Sector

Rating

Price target

52wk H-L (HK$) 1.08-0.58

Market cap(HK$) 1,970.9m

Shrs outstanding 2,031.8m

Main ownership

12/15A 12/16A 12/17E 12/18E

EPS(HKD) 0.0381 0.0552 0.0856 0.1370

P/B(x) 15.9 5.4 3.6 2.4

P/E(x) 25.5 17.6 11.3 7.1

EV/EBITDA 13.0 9.1 7.7 4.6

Div. yield(%) N/A 2.0 2.0 2.0

ROE(%) 21% 25% 32% 34%

ROA(%) 2% 4% 8% 13%Sources: Company data, Bloomberg, Anli research

Sources: Bloomberg

Fig.1: Valuation comps

P/B(x)

2016A 2017E 2018E 2016A

732 HK TRULY INTL HLDGS 1,010 2.70 13.5 10.0 9.0 1.2 2.8 8.4 0.0 9.3 -10.6

285 HK BYD ELECTRONIC 3,196 11.02 17.8 14.4 12.3 1.9 5.3 11.1 -5.8 153.9 80.7

334 HK CH DISPLAY OPTOELECTRONICS 254 0.97 17.6 11.3 12.0 5.4 4.0 25.0 2.1 29.3 34.7

Average 16.3 11.9 11.1 2.8 4.0 14.8 n.a n.a n.a

000725 CH BOE TECHNOLOGY 19,084 3.79 n.a 111.5 32.4 1.6 -0.1 -0.3 3.6 49.8 32.5

Average n.a 111.5 32.4 1.6 -0.1 -0.3 n.a n.a n.a

5371 TT CORETRONIC CORP 631 44.45 9.9 9.5 9.1 0.9 3.8 8.8 -0.1 19.1 31.1

Average 9.9 9.5 9.1 0.9 3.8 8.8 n.a n.a n.a

Source: Bloomberg as of 10 Apr 2017, Anli research

Last Price

Price performance

Research Analyst

April 11, 2017

CDOT(334.HK); Solid FY16; Beneficiary of CSOT JV formation; Buy

Key data

TMT

Buy

HK$0.97

Key indicator forecast

HK$1.30Price(HK$) as of 10 Apr,2017

TCL Intelligent Display(36.77%)

Kimmy Tong/+852 23235118/kimmytong@anli.com.hk

Px % chg.

YTDROA (%) ROE (%)

P/E(x)

A share TMT

International TMT

Px % chg.

WTD

Px % chg.

1 yr

H share TMT

Ticker Company name Mkt Cap (US$m)

