Key points of investment
Incident: The company released its 2020 annual report. The company achieved annual revenue of 29.23 billion yuan, a year-on-year decrease of 3.5%, a year-on-year increase of 19.4%, a year-on-year increase of 2.6 percentage points, a year-on-year increase of 2.6 percentage points, net profit attributable to the parent company was 1.47 billion yuan, an increase of 77.8% over the previous year, and net profit after deduction was 800 million yuan, an increase of 258.9% over the previous year. In the fourth quarter, the company achieved operating income of 6.55 billion yuan, a year-on-year decrease of 4.5%, and net profit attributable to shareholders of listed companies was 4.1 billion yuan, a sharp reversal of losses over the previous year. The 2019 profit distribution plan is to distribute a cash dividend of 0.7 yuan (tax included) for every 10 shares. No bonus shares will be given, and no share capital will be transferred from the Capital Provident Fund.
Annual revenue declined slightly, and product restructuring increased gross profit margin: in the first half of 2020, the smart terminal and vehicle market demand fell sharply due to the impact of the epidemic. The company's epidemic prevention and control and operation development “went hand in hand” to achieve stable production and full production in all production lines. Although annual revenue declined slightly by 3.5%, the product structure was optimized and upgraded, and the shipping ratio of high value-added products increased, achieving a year-on-year increase in gross margin level. The company's LTPS business maintains a leading position in the smartphone market. It has basically achieved full coverage of LTPS mobile phones for mainstream brand customers in the industry, and has maintained the highest number of LTPS smartphone panel shipments in the world and the number one in LCD smartphone perforated screen shipments in the world for three consecutive years. At the same time, the market share of automotive display shipments increased year by year, ranking first in the world for 2 consecutive quarters in 2020; it also maintained a leading global market share in various segments such as high-end medical care, navigation, and HMI.
Operating efficiency has improved dramatically, and R&D investment has increased dramatically to maintain competitiveness: in 2020, profit levels increased dramatically when the revenue side was stable, and net profit after deduction increased 258.9% year-on-year. Among them, Q4 sharply turned a loss and profit of 4.1 billion yuan, mainly due to the company's efforts to reduce costs and increase efficiency. Through extreme cost management, there were remarkable results in improving quality and efficiency. In terms of expenses for the period, transportation expenses in sales expenses were adjusted to operating costs, and as a result, the sales expenses rate and management expenses rate decreased by 0.5 and 0.2 percentage points year-on-year to 1.1% and 3.4%, respectively. The R&D cost rate increased by 0.5 percentage points year on year, and the absolute amount increased 9.0% year on year. The company's investment in technology improvement continues to increase. New progress has been made in forward-looking technology and product technology. In 2020, five new technologies, including Micro LED, folding OLED, under-screen camera, in-screen fingerprint recognition, and Acrus, were released. LTPS high-value-added projects were fully rolled out, and medium-sized products were upgraded and iterated from FHD 60 Hz to ultra-high frequency 360 Hz/WQHD120 Hz.
AMOLED has entered a production capacity release period, and performance growth contributes to the driving force: The company's AMOLED product shipments are doubling year by year. Currently, the overall flexible production capacity of the Wuhan Tianma G6 production line has been released and has achieved stable batch delivery to mobile phone brand customers. More flexible products will be introduced in the future. The estimated shipment volume in 2021 is 20 million, and Shanghai Tianma Organic Luminescence is expected to ship 20 million wearable products in 2021, with significant annual shipments. The Xiamen Tianma G6 production line will begin moving into equipment in the second half of this year, before the Spring Festival 2022 It is expected to light up, and AMOLED will provide a strong impetus for the company's performance growth. On the other hand, the smartphone market is gradually recovering in 2021. Qualcomm and MediaTek predict that 5G mobile phone shipments will reach 500 million units throughout the year. Currently, the company's LTPS production line is fully produced and sold, and the automotive business is expanding along with the “new four modernizations” of automotive demand space. We are optimistic about the company's room for growth.
Investment advice: We forecast that the company's earnings per share from 2021 to 2023 will be 0.81, 0.94, and 1.12 yuan, respectively, and maintain the buy-B recommendation.
Risk warning: Market shipments of smart phones and other products have fallen short of expectations; capacity construction and yield have fallen short of expectations; industry competition has led to an imbalance between supply and demand, affecting product prices; the COVID-19 pandemic has repeatedly increased uncertainty about supply and demand.
