TCL Group's business structure adjustment, valuation anchor switch brings market value increase

- May 30, 2018-

TCL Group is the only domestic consumer electronic device that is vertically integrated from the upstream LCD panel, midstream module, and downstream terminal. Its revenue has exceeded 100 billion yuan since 2014, and its net profit has grown at a CAGR of 28.94% for 2014-2016. The Group's diversified business is large but not strong. The profitability of the end product business is weak, which conceals the high-quality assets of China Star Optoelectronics, which has entered the profit release period. In 2017, China Star Optoelectronics has a net profit of RMB 4.862 billion and a net interest rate of 16%.

According to the company's plan to complete the business restructuring in 2019, the Group will only retain light assets such as semiconductor display, sales logistics and financial ventures, which are mainly based on China Star Optoelectronics. After the end product business is disbanded, the valuation center will be diversified from home appliance companies. Switching to the semiconductor display industry, the future is expected to target the leading domestic panel BOE.

Group's shareholding of China Star increased to 86%.

China Stars panel shipments accounted for 15% of the global market share of 15%, but with the advantage of the Group's full-industry chain, Huaxing ranked first in the panel procurement market share of China's six TV brands. The price of large-size LCD panels has dropped by 20%+ from 2017H2, which is mainly due to the release of new capacity to reverse supply and demand. Judging by the 2018 sports events, global LCD TV sales boosted by about 3%, plus an additional 1.6 million TV panels per year will effectively absorb new production capacity, large-size panel prices may stabilize 2018Q3.

The demand for small-sized panel flexible AMOLEDs is in short supply, and full-screen LTPS has become an alternative choice. The change in the aspect ratio of the screen directly increases the demand area of the panel. It is expected that the downward trend in the price of small-size LTPS panels will slow down in 2018. Considering that the ratio of the Group's holdings of China Star increased to 86%, the impact of the year-on-year price drop on China Star's net profit was limited (down 13%).

T1 depreciation 2019H1 ends, Huaxing Electric enters profit release period

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