FY16 result upbeat with dividend surprise. China Display Optoelectronics Technology (CDOT) core profit increased 318% YoY to RMB92m in FY16 from RMB22m in FY15. Gross profit margin narrowed to 5.6% in FY16 from 7.9% in FY15 due to client bargaining on TFT LCD module prices in 1H16. However, CDOT has changed its pricing model in 2H16 which is based off actual customer prices instead of a reference price at the beginning of business period. Thus, the gross profit margin ticked up to 9.7% in 4Q16. The sales volume of laminated modules in company total sales dropped significantly from 44.2% in 3Q16 to 32.9% in 4Q16. We spoke with management on this issue, and they mentioned their client Meizu changed their TFT LCD modules orders from laminated to LTPS non-laminated module for their Meizu Note5 component. This order change drove up the overall blended ASP by 18% YoY to RMB59 per unit in FY16 given that LTPS has higher margins. The dividend payout ratio was 36.6% in FY16, which surprised positively given CDOT’s position as a growth company. Strong growth on 1Q17 TFT LCD module orders. Management mentioned that they received more LCD module orders in 1Q17 and predict sales will increase to 20% YoY in Feb 2017. Meanwhile, management also project total sales volumes to grow by a single digit percentage in 2017 as the capacity at Huizhou is close to being fully utilized and Wuhan’s slow ramp in capacity production. However, the blended ASP increase will offset this sales volume effect in 2017. Despite this, CDOT climbed into the Top 3 (Ranked 4th in 2015) of China’s largest LCD module manufacturers by revenue due to the jump in contributions from its PRC-based clients, accounting for 62.1% in FY16. CDOT is now working with the PRC’s top-tier clients. In addition, the strategic cooperation with its parent's subsidiary Wuhan CSOT for the development of LTPS LCD module production will largely support CDOT’s momentum growth. LTPS and AMOLED are the key growth drivers for CDOT in the next couple of years. The joint venture (JV) formation points to a clear LTPS development path for CDOT. The JV will operate 10 fully automated production lines of LTPS LCD modules for mobile phones, two of which are now in operation. The average monthly production is 500k to 600k units of laminated display modules. Management predicts all production lines will be in operation by end 2017. CDOT’s existing LTPS clients are WINGTEC and TCL Corporation. As we know, AMOLED will be the next premium driver in the LTPS LCD module industry. We are hopeful on CDOT's plans to develop a production line (named t4) specifically for AMOLED construction. However, it is difficult for the company to obtain AMOLED components from suppliers, given Samsung is the dominant player in the market. However, we are still positive given that CSOT started AMOLED trial production in 2016 and its cooperation with CSOT may push along further developments. Strong cashflow profile. CDOT’s B/S surprised with a lower gross gearing ratio while it enjoyed a net cash position. Total CAPEX will be RMB400m in 2017 for: 1) Ramp up of LTPS production plant between CSOT and CDOT; 2) Ramp up of the automated machinery system in Huizhou production plant; 3) RMB349m to be injected into the JV formation by CDOT. The cash balance was RMB465m in FY16 and the net proceeds from June 2016 share placement was HK$150m, which can cover this year’s CAPEX. For this reason, we have a positive outlook on the company’s cashflow. We maintain our Buy rating with target price HK$1.30, implying 34% upside. We are still confident on the growth momentum in China’s LCD module industry and CDOT’s vertically intergrated business model. We stay positive on CDOT’s LTPS growth and AMOLED development. Key risks: continually falling laminated module prices; delays in LTPS production and any slowdown in LTPS display module demand in China.

0

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0.4

0.6

0.8

1

1.2

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5000

10000

15000

20000

25000

30000

Ma

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6

Ap

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6

Ma

y-1

6

Ju

n-1

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Jul-1

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Aug-1

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Se

p-1

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Oct-

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De

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6

Ja

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Feb

-17

Ma

r-1

7

HK$/shr pts Hang Seng Index(LHS)

CDOT(334.HK)(RHS)

1

Source: Company data, Anli research Source: Company data, Anli research

Source: Company data, Anli research Source: Company data, Anli research

Fig.6: Company's client base widen

Source: Company data, Anli research Source: Company data, Anli research

Fig.8: Company sales volume increased 27.5% YoY

Source: Company data, Anli research Source: Company data, Anli research

April 10, 2017

Fig.9: Blended ASP increased due to increased LTPS non-

laminated modules order by Meizu

Fig.5: Management predicts laminated modules will have a

45% of total sales volume porportion in 2017 after Meizu's

order effect

Fig.2: Gross margin squeezed, while operating and net margin

tick up

Fig.3: Breakdown of gross profit margin show the main

downside driver in 1Q-2Q16

Fig.4: Non-laminated modules revenue contribution boosted by

client Meizu's change of order from laminated modules to

LTPS non-laminated modules

Fig.7: China revenue mix expanded; S.Korea expand given

LG's increase in orders

9.4%

7.9%

5.6% 4.9%

1.6%

3.3%

3.6%

0.6%

2.5%

0%

2%

4%

6%

8%

10%

FY14 FY15 FY16

Profitability analysis Gross margin(%) Operating margin(%) Net margin(%)

