Event: On August 23, 2024, TCL Electronics published its 2024 semi-annual report. 2024H1 achieved total revenue of HK$45.494 billion (+30.29% YoY), net profit to mother of HK$0.65 billion (+146.45% YoY), and adjusted net profit to mother of $0.654 billion (+147.28%).

The 2024H1 large-size display business achieved a relatively rapid growth rate, and photovoltaics drove a high growth rate of innovative business. 1) Display business: 2024H1 achieved revenue of HK$30.135 billion (+21.26%), of which large displays/small and medium size displays/smart commercial displays achieved revenue of HK$25.914/3.761/0.46 billion respectively, +23.15/+10.75/ +11.38% year over year; increased brand strength and product strength drove the growth rate of the large display business volume superior to that of the industry, thereby helping the business achieve a faster growth rate. 2) Internet business: 2024H1 achieved revenue of HK$1.212 billion (+8.89%); China/overseas achieved revenue of HK$0.87/0.342 billion, respectively, -1.92/51.33% year-on-year; the domestic market maintained stable performance, and the overseas market achieved high growth. 3) Innovative business: 2024H1 achieved revenue of HK$13.953 billion (+60.60%), of which the PV business/ all categories of marketing/ smart connectivity and smart home achieved revenue of HK$5.269/7.753/0.931 billion, respectively, +212.70/ +27.66/ +0.11% year-on-year, respectively. The PV business revenue growth rate was impressive, and all categories of marketing revenue grew rapidly or supported by brand and channel collaboration.

2024H1 gross margin is under pressure in the short term, and reasonable cost control helped increase net profit margin against the trend. 1) Gross profit margin: 2024H1's annual gross margin was 17.03% (-1.59pct). The slight decline was mainly due to an increase in the share of Thunderbird brands and a decrease in the gross margin of large-scale display services due to changes in overseas regional structure compounded by rising panel costs. Among them, the gross margin of the displayed business/ Internet business/ innovative business was about 16.9/54.0/ 14.4%, compared to -1.9/+0.0/+0.3 pct. 2) Net interest rate: 2024H1 net interest rate of 1.44% (+0.53pct). It is expected that cost reduction and efficiency will continue to help increase profitability. 3) Cost side:

The 2024H1 sales/management/R&D/finance cost rates were 9.60/4.09/2.40/ 1.15%, respectively, and -0.86/-1.15/-0.74/-0.09pct, respectively. The efficiency of scale, measures to improve quality and efficiency, and precise marketing strategies all help optimize the company's cost ratio.

The growth rate of global TV shipments has greatly outperformed the industry, and the photovoltaic and AR/XR business continues to expand rapidly.

1) Display business: The company continues to expand and deepen the coverage of key channels in multiple regions such as North America, Europe, and emerging markets. In the first half of 2024, TCL TV shipments reached 12.52 million units (+9.2%), significantly outperforming the industry average. The global shipment market share reached 13.3% (+0.9pct), rising 0.9 pct year-on-year to rank in the top two global TV brands. 2) PV business: The Group continues to use the brand power, global channel resources and vertical integration advantages of the entire industry chain accumulated in the display business to promote the rapid development of the photovoltaic business. As of 2024H1, the Group's photovoltaic business has covered 23 key domestic provinces and cities, with a cumulative total of more than 150 industrial and commercial contract projects, more than 1,200 dealer channels, and a total of more than 0.07 million contracted farmers. 3) AR/XR business: On the product side, the Thunderbird brand launched the Thunderbird Air 2s, the first AR glasses with ZREAL frame ultra-high definition certification in China. The product is equipped with the industry's first custom adjustment panel for glasses, which can support watching 3D stereoscopic space videos; on the sales side, the Thunderbird smart glasses won the top of both sales and sales on the JD and Tmall platforms during the 618 promotion period.

Investment advice: On the industry side, demand for high-end large-screen products in the global TV market is strong. At the same time, panel production capacity is transferred to Chinese investors, and the concentration of Chinese TV brands is expected to break through in the future; in addition, industries such as photovoltaics and AR/XR are growing rapidly. On the company side, as a leader in the global TV industry, the share of smart screens and high-end large-screen products continues to increase, the profitability of the Internet business is steady, innovative businesses such as photovoltaics and all-category marketing are developing rapidly, and brand power continues to improve; at the same time, internal efficiency continues to be optimized to help the company's revenue and performance grow. We estimate that in 2024-2026, the company's net profit to mother will be HK$1.358/1.528/1.83 billion, and the corresponding EPS will be HK$0.54/0.61/0.73, respectively. The PE corresponding to the current stock price is 8.46/7.52/6.28 times, respectively. Maintain a “buy” rating.

Risk warning: declining demand in overseas markets, fluctuating prices of raw materials such as panels, fluctuating exchange rates, intensifying market competition, falling short of expectations in new business development, technology iteration, etc.