1H21 performance is lower than we expected.
The company announces 1H21 annual results: operating revenue of HK $34.93 billion, year-on-year + 104%; return net profit of HK $1.04 billion, year-on-year + 123%, including an one-time gain of HK $740 million from the sale of part of Jingchen Semiconductor Deducting non-homed net profit of HK $240 million, 46% of the same period last year began to merge with 3Q20. Excluding this impact, 1H21 revenue was + 61% year-on-year, and the company deducted non-homed net profit was lower than expected, mainly due to the negative impact of the increase in panel prices on profit margins.
The share of overseas brands continues to increase: 1) according to Group Intelligence Consulting, 1H21 global color TV TCL shipments account for 11.6%, year-on-year + 1.0ppt, ranking firmly in the top three in the world. Apart from China, TCL ranks among the top five in market share in 19 countries. 2) 1H21TCL overseas brand TV sales 8.94 million, year-on-year + 22%, including outstanding performance in Europe, + 83%, + 43%, low base affected by the epidemic in the same period last year (especially in North America); 2Q21 sales + 7% year on year. Taking into account factors such as the end of subsidies and a high base, demand will slow in the second half of the year. 3) 1H21TCL China color TV brand sold 2.33 million sets,-16% compared with the same period last year, and the rapid increase in average prices led to short-term demand suppressed.
Rising costs affect profits: 1) the gross profit margin of 1H21's domestic and overseas color TV business is 20.4% and 14.4%, which is significantly lower than the same period last year. The rise in retail prices of color TV sets to cope with the rise in panel costs reflects that there is a certain lag on the profit side. 2) the cost side strengthens the cost reduction and efficiency by optimizing the supply chain and channels, and the expense rate is-1.2 ppt.3) the company actively distributes high-end products. The sales volume of 1H21 QDs smart screen is + 62% compared with the same period last year, and the proportion of sales increased to 4.5%.
Other businesses: 1) 1H21, Internet business revenue of HK $720 million. Of this total, domestic revenue was HK $600 million, which was + 51% compared with the same period last year. The number of monthly active users increased to 19.29 million and ARPU increased to HK $31.40. Overseas revenue declined slightly, mainly due to the transformation of the cooperation model with Google. 2) the sales volume of 1H21 smart mobile, connected devices and services is + 38% compared with the same period last year, with a revenue of 7.09 billion yuan.
Trend of development
Since 2016, benefiting from the advantage of industrial chain integration, the company's global brand status of color TV has continued to improve, and we expect to maintain it in the future. The company's 1H21 is facing greater cost upward pressure, as panel costs have stabilized, the company has passed a more difficult time, we expect results to improve in the second half of the year.
Profit forecast and valuation
Considering the impact of the increase in panel prices beyond our period, the net profit of 2021 / 2022 will be adjusted from 10% green 21% to 14.6 / 1.57 billion yuan. The current share price corresponds to a price-to-earnings ratio of 7.6 times 2021 / 2022. Maintain the outperform industry rating, taking into account the high cost-side pressure, cut the target price by 18% to HK $6.22, corresponding to 12.0 times 2021 price-to-earnings ratio and 9.2 times 2022 price-to-earnings ratio, which has 38.2% upside compared to the current share price.
Risk.
Panel price rising risk; global operating risk.