6.8% 6.5% 6.3% 5.5%

4.3%

2.2%

4.7%

9.7%

0%

2%

4%

6%

8%

10%

12%

1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16

Company quarterly gross margin

181

145 146 141

118

92 79 76 74 79 83 84

39 36 39 36 28 30 28 26 24 21 24

46

42 45 49 45 34 37 42 40 43 45 50

59

0

20

40

60

80

100

120

140

160

180

200

1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16

Rmb/unit TFT LCD modules blended ASP

Laminated modules Non-laminated modules Blended ASP

1 12 71 99 64 144 224 179 88 147 350 322 405

592

829

521

257 338

514 645

524 437

557 485

333 391

316 296 221

231

298

581

0

200

400

600

800

1000

1200

RMB(m) Revenue mix by TFT LCD modules

Laminated modules Non-laminated modules

258

350

585

744

588 581

781

664

421 538

666 618

626 823

1,127

1,102

55.4 57.6 58.4

74.5

0%

5%

10%

15%

20%

25%

30%

0

10

20

30

40

50

60

70

80

FY13 FY14 FY15 FY16

YoY change unit m

TFT LCD modules sales volume

volume YoY change

100% 99% 97% 97% 97% 92% 91% 91% 94% 89%

72% 73% 63% 59% 56%

67%

1% 3% 3% 3% 8% 9% 9% 6% 11% 28% 27%

37% 41% 44% 33%

0%

20%

40%

60%

80%

100%

Quarterly sales volume breakdown Non-laminated modules Laminated modules

3.2% 10.2%

47.4% 27.7%

49.4% 62.1%

0%

20%

40%

60%

80%

100%

FY15 FY16

Revenue mix by geography

South Korea Hong Kong Mainland China

52.5%

71.1%

47.5%

28.9%

0%

20%

40%

60%

80%

100%

FY15 FY16

Revenue mix by clients

Others TCL Comm

New clients added: 1) CHINO-E 2) Tecno mobile 3) Konka

2

Source: Company data, Anli research

Fig.11: Industry Ranking: Top 10 Chinese brand manufacturers of smartphone LCD display modules by revenue

Source: Company data, ASKCI consulting, Anli research

Fig.10: CDOT has significant net profit growth vs. peers Truly International

April 10, 2017

The main reason CDOT's net profit growth surged more than Truly International (732.HK) is that CDOT is a growth company, while Truly is now ex growth. In terms of net profit margin, we observe that Truly’s net profit margin fell while CDOT shows a significant upward trend. The reason is CDOT continues to promote high-end LTPS technology and has a strong foothold in the China LCD display market that is growing fast. We assume this growth momentum will continue for CDOT, and its net margin will exceed Truly International this year.

CDOT ranked 3rd, up from 4th amongst the Chinese brand manufacturers of LCD display modules by revenue in FY16 while its market share grew 2.18ppts, the greatest increase of the top 10 companies. On the contrary, Success Electronics (002289.SHE) market share dropped 4.07ppts in FY16. Management mentioned that the entry of smaller companies into the industry is a key factor influencing market share changes. As a fragmented industry, it is difficult for one company to establish a large operation, allowing smaller firms to gain or lose their presence in the market.

RMB (m)

Company Rank RevenueMarket

ShareRank Revenue

Market

ShareRank Revenue

Market

Share

Truly International (732.HK) 1 10,265 20.75% 1 8,948 22.45% - +14.6% -1.70%

BOE Technology (000725.SHE) 2 5,933 11.99% 2 4,405 11.04% - +34.7% +0.95%

Ch Display Opt (334.HK) 3 3,423 6.92% 4 1,890 4.74% +1 +81.1% +2.18%

Shenzhen DJN Optronics 4 2,558 5.17% 6 1,703 4.27% +2 +50.2% +0.90%

BYD Electronic (285.HK) 5 2,096 4.24% 5 1,835 4.60% - +14.2% -0.36%

Tianma (000050.SHE) 6 1,588 3.21% 7 1,285 3.22% +1 +23.6% -0.01%

Shenzhen TXD Technology (002845.SHE) 7 1,300 2.63% 8 1,169 2.93% +1 +11.2% -0.30%

SZ COE (5371.TWO) 8 1,192 2.41% 9 982 2.46% +1 +21.4% -0.05%

Lead Mobile Display 9 1,116 2.26% 10 852 2.13% +1 +31.0% +0.13%

Success Electronics (002289.SHE) 10 935 1.89% 3 2,377 5.96% -7 -60.7% -4.07%

Others - 19,094 38.53% - 14,444 36.20% - +32.2% +2.33%

Total - 49,500 100% - 39,900 100% - +24.1% -

FY16 FY15 YoY Change

Company Truly International CDOT

Ticker 732.HK 334.HK

Market capitalization

(US $m)1,010 254

Revenue growth in

FY16 (%)14% -0.3%

Net profit growth in

FY 16 (%)-27% 318%

Gross profit

margin (%)

