EQS-News / 15/04/2020 / 09:20 UTC+8
The Hidden "Treasure" and the Future of the TV Leader TCL Electronics
Source: Alpworks
(April 15,Hong Kong)According to the "Ultra HD Video Industry Development
Action Plan (2019-2022)" carried out by the Ministry of Industry and
Information Technology, 4K TV terminals will be widely adopted by the year
2022. There are numerous players in upgrading from traditional TVs to Smart
displays. Who is going to take the lead in this competition?
1) A Globalized Evolution
Global TV shipments have regained growth in 2018 and 2019 with a
year-on-year growth of 4.0% and 0.4% respectively after a 3.4% slide in
2017. It is projected that the global TV market size will remain stable.
Compared with global market, the performance of the PRC market was even
worse. With a record high total sales volume of 50.89 million sets in 2016,
growth momentum has been lost for next three years in the PRC market and the
total sales volume have been remained at around 47.7 million sets. Sales
revenue also showed a constant downward trend due to the intensified price
war.
The competition environment in overseas markets is obviously better than the
PRC market, particularly the growth momentum of global markets restored.
With lower competition intensity, overseas markets have become a growth
engine and have larger room for development.
However, a wave of definition upgrading is likely to sweep across the TV
industry in the PRC market where the technology guidance of "Putting 4K
first while developing 8K" had been jointly launched by the Ministry of
Industry and Information Technology, National Radio and Television
Administration and China Central Television.
Furthermore, the imminent 5G era also presents opportunities for the
intelligentization of TVs. The wave of definition upgrading is likely to be
accompanied by a wave of intelligentization upgrading, which entitles users
to have more application scenarios in TVs. Moreover, subsidy policies of
energy conservation and emission reduction of house appliances will trigger
consumers to buy energy saving house appliances.
"Large screen", "high definition" and "intelligentization" are the main
directions of TV upgrading, which will result in higher sales prices and
higher production capacities in the TV industry. Relevant data indicates
that the overall size of China's ultra HD industry will exceed RMB 4
trillion by 2022.
It is estimated that the shipments of TVs with above 65-inch will reach 46
million sets by 2023, an 84% increase compared to the 25 million sets in
2019; sales volume of 8K TVs will reach 1.666 million, nearly 13 times to
its sales volume in 2019.
The TV industry is upgrading from simply hardware to smart display by
developing contents within the products. The smart display industry is
equipped with rich application scenarios. It enjoys promising market
prospects as upgrading is desirable in education and healthcare, smart home
and commercial display. Larger-screen and more effective smart display can
solve the main problems of mobile phone and thus improve user experience.
Demand for TV-based AI Internet value-added services appears more prominent,
particularly amid the pandemic. Fitness class, online tutorials, cloud
office and cloud entertainment can all be realized with a TV. Demand for AI
and Internet value-added services in the smart display industry has unveiled
the underlying infinite space of imagination.
According to AVC's report, the number of active usage of smart TVs' OTT
vertical applications grows steadily, and grows faster during holidays. In
2019, the number of monthly active usage of OTT vertical applications
increased from 35.21 million sets to 37.11 million sets, with an annual
increase of 2.46 million sets and 2.8 percentage points increase of monthly
active ratio.
Smart display also serves as a desirable control entry in the field of smart
home. It is believed that smart TVs should play the role of control center.
Smart home can be realized with a large screen, a remote control and
connection to Wi-Fi. Users can easily deploy data through a screen or
operate all the house appliances through speech or gesture interaction.
Smart display industry has enormous value. According to a report released by
AVC, global smart home market will maintain a high-speed growth of over 12%
and the market is estimated to be worth US$121 billion by 2020. As smart TV
acts as a perfect entry for smart home, the smart display industry will be
benefitted.
Commercial display also lays a direction for TV enterprises upgrading.
China's total market size of commercial displays in 2019 reached RMB78.9
billion. It is estimated that the market size will exceed RMB100 billion by
2020 and RMB150 billion by 2023, with a compound annual growth rate
approaching 25%.
Implementation plan is available for various scenarios such as remote
working, smart conference, cloud tutorials, station control and traffic
dispersion. Commercial display market is growing rapidly and will become a
new growth engine for TV companies. Globalization and intelligentization
will be indispensable to industry players.
2) Leader of Smart Display
What makes a smart display player becoming a global leader? Mainly depends
on two deciding factors, the width and depth of its global layout, and its
attitude on development in Internet applications. TCL Electronics (TCLE, HK:
01070) is the player that best meets the above two factors around the world.
