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Fri, 14 Oct 2016
Equi ty Research TCL Display (334 HK) Display Module / China
Upgrade on higher sales, better ASP
TCLD released its 3Q16 operations update with 3Q16 revenue up 69% yoy and
37% qoq to RMB1.13bn, thanks to faster than expected ASP improvement.
We revised up our FY16/17E earnings estimate by 3.7%/23.8% to RMB59mn/
RMB142mn to reflect (1) lower laminated module shipments due to component
shortage (2) higher laminated module ASP driven by product mix shift to LTPS
and (3) ASP recovery on non-laminated module due to tight panel supply.
Reiterate BUY with TP raised to HK$1.00 from HK$0.72 based on 12x FY17E PE
Better than expected 3Q16 sales growth. TCLD released 3Q16 operations update with
3Q16 sales up 69% yoy and 37% qoq to RMB1.13bn, of which lower ASP non-laminated
display module sales down 5.8% yoy and up 28.9% qoq to RMB298mn and laminated
display module sales up 137.7% yoy and 40.2% qoq to RMB830mn. Non-laminated
display module ASP was up 13.3% qoq and down 15.1% yoy to RMB23.7 per unit, thanks
to tight panel supply and panel price hike. Laminated display module ASP up 4.0% qoq
and 4.7% yoy to RMB82.6 per unit, better than we expected, thanks to product mix shift to
higher ASP LTPS laminated display module (2x higher ASP than its non-LTPS laminated
display module). CSOT 6G LTPS panel line also started small batch LTPS panel supply to
TCLD which we believe the mass production of CSOT 6G LTPS panel line in 1Q17 will
relieve the component shortage of its laminated display module that induced 35.9% mom
drop in its Sept 2016 laminated display module shipments to 2.50mn units.
We revised up our FY16/17E earnings estimate by 3.7%/23.8% to RMB59mn/
RMB142mn as (1) we revised down FY16E laminated module shipments by 10.3% to
29mn units to reflect component shortage pressure while we revised up FY17E laminated
module shipments by 2.5% to reflect CSOT mass production of LTPS panel and (2) we
revised up our FY16/17E laminated module ASP by 20.5%/18.1% to RMB80/RMB82 per
unit given 3Q16/9M16 ASP RMB82.6/RMB79.6 per unit. In consequence we revised up
our FY16/17E earnings estimate by 3.7%/23.8% to RMB59mn/RMB142mn to reflect faster
than expected recovery and CSOT support to ramp up its LTPS laminated display module.
Reiterate BUY. We reiterate our BUY rating on TCLD with TP raised to HK$1.0 from
HK$0.72 based on same 12x FY17E PE given (1) faster than expected sales growth
recovery from 3Q16 onwards, (2) promising margin recovery qoq driven by product mix
change and passing on panel price hike to customer on new order, (3) increasing
bargaining power and improved market position in small-mid size display module market
given success ramping up of CSOT 6G LTPS panel line.
Risks: (1) Slowdown in LCD module demand in China, (2) ASP erosion in LCD module
market is faster than expected, (3) oversupply of LTPS panel
Chloe Liu
+852 2135 0209
Yuji Fung
+852 2135 0236
Company Update
BUY UNCHANGED
Close price: HK$0.80
Target Price: HK$1.00 (+25%)
Prior TP: HK$0.72
Key Data
HKEx code 334
12 Months High (HK$) 1.49
12 Month Low (HK$) 0.58
3M Avg Dail Vol. (mn) 3.30
Issue Share (mn) 2,031.37
Market Cap (HK$mn) 1,625.10
Fiscal Year 12/2015
Major shareholder (s) TCL Group (36.8%)
Source: Company data, Bloomberg, OP Research Closing price are as of 13/10/2016
Price Chart
1mth 3mth 6mth
Absolute % 31.1 21.2 0.0
Rel. MSCI CHINA % 29.8 11.2 -8.7
Company Profi le TCL Display Technology Holdings Limited
provides small-to-medium-sized display
modules. The Company is primarily engaged
in the research and development,
manufacturing, and sales and distribution off
LCD modules for handheld mobile devices
on an ODM basis. TCL Display Technology
has operations throughout Asia and sells its
products globally..