Net profit

margin (%)

10.9%9.9%

0%

4%

8%

12%

FY15 FY16

4.7%

3.0%

0%

2%

4%

6%

FY15 FY16

7.9%

5.6%

0%

2%

4%

6%

8%

FY15 FY16

0.6%

2.5%

0%

2%

3%

5%

FY15 FY16

3

Source: Company data, Anli research

Source: Company data, Anli research

April 10, 2017

Fig.12: CSOT and CDOT JV's production plant

Fig.13: Major panel maker's China expansion plans for 2015-2019E

BOE Technology (000725.CH), ChinaStar, and CEC-Panda starting producing OLED, a driver in the lighting panel market since 2015. Foxconn plans to produce LTPS displays in 2019, while CSOT has plans to establish a LCD/AMOLED Display Panel Production Line, namely t4 by the beginning of 2018.

Fig. 2: Major panel makers' China expansion plans for 2015-2019

2015 2016 2017 2018E 2019EDesigned

Capacity

BOE (B5) Hefei G8 (30K: Oxide + W-OLED) 115K

(B6) Ordos G5.5 60K LTPS&OLED (10K: RGB OLED) 60K

(B8) Chongqing G8 145K 145K

(B10) Fuqingu G8 140K 140K

(B7) Chengdu G6 LTPS 45K 45K

(B9) Hefei G10.5 115K 115K

(B11) Mianyang G8 60K 60K

ChinaStar (T1) Shenzhen G8 150k 150K

(T2) Shenzhen G8 120K 120K

(T3) Wuhan G8 30K LTPS&OLED 30K

(T4) G6 LTPS 20K 20K

(T6) G11 120K 120K

CEC-Panda (C1) Nanjing G8 95K 95K

(C2) Nanjing G6 60K 60K

(C3) Cheungdu G8.6 120K 120K

Foxconn Guizhou G6 LTPS 40K 40K

Zhengzhou G6 LTPS 30K 30K

4

Source: TrendForce, Anli research

Source: TrendForce, Anli research Source: TrendForce, Anli research

Source: HIS, CINNO Research, Anli research Source: HIS, CINNO Research, Anli research

April 10, 2017

Fig.14: Comparison between LTPS and other display technologies

Fig.15: Samsung Display has dominated the AMOLED markets,

while China also started picking up the trend since 2016 Fig.16: Samsung mobile devices used to AMOLED modules

Fig.17: LTPS and AMOLED modules will be the main trend in the

next couple of years Fig.18: Major OLED Panel makers' production capacity

Column1 A-Si-TN LTPS-IPS AMOLED

Self- illuminated No, BLU required No, BLU required Yes

Contrast Poor Good Excellent

Viewing angle Narrow Wide Wide

Resolution Low High OK

Thickness Thick Regular Thin

Response Time Slow Regular Fast

Power consumption Heavy Regular Regular

Bendable No No Yes

Color decay No No Yes

Cost Cheapest Around 15% higher than A-Si Around 30% higher than LTPS

2015 market penetration

rate58% 28% 9%

Revenue contribution in

LCD display in 2020E18% 51% 30%

Adopted phonesHuawei Y6, Meizu m3,

ZTE Grand X3

Iphone 6s, Huawei P9,

LG G5, Xiaomi Mi 5

Samsung S7, Huawei Mate S,

OPPO R7s, Meizu Pro 6

Apple’s AMOLED panels in the latest MacBook Pro and Apple Watch Series 2 makes the introduction of AMOLED modules into the iPhone 8 more likely given the demand for better and faster technology. China mobile phone players like Oppo, Vivo and Meizu have adopted AMOLED since 2015. It is clear that the lighting panel market will be dominated by AMOLED, however it requires an LTPS backplane which could make it more costly. Currently, Samsung Display is the dominant supplier of AMOLED panels. BOE Technology (000725.CH), EverDisplay and CSOT are existing Chinese LCD display manufacturers that have already started AMOLED production. We believe the development of LTPS will be an important milestone for CDOT since CSOT adapted AMOLED related technology last year, which will allow CDOT to benefit from these synergies in the future. Consensus is forecasting 51% of revenue is contributed by LTPS given the yield rate and lower costs.

