TCL Group: Structure Adjustment Eagle Wings Panel Star Underestimate The Leading

The adjustment of the company's business structure resulted in an increase in the market value of the valuation anchor switch. 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.

The proportion of the Group’s holdings of China Star increased to 86%, and the decline in panel prices had a limited impact on the results of the returnees. 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 ended, China Star Optoelectronics entered the profit release period. The depreciation of the T1 project 2019H1 put into operation in 2011 is expected to be reduced by 500 million yuan and 1.9 billion yuan respectively in 2018-2019; the second stage of mass production will be realized in 2017Q4 of the 6.5th generation T3 project, and will be supplied to the Xiaomi mobile phone in 2018. There is plenty of room for profit. It is expected that China Star Optoelectronics will have a net profit of 3.8 billion yuan, 5.2 billion yuan and 7.1 billion yuan in 2018-2020, and will contribute 3.3 billion yuan, 3.8 billion and 5.1 billion yuan in net profit. After the company plans to increase the acquisition of 10.04% equity of Huaxing by 4.044 billion yuan, it will implement 1.79% shares of Huaxing's management company holding shares. At the same time, it will launch two employee stock ownership plans, and the performance release will be strong.

Loss of communication and multimedia volume led to a rebound in the Group's profitability. After the company's mobile telecommunications business has sold 49% equity to the three major strategic investors of Ziguang Group, Yunnan Urban Investment and the new management team, it is expected to substantially reduce losses by RMB 1.8 billion in 2018; meanwhile, the multimedia business will benefit from high growth in overseas markets such as North America. Net profit is expected to increase by 20% year-on-year and increase by a net increase of 140 million yuan, which will boost the net profit of the group to 50%.