Exhibit 1: Forecast and Valuation Year to Dec (RMB mn) FY14A FY15A FY16E FY17E FY18E
Revenue 2,614.0 2,242.8 3,293.4 4,523.3 5,442.8
Growth (%) 35.0 (14.2) 46.8 37.3 20.3
Adj. net Profit 124.4 72.6 58.9 142.3 216.6
Growth (%) 90.8 (41.6) (18.8) 141.4 52.2
Diluted EPS (HK$) 0.000 0.053 0.035 0.084 0.128
EPS growth (%) n.a. n.a. (33.8) 141.4 52.2
Change to previous EPS (%)
3.7 23.8
Consensus EPS (HK$)
0.031 0.076 0.101
ROE (%) 78.5 78.8 29.7 39.2 39.9
P/E (x) 0.0 15.2 22.9 9.5 6.2
P/B (x) 0.0 10.5 4.5 3.0 2.0
Yield (%) 0.0 0.0 0.0 0.0 0.0
DPS (HK$) 0.000 0.000 0.000 0.000 0.000
Source: Bloomberg, OP Research
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
Oct/15 Jan/16 Apr/16 Jul/16
HK$334 HK MSCI CHINA
Fri, 14 Oct 2016
TCL Display (334 HK)
Exhibit 2: Earnings revision
FY16E FY17E FY18E
(RMB mn) New Old % Chg New Old % Chg New Old % Chg OP Comments
Shipments (mn)
Non-laminated Modules 43 43 0.0 36 36 0.0 33 33 0.0
Laminated Modules 29 32 (10.3) 46 45 2.5 57 56 2.5 Mainly reflect lower Sept shipments due to
component shortage
ASP (RMB)
Non-laminated Modules 24 24 0.0 22 22 0.0 19 19 0.0
Laminated Modules 80 66 20.5 82 69 18.1 84 71 18.1 Mainly reflect better than expected ASP
driven by LTPS ramp up and panel price hike
(RMB mn)
Revenue 3,293 3,125 5.4 4,523 3,874 16.8 5,443 4,608 18.1
Gross profit 161 157 2.2 292 256 14.2 395 343 15.1
Gross margin 4.9% 5.0% (0.2) 6.5% 6.6% (0.1) 7.3% 7.5% (0.2)
Opex (112) (110) 1.3 (125) (120) 3.6 (142) (136) 4.3
EBIT 68 66 3.1 171 139 23.0 257 211 21.8
Net Profit 59 57 3.7 142 115 23.8 217 177 22.4 Thanks to operating leverage
Diluted EPS (HK$) 0.035 0.034 3.7 0.084 0.068 23.8 0.128 0.105 22.4
Source: Company, OP Research
Fri, 14 Oct 2016
TCL Display (334 HK)
Page 3 of 8
0%
10%
20%
30%
40%
50%
60%
0.0
1.5
3.0
4.5
6.0
7.5
9.0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2015 LCD 2016 LCD
2015 Laminated penetration 2016 Laminated penetration
(mn unit) (%)
39 36 39 36 28.5 30.2 27.9 26.0 24.1 20.9 23.7
181
145 146 141
118.4
91.7
78.9 76.5 74.1 79.4 82.6
0
40
80
120
160
200
1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16
Non-laminated Modules Laminated Modules
(RMB)
0% 1%3% 4%3%
8%10% 9%
6%
11%
28% 27%
37%
40%
44%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
0
2
4
6
8
10
12
1Q 2Q 3Q 4Q2013 2014 2015 20162013 penetration 2014 penetration 2015 penetration 2016 penetration
(mn unit)
Exhibit 3: TFT LCD modules ASP
Source: Company, OP Research
Exhibit 4: Monthly shipments of TFT LCD modules
