The company's 2021H1 revenue is HK $34.93 billion (comparable + 60%) and non-net profit is HK $230 million (- 46% compared with the same period last year). Business expansion is smooth, global / domestic TV share + 1.5/1.1pcts, Internet revenue + 38.3%. Dragged down by rising costs, 2021H1 gross margin-5.5pcts, deducting non-net interest rate-1.9pcts.
Cost pressure is prominent in the first half of the year, but panel prices have been on a downward trend and operations are expected to improve in the second half of the year. Taking into account the company's integrated supply chain advantage, "TV + Internet" profit model, give the target price of HK $6, maintain the "buy" rating.
Global business continues to grow high, with upstream rising prices and profits under pressure. In the first half of 2021, the company had revenue of HK $34.93 billion (year-on-year + 103.7%, considering the impact of TCL communications consolidation + 60.1%), and continued business return net profit of HK $1.04 billion (year-on-year + 122.9%), deducting non-home net profit of HK $240 million (year-on-year-45.9%).
The company's global business is progressing smoothly and its revenue growth has exceeded market expectations. However, due to the sharp rise in upstream panel prices, the growth of non-homed net profit was lower than expected.
The global share increases steadily, the structure optimizes the transfer cost. In the first half of the year, global television revenue was 23.09 billion Hong Kong dollars (+ 57.4% compared with the same period last year), and the global share increased by 10.7% from 9.2%. The market share is firmly in the top three (Omdia caliber).
Specifically, overseas TV sales were 11.27 million (year-on-year + 11.8%), of which TV sales in North America, Europe and emerging markets were + 3.8% year-on-year, 83.2% and 27.0%. Demand in the Chinese market was suppressed after price increases, with sales of-15.8%, but the share of sales rose to 13.9% (+ 1.1pcts). Affected by the increase in panel prices, the gross profit of domestic / foreign televisions is year-on-year-5.2pcts/-2.9pcts. The company alleviates the cost pressure by optimizing the product structure and raising prices, and the average price of TVs at home and abroad has increased by + 75.8% and 32.0%.
Domestic OTT business is growing rapidly, and overseas cooperation is worth looking forward to. In the first half of the year, domestic Internet revenue was HK $600 million (year-on-year + 48.2%), the number of monthly active users increased by + 7.7% to 19.29 million compared with the end of 2020, and ARPU increased by 31.5% to HK $31.4 compared with the same period last year. Due to the adjustment of business structure (a decline in the proportion of advertising business), the gross profit margin-12.1pcts to 47.8%, it is speculated that the net profit margin has not changed much. Overseas Internet revenue is basically flat (HK $120 million), with a high gross profit margin of 96%. After upgrading with Google, the profit release is worth looking forward to.
Panel prices are high and profitability is limited. The global panel supply is tight, and the cost pressure is prominent: take the 55-dollar panel as an example, the price has increased by 101% in the past four quarters (group intelligence research). Under this influence, the company's overall gross profit margin in the first half of the year was 15.9% (year-on-year-5.5pcts). The company actively optimizes the expense rate to cope with the cost pressure (year-on-year-1.7pcts), in which the sales expense rate is reduced by 3 points, but the non-net interest rate is still-1.9pcts. With the new production line put into production, there has been a downward trend in the price of small-size panels, and profit margins are expected to improve in the second half of the year.
Risk factors: improper intervention by overseas governments; cost pressure caused by rising panel prices.
Investment advice: due to the impact of the increase in panel prices, the company's profitability is under pressure. we have lowered our 2021-23 EPS forecast to HK $0.67, 0.75 and 0.88 (the original EPS forecast is HK $0.91, 0.82). From a long-term perspective, the company has the advantage of integrated supply chain, and the global TV share increases steadily; based on the TV advantage, the company develops OTT business and gradually transforms to an Internet company. Taking into account the stabilization of panel prices and the smooth implementation of Google cooperation, profitability is expected to improve in the second half of the year. Nine times PE for 2021, corresponding to the target price of HK $6, maintaining a "buy" rating.