Incident: On May 31, the company released the 2024 Employee Stock Ownership Plan (draft) to help grow performance.

On May 31, the company issued the “2024 Employee Stock Ownership Plan (Draft)”. The total amount of the current shareholding plan is no more than 520 million yuan, and the maximum number of shares is about 121 million shares, accounting for 0.64% of the total share capital. Among them, the company's key performance indicators are: the 2024 net profit growth rate compared to 2023, and the average growth rate of net profit to the mother in 2023 is not less than 30% lower than the 2022 growth rate, or the 2024 revenue growth rate compared to 2023 and the average growth rate of 2023 revenue is not less than 30% compared to 2022.

The panel business benefited from a boom, and net profit reversed year-on-year losses in 24Q1, and the photovoltaic business is still waiting to bottom out and recover.

The company's largest business is the semiconductor display business (mainly carried out by TCL Huaxing, which holds 79.17% of the shares).

In 2023, TCL Huaxing's revenue was 83.655 billion yuan, +27.3% year-on-year, and net profit -0.07 billion yuan, a year-on-year decrease in losses. TCL Huaxing's revenue for the 24Q1 quarter was 23.376 billion yuan, +54.6% year-on-year, and net profit was 539 million yuan, reversing year-on-year losses. The company maintains a leading position in the large size business, and the TV panel share is stable in the top two in the world; in the medium size sector, the T9 production line climbed according to the plan, and the display market share remained third in the world; and the shipment of flexible OLED mobile phone panels in the small size sector rose to third place in the world. TCL Huaxing, as the global leader in large display panels, is expected to benefit from growth in the future, thanks to factors such as the trend of large-scale expansion combined with AI hardware innovation.

The second largest business is new energy photovoltaics and semiconductor materials (mainly carried out by TCL Central, which holds 29.91% of the shares). In 2023, TCL Zhonghuan had revenue of $59.146 billion, -11.7% YoY, and net profit of 3,999 billion yuan, or -44.9% YoY. TCL Zhonghuan's revenue for the 24Q1 quarter was $9,933 million, or -43.6% year-on-year, and net profit of $951 million. The company continues to consolidate its technological leadership and market position in G12 large silicon wafers and N-type products. N-type and large-size (210 series) products account for 88% of shipments, of which N-type 210 accounts for more than 90% of the export market, and continues to maintain its leading position. As domestic production capacity is released and competition intensifies, product prices continue to decline, and industry profits are under pressure; however, technologies such as N-type products are rapidly iterating, and the photovoltaic business is yet to be repaired.

The upward trend in prices of some large panels continued in May, and the company, as a leader in the panel industry, will benefit first.

On May 20, the latest data from TrendForce showed that the price of some large panels continued to rise. The average ASP for 65/55/43/32-inch TV panels in late May was 178/130/65/37 US dollars, respectively, +2/+1/+0/+0 US dollars from the previous month. The price of monitor and laptop panels also rose slightly. The company, as a leader in the panel industry, will benefit from industry restoration as a priority.

“Display+new energy photovoltaic+semiconductor materials” went hand in hand, maintaining the “gain” rating.

The company is a leader in the panel industry, adding new energy photovoltaics and semiconductor materials, along with further optimization of the business structure. The company's net profit from 2024 to 2026 is estimated to be 37.43/74.23/10.644 billion yuan, respectively, corresponding to 24/25/26 PE 22/11/8 times, maintaining the “increase in holdings” rating.

Risk warning: downstream demand fluctuates; panel price fluctuations; market competition intensifies; R&D falls short of expectations, etc.