Source: Company, OP Research
Exhibit 5: Quarterly shipment and penetration of Laminated Modules
Source: Company, OP Research
Fri, 14 Oct 2016
TCL Display (334 HK)
Page 4 of 8
Exhibit 6: Quarterly summary
1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16
9M16 as %
of FY16E
TFT LCD modules revenue (RMBmn) 421 538 665 619 626 823 1,127 78%
Non-laminated Modules 333 391 316 296 222 231 298
Laminated Modules 87 147 349 323 405 592 830
Laminated modules revenue proportion 20.8% 27.3% 52.5% 52.2% 64.6% 71.9% 73.6%
YoY%
TFT LCD modules revenue (RMBmn) -28.5% -7.4% -14.9% -6.7% 48.9% 53.0% 69.5%
Non-laminated Modules -36.4% -10.5% -43.3% -39.0% -33.5% -40.9% -5.8%
Laminated Modules 36.5% 2.1% 55.8% 80.6% 363.4% 302.7% 137.7%
QoQ%
TFT LCD modules revenue (RMBmn) -36.7% 27.9% 23.6% -6.9% 1.1% 31.4% 37.0%
Non-laminated Modules -31.3% 17.3% -19.2% -6.3% -25.2% 4.3% 28.9%
Laminated Modules -51.2% 68.3% 137.4% -7.4% 25.2% 46.3% 40.2%
9M16
TFT LCD modules shipments (mn units) 12.4 14.6 15.7 15.6 14.7 18.5 22.6 55.8
Non-laminated Modules 11.7 13.0 11.3 11.4 9.2 11.0 12.6 32.8
Laminated Modules 0.7 1.6 4.4 4.2 5.5 7.5 10.0 23.0
Laminated modules penetration 6% 11% 28% 27% 37% 40% 44%
19%
YoY%
TFT LCD modules shipments (mn units) -10.3% 12.0% -1.4% 5.7% 17.8% 27.0% 43.5%
Non-laminated Modules -13.4% 7.9% -21.6% -15.7% -21.4% -14.8% 10.9%
Laminated Modules 109.1% 61.8% 188.9% 233.4% 640.0% 365.0% 127.1%
QoQ%
TFT LCD modules shipments (mn units) -15.7% 17.1% 8.1% -0.9% -6.1% 26.2% 22.2%
Non-laminated Modules -13.3% 10.8% -12.7% 0.5% -19.2% 20.1% 13.7%
Laminated Modules -41.8% 117.2% 175.9% -4.5% 29.3% 36.5% 34.8%
9M16
Blended ASP (RMB) 33.8 36.9 42.2 39.7 42.7 44.5 49.9 46.2
Non-laminated Modules 28.5 30.2 27.9 26.0 24.1 20.9 23.7 22.9
Laminated Modules 118.4 91.7 78.9 76.5 74.1 79.4 82.6 79.6
YoY%
Blended ASP (RMB) -20.3% -17.3% -13.6% -11.8% 26.4% 20.5% 18.1%
Non-laminated Modules -26.6% -17.1% -27.6% -27.6% -15.4% -30.6% -15.1%
Laminated Modules -34.7% -36.9% -46.1% -45.8% -37.4% -13.4% 4.7%
QoQ%
Blended ASP (RMB) -24.8% 9.3% 14.4% -6.0% 7.7% 4.1% 12.1%
Non-laminated Modules -20.8% 5.9% -7.5% -6.8% -7.4% -13.1% 13.3%
Laminated Modules -16.2% -22.5% -14.0% -3.0% -3.1% 7.1% 4.0%
Gross profit margin 6.8% 6.5% 6.3% 5.5% 4.3% 2.2%
Source: Company, OP Research
Fri, 14 Oct 2016
TCL Display (334 HK)
Page 5 of 8
Financial Summary Year to Dec FY14 FY15 FY16E FY17E FY18E
Year to Dec FY14 FY15 FY16E FY17E FY18E
Income Statement (RMB mn)
Ratios
Non-laminated Modules 2,003 1,336 1,022 782 633