Since 2018, TCLE has surpassed LG as a second biggest TV brand in global
market share. In 2019, TCLE maintained its second rank with a double-digit
growth in shipments and it also claimed most prominent growth in market
share among the top three players.
Nevertheless, TCLE is undervalued and underpriced because market shows bias
towards hardware-dominant house appliance enterprises. However, constant
iteration of Internet technology has contributed to intense competition in
stream media. TV companies now have a stronger bargaining power as the
supply and demand between them and content platforms are changing.
After the restructuring in 2019, direct share-controlling relationship no
longer exists between TCL Electronics and TCL Technology (SZ: 000100). TCL
Technology now highly focuses on the semiconductor panel business after
spinning off the house appliances business. TCL Electronics also shows rally
in its performance by mainly runs TCL consumer electronics products
business.
TCL Electronics hit historical high on both total revenue and sales volume
of TVs, recorded HK$46.99 billion in 2019, up by 3.1% year-on-year, and
reached 32 million, up by 11.9% year-on-year respectively. TCL Electronics
also enjoyed enhanced profitability along with its stable growth in sales
revenue.
Compared with the figures in 2018, the overall gross profit margin of the
company increased 2.1 percentage points to 17.4%. Profit attributable to
owners of the parent recorded a new high of HK$2.28 billion, up by 118.9%
year-on-year. Profit attributable to owners of the parent after deducting
one-time non-operating gain was up by 35% year-on-year, which indicated
robust growth of core businesses.
All figures showed that 2019 marked an extraordinary year for TCL
Electronics.
In 2018, TCL Electronics' market share in global TV shipments jumped to
11.6%, surpassed LG and ranked No.2, only after the No.1 player Samsung
whose market share was 16.7%. In 2019, TCLE's global market share reached
13%, both enlarging its gap with the third player and narrowing its gap with
Samsung.
In 2019, sales volume of TCL TVs in overseas markets was 13.46 million sets,
significantly up by 26.1% year-on-year; revenue reached HK$21.00 billion, up
by 14.1% year-on-year; gross profit margin increased 0.8 percentage points
to 15.5%; operating profit registered HK$878 million, surged by 42.3%
year-on-year.
What lies behind the comprehensive improvement in figures is TCLE's
advantages in global market competition.
TCL Electronics obtained the second place of market shares in matured
markets like the US and developing markets such as Myanmar and the
Philippines. TCLE also has a leading position of market shares in France,
Australia and Canada. In particular, TCL Electronics' sales volume in Indian
market, its key market, was up by 151% year-on-year, prompting it to the
fifth position in market share.
Meanwhile, TCLE has been striving for comprehensively high-speed growth in
North American markets, emerging markets and European markets.
In fact, the overseas markets are notably far more favorable than the PRC
market in terms of competition environment in the TV industry. TCLE's
overseas profitability has surpassed the PRC market long time ago since it
has become a first-tier brand. In middle and high-end markets, TCLE's
advantages in price-performance ratio is obvious and TCLE is constantly
improving its competitiveness in different markets.
TCLE's success in North American markets has proved the feasibility of its
overseas strategies. With the steady improvement in future market share,
European markets and emerging markets are also expected to replicate success
in North American markets and achieve the further improvement of TCLE's
business performance.
3) The Changes Neglected by the Market
TV companies used to occupy a relatively low position in the industrial
chain. In the past, cable TV was almost a necessary choice for all TV users.
Cable TV services must be chosen by users no matter what type of TV they
chose. Consequently, TV was just simply hardware. The valuation of listed TV
companies was low due to the intensified competition in the industry and
price wars.
TV users nowadays no longer solely rely on cable TV services. With the
development of the Internet, IPTV and OTT (over-the-top TV) services have
become mainstreams because of their cost-effectiveness and greater
convenience.
Take the most matured US market in the industry as an example, growth of
cable TV user base had lost momentum since 2010. Starting from 2015, its
cable TV user base was in a downward trend and the declining speed has
further accelerated in the past two years.
In contrast, the number of both IPTV and OTT users has been growing rapidly
in the last decade. By the end of 2018, the total number of IPTV and OTT
users reached 78.53 million, almost level to cable TV users.
The investment logic of TV has changed due to the rise of OTT TVs. Users
today no longer choose cable TV services before choosing a TV brand, but
becomes opposite. Users firstly consider the performance of a TV then choose
content services based on their preference. This also explains why more and
more users have abandoned cable TVs.
TV companies are not merely hardware manufacturers, but transform into a
data traffic platform. TCL Electronics, a global OTT TV leader for example,
its products not only support cable TV services, but also able to reach
in-depth cooperation with renowned Internet giants such as Roku, Google and
Netflix, thus leaving a wider range of choices for users.
