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天风国际 ·  {{timeTz}}

Rating: BUY (maintain) 

Target price: RMB10.50 

Share price (14 Jul): RMB6.54 

Market Cap (RMBm): 227,581.5 

Up/downside: 60.6% 

BOE expects a 1H21 net profit of RMB12.5bn-12.7bn, implying a rise of 1,001-1,018% yoy. The market leader is maintaining its position in semiconductor displays with the highest global display shipments and market share in 2020. We maintain BUY on the stock and a PT of RMB10.50. 

2Q21 net profit sets a new record  

Operating efficiency continued to improve and 2Q21 net profit exceeded expectations to reach a record high. In 2020, BOE’s display shipment volume was the world's largest, a solid advantage for the LCD leader. A recent private placement would help its rapid OLED expansion and its aircraft carrier segment is developing rapidly. Looking ahead to the mid to long term, BOE and TCL CSOT would form a duopoly. The industry's profit range would increase and it would enter a sector valuation upgrade cycle. We believe strong downstream demand and the change in the competitive structure would increase BOE’s net profit and valuation. In 1H21, it expects net profit of RMB12.5bn-12.7bn, up 1,001-1,018% yoy. We estimate 2Q net profit would have been RMB7.42bn, up 1,204.20% yoy and 43.15% qoq, beating expectations. Operational efficiency continued to improve and net profit levels reached record highs. 

BOE maintains lead in LCD business as RMB20bn private placement adds to OLED 

BOE is maintaining its leading position in semiconductor displays, with the highest global display shipment and market share in 2020.  

(1) Enriching product categories; raising capacity advantages; improving operational efficiency: The company completed the acquisition of CLP Panda Nanjing 8.5-generation LCD production line and Chengdu’s 8.6-gen LCD production line. The shipment rate of the Beijing 8.5-gen LCD production line reached a new high while the Chongqing 8.5-gen TFT-LCD production line continued to make small products. The yield rate of its Hefei 10.5-gen line and Wuhan 10.5-gen line continues to increase, with production improvements raising the company’s competitive advantage.  

(2) About RMB20bn would be approved for OLED capacity to bring new growth potential: RMB6bn of this will be invested into the 6th-gen flexible AMOLED line project in Chongqing to enhance OLED technology diversity and RMB1bn to build a 12-inch silicon-based OLED project, which could add capacity for 5.23m OLED micro displays. 

Downstream demand; competitive structure change; better long-term profitability  

(1) Downstream demand continues to be high and the tight supply-demand balance drives up prices of IT, TV and other products. BOE would continue to benefit from strong industry growth. (2) Looking ahead to the medium and long term, BOE and TCL CSOT would form a duopoly in the large-panel TV market, and BOE would continue to expand into the medium-sized and high-value-added OLED. This would weaken the cyclicity of the panel market. BOE should maintain its premium profits and its valuation could increase. 

Valuation and risks 

We are optimistic about investment opportunities brought by a long-term profit upgrade. We maintain our forecasts: we expect revenue of RMB213.7bn/236.7bn/256.9bn and net profit of 22.9bn/24.9bn/28.1bn in 2021/22/23E. We maintain our price target of RMB10.50 and our BUY rating. Risks include: fluctuating panel prices; progress of fundraising projects falling below expectations; and tech upgrades and substitution risks. Note: our forecasts are based on the company’s preliminary earnings review and subject to potential adjustments based on final semi-annual report data. 



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