15 60 60 45

150 23 28 10

50

25 35

25

35

45 55

65

0

50

100

150

200

250

300

350

2015 2016 2017E 2018E 2019E

(k) Global AMOLED average annualized capacity growth in 2015-2019E

Samsung LG Japan China

72% 77% 83% 79% 75%

53% 41%

28% 23% 17% 21% 25%

22%

19%

25% 40%

0%

20%

40%

60%

80%

100%

2012 2013 2014 2015 2016 2017E 2018E

AMOLED sales by customer trend

Samsung China/others Apple

72% 66% 58%

44% 37% 31% 28% 24%

18% 22%

28%

39% 42%

45% 42%

40%

8% 8% 9% 12% 15% 19% 24% 30%

2% 4% 5% 5% 6% 5% 6% 6%

0%

20%

40%

60%

80%

100%

2013 2014 2015 2016 2017E 2018E 2019E 2020E

LTPS display module penetration rate in China

A-Si-TN LTPS AMOLED Others

Mobile Capacity

units (m)2013 2014 2015 2016 2017E 2018E

Samsung Display 172 210 264 318 481 637

LG Display 4 6 9 9 69 143

Japan Display - - - 1 3 29

Sharp - - - - - 39

HonHai - - - - - -

BOE - 4 4 19 45 84

Tianma - - 8 15 41 54

Truly - - - 5 36 49

CSOT - - - 10 21 34

EverDisplay - - 4 5 18 44

GoVisionox - - - 9 19 32

Total 176 220 289 391 733 1,145

5

FY14 FY15 FY16 FY14 FY15 FY16

2,498 3,688 3,678 102 164 193

(2,263) (3,399) (3,473) 0.1 0.1 0.1

234 290 206 6.5 19 18

7 59 52 36 10 43

(102) (137) (110) 145 193 254

- (142) - 197 158 367

(3) (1) (5) 564 598 991

(14) (10) (20) Prepayment & other receivables 85 99 44

123 59 122 130 287 465

Profit/(Loss)before tax 123 59 122 976 1,141 1,867

(33) (32) (31) 1,121 1,334 2,121

90 26 91 Trade and bills payables 773 810 1,320

- (5) 1 Other payables 131 174 192

90 22 92 Tax payable 21 36 52

Bank loan 57 137 120

FY14 FY15 FY16 982 1,157 1,685

Deferred income 8 13 6

- 48% -0.3% Bonds payables - 59 63

- 24% -29% Total liabilities 990 1,229 1,753

- -52% 107% 131 105 368

Net profit - -76% 318%

.

9.4% 7.9% 5.6% FY14 FY15

4.9% 1.6% 3.3% Pre-tax profit 123 59

3.6% 0.6% 2.5% Depreciation 30 58

90.6% 92.2% 94.4% 0.1 0.1

4.1% 3.7% 3.0% Change in working capital 205 18

(3) 132

FY14 FY15 FY16 Operation cash flow 356 267

net cash net cash net cash CAPEX (110) (96)

1.0 1.0 1.1 Others 2 31

n.a 21% 25% (108) (65)

n.a 2% 4% Proceed from issue of shares - -

Inventories days n.a 30 27 - -

Receivable days n.a 70 57 Dividend paid (106) (118)

Payable days n.a 101 103 364 942

Cash conversion cycle n.a -1 -19 (383) (870)

Source: Company data, Anli research (126) (46)

- -123 156

Company description

Finance cost

Operating profit

Income tax

Profit of the period

Revenue

April 10, 2017

Balance Sheet (RMB m)

CDOT: Financial summary

Deferred tax assets

Profit and Loss (RMB m)

Revenue

COGS

Gross profit

Other revenue

PP&E

Intangible assets

Deposits for purchase PP&E

Trade and bills receivables

Listing expenses

Non-current assetSG&A

Other expenses

Inventories

Cash

Current asset

Operating profit

Earning growth drivers

YoY growth

Total asset

Net Profit

Exchange differences

Gross profit

Margin analysis

Others

Financing cashflow

Gross margin(%)

Operating margin(%)

Net margin(%)

COGS/sales(%)

ROE(%)