Gross margin (%) 9.1 6.2 4.9 6.5 7.3
Laminated Modules 611 907 2,271 3,741 4,809
Operating margin (%) 6.6 (2.6) 2.1 3.8 4.7
Net margin (%) 4.8 3.2 1.8 3.1 4.0
Turnover 2,614 2,243 3,293 4,523 5,443
Selling & dist'n exp/Sales (%) 1.6 1.5 1.3 1.0 0.9
YoY% 35 (14) 47 37 20
Admin exp/Sales (%) 2.1 2.3 2.1 1.7 1.6
COGS (2,376) (2,103) (3,132) (4,231) (5,047)
Payout ratio (%) 0.0 0.0 0.0 0.0 0.0
Gross profit 238 140 161 292 395
Effective tax (%) 25.3 (9.4) 0.0 15.0 15.0
Gross margin 9.1% 6.2% 4.9% 6.5% 7.3%
Total debt/equity (%) 145.0 186.6 81.8 55.0 36.7
Other income 31 30 18 4 4
Net debt/equity (%) 40.2 Net cash Net cash Net cash Net cash
Selling & distribution (43) (33) (41) (45) (51)
Current ratio (x) 1.0 1.0 1.1 1.1 1.1
Admin (54) (52) (69) (78) (89)
Quick ratio (x) 0.8 0.8 0.9 1.0 1.0
R&D 0 0 0 0 0
Inventory T/O (days) 29 27 27 27 27
Listing expenses 0 (142) 0 0 0
AR T/O (days) 41 97 97 97 97
Other opex (0) (0) (2) (2) (3)
AP T/O (days) 84 141 141 141 141
Total opex (97) (227) (112) (125) (142)
Cash conversion cycle (days) (14) (16) (16) (16) (16)
Operating profit (EBIT) 172 (57) 68 171 257
Asset turnover (x) 2.3 1.8 2.0 1.9 1.8
Operating margin 6.6% -2.6% 2.1% 3.8% 4.7%
Financial leverage (x) 7.3 13.6 8.4 6.5 5.5
Provisions 0 0 0 0 0
EBIT margin (%) 6.6 (2.6) 2.1 3.8 4.7
Interest Income 2 2 6 4 6
Interest burden (x) 1.0 1.1 0.9 1.0 1.0
Finance costs (8) (8) (14) (8) (8)
Tax burden (x) 0.7 (1.1) 1.0 0.9 0.9
Profit after financing costs 167 (64) 59 167 255
Return on equity (%) 78.5 78.8 29.7 39.2 39.9
Associated companies & JVs 0 0 0 0 0
ROIC (%) 66.9 (43.8) 421.4 7,305.3 (2,214.6)
Pre-tax profit 167 (64) 59 167 255
Tax (42) (6) 0 (25) (38)
Year to Dec FY14 FY15 FY16E FY17E FY18E
Minority interests 0 0 0 0 0
Balance Sheet (RMB mn)
Adj. net profit 124 73 59 142 217
Fixed assets 169 164 207 254 314
YoY% 91 (42) (19) 141 52
Intangible assets & goodwill 0 0 0 (0) (0)
Net margin 4.8% 3.2% 1.8% 3.1% 4.0%
Associated companies & JVs 0 0 0 0 0
Reported net profit 124 (70) 59 142 217
Long-term investments 14 18 18 18 18
EBITDA 214 (19) 108 214 306
Other non-current assets 8 10 10 10 10
EBITDA margin 8.2% -0.8% 3.3% 4.7% 5.6%
Non-current assets 191 193 235 283 343
EPS (RMB) 0.000 0.042 0.028 0.067 0.103
YoY% n.a. n.a. (34) 141 52
Inventories 187 158 236 318 380
DPS (HK$) 0.000 0.000 0.000 0.000 0.000
AR 291 598 877 1,205 1,450
Prepayments & deposits 120 99 145 199 239
Year to Dec FY14 FY15 FY16E FY17E FY18E
Other current assets 231 0 0 0 0
Cash Flow (RMB mn)