As a global OTT TV leader, TCLE will have a notably greater say in the
industry. It is neither objective to value it as a simple hardware producer
nor undervalue it.
4) A Complete TV Ecology
TCL serves as a "Hardware-as-a-Service" (HaaS) platform instead of being a
traditional hardware manufacturer.
The value of TVs becomes greater when cable TV is no longer the only choice
for users. High-quality products and services can attract users and the
users choose TV brand not only because of its hardware but service and a
complete ecology. It is believed that successful "HaaS" model must
incorporate three stages:
Stage one: Provide high-quality products and services.
Since "HaaS" is a solution, the first priority should be providing
high-quality products and services, meeting most users' general demands.
TCL TVs' quality is good enough and recognized by international
organizations. TCL TV has got various awards on international consumer
electronics events such as CES and IFA, and it also won awards and praises
from different famous technology media outlets.
Stage two: Establish an unshakable market position.
When a product is recognized by users, its advantages should be leveraged to
expand sale and seize market share.
In the past few years, TCL has been dedicated to improving its status in the
industry. Particularly in the past two years, TCL has experienced a surge of
sale volume in the US market, which value the products' qualities most. In
the US market, TCL Electronics has great advantages in cost-effectiveness
compared to Samsung and LG, bringing huge popularity to its products. Its
sales volume even ranked first in the US market in July 2019 and its brand
influence is continuously expanding.
Regarding distribution channels, TCL has cooperated with six major American
retailers, including Best Buy, Amazon, Walmart and Costco.
Stage three: Introduce more partners to build an ecology together.
Quality improvement will finally be realized after TV companies accumulate
large number of users. More partners can be invited to achieve win-win
situation and will lead to the realization of the "HaaS" platform. TCL
Electronics is currently paying much efforts to achieve stage three.
As mentioned above, TCLE cooperates with Roku in the U.S. market and Google
in European and emerging markets to launch TCL Roku TVs and TCL Android TV
products respectively, while Samsung and LG build their own closed system.
By comparison, TCL is in favor of a more open-minded attitude, collaborating
with top players in different markets to gradually increase market share.
TCL Electronics has already become global OTT TV leader and its next step is
to strengthen its leader advantages.
5) Status of TCL
Thanks to its high-quality products and services, TCL's global market share
is climbing constantly. At the same time, users pay more attention to TVs'
ecological value. In the past five years, the total number of global
activated users and average daily number of global active users of TCL
Electronics have been increasing, with the growth rate above 30%.
According to the 2019 data, the total number of global activated users of
TCL Internet services reached 42.34 million, average daily number of global
active users recorded 20.79 million and the average daily time spent on TV
per user reached 5.7 hours.
Apart from TV function, more value-added services become the treasure of
"HaaS". Users no longer purchase TV for single purpose, but also purchase
the solutions and services of a brand.
Like many Chinese mobile phone users, American consumers are used to read
assessments on major professional websites before purchasing a TV. TCL brand
is widely recognized by US mainstream assessment institutes for its super
high cost-effectiveness ratio and high-quality supporting services.
According to relevant materials, two major US assessment institutes of
electronic products have granted high marks to TCL TV on multiple fronts
such as cost-effectiveness ratio and picture quality.
At the same time, revenue generated from the Internet business of TCL
Electronics becomes more and more important. In 2019, its Internet business
was substantially up by 108.7% to HK$760 million. At present, the Internet
business of TCL Electronics consists of two parts. Domestically, it mainly
relies on Falcon Network Technology while its benefits from overseas
business are mainly from cooperation with renowned platforms such as Roku,
Google and Netflix.
In 2019, Falcon Network Technology had remarkable improvement on its main
business with the revenue jumped by 50.7% year-on-year. Significant growth
in revenue can also be found in video-on-demand and membership business,
advertising business and value-added services business.
Falcon Network Technology also enhanced its profitability. Its gross profit
margin soared from 57.6% to 63.5% and net profit after tax reached HK$175
million, surging by 137.8% year-on-year. Average revenue per user increased
from HK$29.2 to HK$34.9. The number of existing subscribers doubled
year-on-year and the number of global active users exceeded 20 million.
What merits attention is that revenue from the overseas Internet business
was added for the first time with a contribution of HK$210 million, which
has expanded future profit margin. Cooperation with famous platforms such as
Roku, Google and Netflix allowed TCL TV to be more customized in the local
market. High-quality content partners have strengthened monetization
capacity of TCL's overseas Internet business. TCL has become the first
Chinese enterprise in the industry to have relatively large-scale and
sustainable overseas Internet business revenue.
