Warm reminder: This article is an excerpt. If you need a complete report, please log in to the official website of Future Think Tank (www.vzkoo.com) on the PC and search and download the "LCD Panel".
Core view
Station at the starting point of the new round of LCD prosperity cycle
After detailed calculation of the supply and demand area of the LCD panel industry, we believe that the supply and demand of the LCD panel industry will enter a tight balance state from a wide balance state since 2018. It is expected that the prices of mainstream panels will bottom out in March 2019 and are expected to rebound in full after Q2. With the further expansion of LCD size this year, the panel industry will usher in a new round of prosperity.
triple cycle fluctuation theory - solve the mystery of LCD price cycle fluctuations
leads the entire market and establishes an analysis framework and research method that affects panel price fluctuations for the first time - triple cycle fluctuations. We believe that short-term fluctuations come from seasonal or phased supply and demand ratios, medium-term fluctuations come from panel capacity expansion and exit cycles, and long-term impact comes from changes in the competitive landscape and the continuous growth of demand. Through this theory, the past few cycles were perfectly explained and the starting point of this new cycle of the panel industry was accurately predicted, forming a prudent research method and a rigorous logical framework for the panel industry.
The huge profitability and valuation elasticity of the panel industry
For the first time, our entire market will conduct a comprehensive comparison of panel manufacturers at home and abroad, and deeply analyze and calculate the detailed cost split of panel manufacturers, profit elasticity calculation, double valuation method of PB and enterprise value multiples, industry supply and demand, etc. The competitive advantage link of domestic panel manufacturers is elaborated in detail. As the new cycle begins, domestic panel manufacturers are moving towards a new cycle with a comprehensive rise. The current valuation does not fully reflect the profit elasticity and real profit expectations of domestic panel manufacturers. Leading companies such as BOE, TCL Group still have a large room for stock price upward.
1. Standing at the starting point of the new round of LCD prosperity cycle
It is expected that panel prices will rebound in full swing in 19Q2
TV panel prices have peaked in June 2017, due to the continued growth of new production capacity, the industry has fallen into oversupply, and panel prices have started a long decline process. In 18Q3, manufacturers began to adjust their capacity structure to promote the short-term ease of supply and demand in the industry, and then panel prices rebounded briefly. As the supply and demand for production capacity has not been fundamentally improved, combined with the weakening demand for stocking on panel prices in Q4, the panel price has entered a downward channel again, and the panel price has fallen again in Q4 in 18. According to our on-site research, the current mainstream open-cell LCD panels (including polarization and driver ICs) such as 32-inch, 43-inch, 55-inch, and 65-inch have basically dropped to the cost line of panel manufacturers. Due to the off-season effect in January, some overseas manufacturers carried out annual maintenance of production lines, resulting in a decrease in the overall supply side, so the prices of some small and medium-sized panels stopped falling.
According to the results of front-line research in the industry chain, the current cash cost of 32 inches is about US$35 to US$36, and the sales price is about US$42. According to past experience of the panel industry, when the panel price falls close to or falls below the cash cost, all panel manufacturers will begin to reduce capacity utilization for the sake of controlling losses, thereby improving the supply and demand environment and restoring the panel price. So even if there is no obvious production capacity, we expect the prices of mainstream size panels to bottom out in March 2019 and are expected to rebound after Q2.
According to the depreciation cost of Huaxing Optoelectronics , one of the main 32-inch shipment manufacturers, We expect the depreciation cost of 32-inch panels produced by JD.com Fang and Huaxing in 2018 to be between US$9 and US$10, that is, the current sales price of around US$42 is already lower than that of near the break-even line. Considering that BOE Beijing B4 and Huaxing Optoelectronics Shenzhen T1 (both main products are 32-inch panels) will be depreciated one after another in 2019, it is expected that the depreciation cost of 32-inch panels will plummet to around US$5, and will drop to nearly US$0 after the complete depreciation in 2020. The end of depreciation will effectively alleviate the decline in gross profit margins of BOE and CSOT.
Large-size LCD supply and demand analysis - From wide balance to tight balance
How to judge the future trend of the panel industry and the profit status of the company, we try to analyze it from the two perspectives of supply and demand, and predict the trend of the panel price and the impact on the profits of companies in the industry. The
panel industry has its own unique ecosystem. Whether it is in short supply or oversupply, the industry will have a dynamic self-repair and self-adjustment process, and always revolves around the balance of supply and demand. The indicator of this adjustment is the cash cost of the panel.