Cash 203 287 513 687 895
EBITDA 214 (19) 108 214 306
Current assets 1,033 1,141 1,770 2,409 2,964
Chg in working cap 33 271 74 54 39
Others 0 (55) 0 0 0
AP 546 810 1,207 1,630 1,944
Operating cash 247 198 182 268 345
Tax 46 36 0 25 38
Tax (42) (20) (36) 0 (25)
Accruals & other payables 143 174 255 351 422
Net cash from operations 205 178 146 268 320
Bank loans & leases 106 137 180 180 180
CB & othe debts 175 0 0 0 0
Capex (73) (64) (82) (90) (109)
Other current liabilities 0 0 0 0 0
Investments 0 0 0 0 0
Current liabilities 1,016 1,157 1,642 2,186 2,585
Dividends received 0 0 0 0 0
Sales of assets 0 0 0 0 0
Bank loans & leases 0 0 0 0 0
Interests received 2 2 6 4 6
CB & othe debts 0 59 59 59 59
Others 0 28 0 0 0
Deferred tax & others 14 13 13 13 13
Investing cash (71) (34) (77) (86) (103)
MI 0 0 0 0 0
FCF 134 144 69 182 216
Non-current liabilities 14 72 72 72 72
Issue of shares 0 0 128 0 0
Buy-back 0 0 0 0 0
Total net assets 194 105 292 434 651
Minority interests 0 0 0 0 0
Dividends paid (75) (79) 0 0 0
Shareholder's equity 194 105 292 434 651
Net change in bank loans 25 54 43 0 0
Share capital 100 139 139 139 139
Interest paid (8) (5) (14) (8) (8)
Reserves 94 (34) 153 296 512
Others 9 0 0 0 0
Financing cash (49) (30) 156 (8) (8)
BVPS (HK$) 0.00 0.08 0.18 0.27 0.40
Net change in cash 85 113 226 174 208
Total debts 281 196 239 239 239
Exchange rate or other Adj (18) (30) 0 0 0
Net cash/(debts) (78) 91 274 448 656
Opening cash 136 203 287 513 687
Closing cash 203 287 513 687 895
CFPS (HK$) 0.000 0.129 0.087 0.159 0.189
Source: Company, OP Research
Fri, 14 Oct 2016
TCL Display (334 HK)
Page 6 of 8
Exhibit 7: Peer Group Comparison
Company Ticker Price
Mkt cap
(US$m)
3-mth avg
t/o
(US$m)
PER Hist
(x) PER FY1 (x)
PER
FY2 (x)
EPS FY1
YoY%
EPS FY2
YoY%
3-Yr EPS
Cagr (%) PEG (x)
Div yld
Hist
(%)
Div yld
FY1
(%)
P/B
Hist (x)
P/B
FY1 (x)
EV/
Ebitda
Hist
EV/
Ebitda
Cur Yr
Net
gearing
Hist (%)
Gross
margin
Hist (%)
Net
margin
Hist
(%)
ROE
Hist (%)
ROE
FY1 (%)
Sh px
1-mth %
Sh px
3-mth %
Tcl Display Tech 334 HK 0.80 209 0.4 15.2 22.9 9.5 (33.8) 141.4 34.5 0.66 0.0 0.0 10.50 4.45 (68.9) 12.6 Net cash 6.2 3.2 78.8 29.7 31.1 21.2
HSI 23,031.30 12.5 12.6 11.5 (1.3) 9.4 6.0 2.09 3.6 3.5 1.19 1.17 9.5 9.2 (0.8) 8.0
HSCEI 9,496.85 8.1 8.3 7.7 (2.1) 8.7 5.1 1.62 3.8 3.6 0.96 0.92 11.8 11.1 (0.8) 6.6
CSI300 3,302.65 15.2 13.9 12.3 9.6 12.5 2.2 2.1 1.8 1.7 11.9 11.9 1.3 0.6
Adjusted sector avg* 21.7 28.7 20.9 8.2 24.1 9.4 0.9 1.5 1.1 1.0 1.1 5.6 6.9 8.9 12.2 3.3 2.1 5.3 2.6 1.0