ROA(%)

Current ratio(x)

Net gearing(%)

Ratios

Others

SG&A/sales(%)

Net changes in cash

Current liabilities

Foreign exchange

Investing cash flow

Share issue expenses

Bank loan

Shareholders capital

Cash flow (RMB m)

Amortization

China Display Optoelectronics Technology Holdings Limited, former called TCL Display Technology (334.HK) is a small to medium sized display module manufacturing company. CDOT focus on TFT-LCD/CTP display development, production and sales of modules for mobile devices. In 2016, CDOT got 62% of total revenue come from China, ranked top 3rd in China LCD display modules industry. CDOT is affiliated to TCL Group (000100.CH). The latter has a 36.7% stake in CDOT.

6

April 10, 2017

Important legal disclosures

General Disclosure This research report is prepared and distributed by Anli Securities Limited (“ASL”) in the conduct of business of regulated activity in Hong Kong. This report or any part thereof may not be distributed, reproduced or disclosed to any other person without the prior written approval of ASL. In particular, this research report is not intended for distribution to, or use by, any person or entity in the United States of America, Canada, Australia or any jurisdiction or country where its distribution would be in breach of applicable laws, rules and regulation. The information, data, materials, forecasts, estimates or opinions contained herein are for information only and subject to change without prior notice. ASL makes no representation or warranty (whether express, implied or otherwise), with respect to the fairness, correctness, accuracy reasonableness or completeness of the information, data, materials, forecasts, estimates, opinions as above but has used its best endeavor to obtain information, data, materials from sources which are believed to be reliable. ASL makes no representation, undertaking, warranty or guarantee as to the update, completeness, correctness, reliability or accuracy of information, data, materials, forecasts, estimates or opinions. The opinions herein are made without taking into consideration of specific financial position, investment objective, investment experience or other need and it is therefore expected that investor shall not make investment decision in reliance on information, data, materials, forecasts, estimates or opinions herein without seeking professional and independent advice. ASL accepts no liability and responsibility whatsoever for any direct or indirect loss or damage which may be suffered by any person arising out of or in connection with the information, data, materials, forecasts, estimates or opinions provided herein. In any event, this research report does not constitute or form part of and shall not be construed as any offer for sale or subscription or solicitation or invitation of any offer to purchase or subscribe for any securities and investment products in any jurisdiction. In distributing this research report, ASL is not providing and does not purport to provide professional investment advice. Except as otherwise disclosed herein, ASL or its affiliates (“ASL Group”) has no interest in the securities of the companies referred to in this research report as at the date of the issuance of this research report. ASL Group’s officers, directors and employees may have position in any and may trade for their own account in all or any of the securities or investment mentioned in this research report. In addition, ASL Group may have provided investment services and may have underwritten, or may act as market marker in relation to those securities. Commission, fees or other benefit (whether monetary or non-monetary) may be earned or received by ASL Group in respect of services provided in relation to those securities or investments. Risk The securities or investments referred to in this research report may not be suitable for all investors. In particular, no consideration has been given to any particular investment objectives or experience, financial situation or other needs of any investor. In the said premises, ASL accepts no liability with regard to the suitability or appropriateness of any of the securities and/or investments referred to herein for any particular investor’s circumstances. Investor is reminded to make investment decisions in light of their own investment experience, investment objectives, financial position and particular needs and, where necessary, consult their own professional advisers prior to making investment decision. This research report is not intended to provide any professional advice and should not be relied upon in that regard. The value of the investment may go up as well as down. Past performance is not indicative of futures performance. The risk disclosed herein is not intended to be an exhaustive list of risks associated with the securities or investments. Investor is advised to read and fully understand all the offering or other relevant documents relating to securities or investments referred to in this research report as well as all the risk disclosure statements and risk warnings therein before making any investment decision. Information of ASL ASL is licensed by the Securities and Futures Commission of Hong Kong to carry on business of Types 1 and 4 regulated activities under the Securities and Futures Ordinance (Chapter 571), Laws of Hong Kong and shall, amongst the others, provide services in relation to a series of research products, including, without limitation, fundamental analysis, macro-economic analysis, quantitative analysis and trade ideas, in accordance with all applicable laws, rules and regulations.

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