TCL Electronics has accomplished metamorphosis from "AI + IoT" into "AI x
IoT". Rooted in HaaS platform and with solutions for four scenarios serving
as the branches and multiple ecologies as leaves, it ultimately presents a
"Hardware-as-a-Service" platform for users.
If OTT TV is regarded as an independent industry, its current penetration
rate is still pretty low, leaving a considerable room for improvement. TCL
Electronics is the only enterprise with pioneer advantage and economies of
scale that enable it to unleash fission marketing effects.
Domestic TV market is under severe competition and price war. As a result,
user loyalty can hardly be formed and achievement of platform effects is
hindered keen competition. Only limited amount of Chinese enterprises is
able to exude appeal in global markets.
TCL Electronics is the only Chinese enterprise who enjoys advantages of a
vertical industrial chain, rendering the company to compete against
international giants such as Samsung and LG. It has developed an annual
capacity layout of 15 million overseas.
Thanks to the synergy with TCL Technology, CSOT can directly supply TCL
Electronics with panels, furthermore, it can offer direct delivery to
overseas factories including Mexico. Remarkable synergy of TV whole-machine
vendors and panels substantially boosts manufacturing efficiency and
decreases production costs that helps guarantee product quality.
Stable supply chain of parts constitutes a crucial factor for TCL
Electronics to ensure steady product supply in overseas markets; in
addition, its global production strategy rendering TCL Electronics to access
important sales channels in multiple countries.
Core advantages including global price-performance ratio, innovation of
Internet products and vertical industrial chain have elevated TCL
Electronics. TCL Electronics possesses a surprisingly strong status in the
industry.
6) The Hidden "Treasure"
Currently, TCLE's share price trades around HK$3.2 with a market
capitalization of HK$7.56 billion. The Company's price-earnings ratio stands
at 3.32, price-sales ratio at 0.15 and price-to-book ratio at 0.65. Such a
valuation level fails to reflect the true value of TCL Electronics.
Overseas business and "HaaS" platform business represent the core values of
TCL Electronics, while they are not manifested in the existing valuation.
The most conservative analysis method can be adopted by comparing TCL
Electronics with its SaaS counterparts. In 2019, TCL Electronics reaped a
revenue worth of HK$760 million from its Internet business. If treating TCL
as a SaaS platform with a user base of over 200 million, and at the same
time its Internet business is expected to maintain a high-speed growth of
over 40%, it obviously meets the qualities of a premium growth stock.
In fact, many SaaS platforms in the market adopt price-sales ratio as the
valuation method. Given the current valuation of the Internet business of
TCL Electronics is HK$760 million, if 10X is adopted as the price-sales
ratio valuation benchmark, the business alone should worth more than HK$7.6
billion. This valuation has not taken into account the constant growth of
the business, pioneer advantage in the industry, leading effects and
scarcity yet.
It is left open about whether the valuation of HK$7.8 billion fails to
reflect the leading position of TCL as the world's second largest TV vendor.
Its potential in "HaaS" platform alone has also been seriously neglected by
the market.
TCL Electronics has been maintaining a steady and high dividend policy over
the years. Calculated based on the present share price, the dividend yield
ratio of TCL Electronics in 2019 has exceeded 6%. Simultaneously, the
Company's overall market capitalization was merely 0.71 times of its net
assets, which promises sufficient margin of safety and flexibility. It is
equivalent to a 30% discount if investors purchase at the current price,
which perfectly conforms to the investment logic of value investing.
For Enquiries:
Hong Kong Zhixin Financial News Agency Limited
Ms.Rachel Lei Tel: (86-755) 8254 5361
Ms.Lilian Lam Tel: (86-755) 8255 0643
Ms.Jules Zhu Tel: (86-755) 8277 0579
Ms.Fancy Wang Tel: (86-755) 2589 3557
Mr.Jason Wang Tel: (86-755) 2394 1306
Mr.Alex Xiao Tel: (86-755) 8323 6296
Email:info@zhixincaijing.com
website:http://electronics.tcl.com
Document: https://eqs-cockpit.com/c/fncls.ssp?u=NMDWLBBKXM [1]
Document title: The Hidden 'Treasure' and the Future of the TV Leader TCL
Electronics
15/04/2020 Dissemination of a Marketing Press Release, transmitted by EQS
Group.
The issuer is solely responsible for the content of this announcement.
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April 14, 2020 21:20 ET (01:20 GMT)
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