Truly Intl Hldgs 732 HK 3.21 1,203 8.3 11.0 10.4 8.9 6.6 16.1 13.5 0.77 3.1 3.1 1.31 1.19 6.5 5.7 36.3 10.9 4.4 11.0 11.8 (9.3) (16.8)
Byd Electronic 285 HK 6.09 1,769 9.1 13.2 9.9 8.7 33.8 13.8 18.2 0.54 1.3 1.8 1.06 1.02 4.3 3.4 0.0 6.5 3.1 9.9 10.8 (4.2) 13.2
Shenzhen O-Fil-A 002456 CH 37.26 5,814 113.0 81.0 42.7 30.1 89.8 41.7 53.0 0.80 0.2 0.3 6.05 5.63 33.6 26.3 59.9 12.6 2.6 9.4 13.6 4.2 18.3
Boe Technology-A 000725 CH 2.54 13,150 77.0 55.2 66.8 34.8 (17.4) 92.1 18.7 3.57 0.8 0.7 1.17 1.12 10.2 9.3 6.6 19.8 3.4 (1.1) 1.4 8.5 5.0
Tianma-A 000050 CH 18.82 3,920 45.6 38.4 38.2 28.7 0.6 32.9 21.7 1.76 0.3 0.5 1.95 1.89 17.9 17.5 0.0 16.3 5.3 5.2 5.2 0.0 (12.7)
Au Optronics Cor 2409 TT 11.80 3,572 33.3 23.1 N/A 16.3 N/A N/A 16.4 N/A 3.0 2.5 0.67 0.61 2.7 4.2 14.9 11.1 1.4 (6.1) 0.5 3.5 4.4
Innolux Corp 3481 TT 10.50 3,287 21.9 9.6 N/A 40.1 N/A N/A (22.3) N/A 1.9 1.1 0.49 0.47 1.6 4.2 3.2 12.8 3.0 (6.8) (3.7) 0.0 (0.9)
Japan Display 6740 JP 169.00 979 13.6 N/A N/A N/A N/A N/A (41.3) N/A N/A 0.8 0.29 0.29 1.4 1.3 6.1 7.8 (3.2) (11.5) (3.0) 13.4 (9.6)
Sharp Corp 6753 JP 137.00 6,576 22.1 N/A N/A 161.9 N/A N/A (123.6) N/A N/A 0.0 N/A 2.73 (16.8) 16.9 N/A 9.5 (10.4) N/A (39.5) 4.6 31.7
Samsung Electron 005930 KS 1,557,000.00 192,781 374.6 12.3 10.5 9.0 17.7 16.2 14.2 0.74 1.3 1.6 1.10 1.27 3.2 3.0 0.0 38.5 9.3 10.2 12.3 2.0 5.1
Lg Display Co Lt 034220 KS 29,300.00 9,227 31.5 10.8 22.3 11.2 (51.3) 98.5 2.1 10.57 1.7 1.7 0.88 0.84 2.7 3.3 13.3 15.2 3.4 0.9 4.0 5.0 4.1
* Outliners and "N/A" entries are in red and excl. from the calculation of averages
Source: Bloomberg, OP Research
Fri, 14 Oct 2016
TCL Display (334 HK)
Page 7 of 8
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Our recent reports Date Company / Sector Stock Code Title Rating Analyst
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Historical recommendations and target price: TCL Display (334 HK)
(as of 13/10/2016)
1 29 Aug 2016 BUY, Target price HK$0.72
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Rating and Related Definitions
Buy (B) We expect this stock outperform the relevant benchmark greater than 15% over the next 12 months. Hold (H) We expect this stock to perform in line with the relevant benchmark over the next 12 months. Sell (S) We expect this stock to underperform the relevant benchmark greater than 15% over the next 12 month. Relevant Benchmark Represents the stock closing price as at the date quoted in this report.
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