 24H1 Asia Pacific/ China/ Europe/ Japan/ Latin America/ Middle East/ Middle Africa/North America shipped 16/17/18/2/11/6/21M respectively, with a year-on-year ratio of +4%/-4%/+2%/-1%/+1%, respectively. The European market is leading the growth rate driven by continued easing of high inflation and spectator demand. Emerging markets such as Asia Pacific and Latin America also performed well. On the enterprise side, TCL's global shipments in the first half of the year reached 12.52 million units, +9.2% year over year (including 6.68 million units in Q2, +12.9% year over year), and TCL TV's global shipment market share was +0.9 pct to 13.3% year over year (Omdia caliber).

It shows the large size of the business+continuous optimization of the structure. 1) Display business: The company's 24H1 shows overall revenue of HK$30.1 billion, +21% year-on-year, of which large display/small display/smart commercial display revenue is HK$25.9/3.8/0.5 billion, yoy +23%/+11%/+11%. Regional split, TCL TV's domestic/overseas market shipments in the first half of the year were +5%/+10%, and revenue was +21%/+24% year over year to HK$8.4/17.6 billion. The promotion of the TCL+ Thunderbird dual brand strategy and high shipments in Europe and emerging markets led to steady growth at home and abroad. In terms of structure, shipments of TCL TVs over 75 inch in the first half of the year were +35%, and Quantum Dot/Mini LED TV shipments were +64%/+122% year-on-year, respectively. Mini LED remained the world leader in scale. Affected by changes in domestic brand structure, overseas regional structure and rising panel costs, the company's H1 showed an overall gross margin of -1.9 pct to 16.9% year-on-year. 2) Internet business: 24H1 revenue was +9% year-on-year to HK$1.2 billion, and gross margin remained high at 54.0%. The company continues to explore domestic Internet vertical innovation business development and overseas Internet monetization capabilities, and the gross margin has stabilized at 54.0%. 3) Innovative business:

Revenue from the 24H1 PV business was +213% to HK$5.3 billion, revenue from all categories of marketing business was +28% to HK$7.8 billion, and revenue from the smart connectivity and smart home business was HK$0.9 billion, the same as the previous year.

The company's marketing business in all categories made full use of existing brands and channel resources, and the expansion of the PV business operation scale formed a scale effect, and jointly promoted the gross margin of H1 innovation business +0.3 pct to 14.4% year-on-year.

The results of the fee reduction are outstanding. 24H1's overall gross profit margin was 17.0%, -1.6 pct year over year, mainly affected by the decline in gross margin of the large display business. On the cost side, the company's 24H1 sales/administration/R&D/finance expense ratios were 9.6%/4.1%/2.4%/1.1%, yoy-0.9/-1.2/-0.7/-0.1pct, respectively. Thanks to scale effects and improved quality and efficiency, the overall 24H1 cost ratio was effectively reduced, and operating efficiency continued to improve. In the end, the company achieved an adjusted net interest rate of +0.7pct to 1.4% year-on-year.

Investment proposal: TCL Electronics is a leading enterprise in the global color TV industry. It continues to cultivate high-end and global operating capabilities to drive steady expansion of TV business share, while consolidating growth momentum such as photovoltaics, all-category marketing, and Internet businesses outside the main channel. The company is committed to extreme efficiency management, actively forging the operational capabilities of global organizations, and comprehensively helping to reduce costs and increase efficiency and enhance user experience. Combined with the equity incentive target, we expect the adjusted net profit of the company to be HK$1.36/1.66/2.01 billion in 24-26, corresponding to 8.4x/6.9x/5.7x, maintaining a “buy” rating.

Risk warning: risk of market environment fluctuations; impact of raw material price fluctuations; foreign currency exchange risk; cost reduction and efficiency; profit improvement in new business falls short of expectations.