From the supply side, there is no centralized release of production capacity brought about by the start of new production lines this year. Considering the small impact of new production capacity and the withdrawal of Samsung L8-1 production capacity, the overall oversupply phenomenon of industry still exists at the industry level in 20 years, but it does not mean that panel prices have no opportunity to repair prices during the reshaping period of the industry structure. According to the calculation results, the growth of panel capacity in 2019 mainly comes from the increase in area brought about by the climb and full production of the capacity in 2018.
According to the data in the above table, deducting the capacity withdrawal brought by Samsung's closing line, we expect that the capacity area increase of nearly 14 million square meters will still be increased in 2019. From the demand side, the current global LCD shipments can be divided into four categories, namely TV, mobile phone screen, IT products, in-vehicle industrial control and other products. Taking the data over 2017 as an example, the shipment of TV panels was 230 million pieces, the shipment of mobile phone screens (LCDs) was 1.6 billion pieces, the display was 124 million pieces, the NB was 164.7 million pieces, the pad was 152 million pieces, and the car panel was 150 million pieces, and the total shipment area was about 173 million square meters. Non-mainstream shipment types such as industrial control and medical care are not considered yet. We expect the global LCD demand area from 2017 to 2020 as follows:
According to our calculations, we expect the growth rate of LCD demand area in 2018/19/20 to be 8.69%/4.24%/5.08% respectively. After deducting the area of capacity withdrawal from in 2019, the supply side of will increase the capacity area by 14 million square meters, accounting for 7% of the total demand in 2019, which basically matches the incremental area of demand . The biggest driving force for the growth of global LCD demand area comes from the growth of average TV panel shipment size, which accounts for 70% of the total global LCD demand area.
According to data from Aowei Cloud Network, by size, the average global TV panel shipment size in the first half of 2018 reached 43.4", an increase of 1.2" over the same period last year, of which the average size in China reached 47.4", continuing to lead the global TV large-size . The average size of North America and Western Europe was 45.1" and 43.8" respectively, exceeding the global average size. Emerging market shipments are mainly small and medium sizes, and the average size of Asia-Pacific, Middle East Africa, Latin America and Eastern Europe are lower than the overall industry level, respectively, at 38.6", 39.6", 41.8" and 41.8" respectively. The global TV panel shipment accounted for 26.9%, an increase of 4.5% over the same period last year. The trend of TV large-size driving the growth rate of LCD demand area of about 7%.
According to the data of Qunzhi Consulting, the price of large-size panels continues to decline, driving the market share of large-size TV panels to further expand in 2019. So even if the total TV shipment volume does not increase, the annual demand area increase is still enough to offset the pure increase in the capacity area in 2019, thereby alleviating the pressure of further overcapacity.
With the arrival of the peak season and the bottoming of panel prices, there is no large new production capacity put into production. The large-size LCD panel industry will move from the "wide balance" of supply and demand to the "tight balance" state. With the further expansion of LCD size this year, the panel industry will usher in a new round of prosperity cycle.
2. Triple cycle fluctuation theory - solve the mystery of LCD price cycle fluctuation
Large-size LCD short-seasonal fluctuation comes from the seasonal supply and demand ratio
From the perspective of large-size large-size LCD panels, the overall industry of large-size LCD panels, due to technological progress and continuous reduction of material costs, the price cycle is always downward, which can be verified from the continuous reduction of panel cash costs.With the significant expansion of production by domestic manufacturers and the increase in market share, the rebound time of panel prices has been shortened, and the current price fluctuations are increasingly affected by short-term fluctuations, that is, the rise time of panel prices has been shortened from the original 10 to 12 months to the short-term fluctuations of 3 to 6 months. We believe that the increase in the capacity voice of domestic panel manufacturers and the seasonal changes in supply and demand are the main reasons why panel prices are becoming increasingly irregular now.
Globally, downstream TV inventory of whole-machine manufacturers shows regular increase and decrease in inventory. Since 2015, Chinese TV manufacturers have shifted their production capacity to overseas markets. Since the delivery time is longer than the domestic market, the normal inventory level has also increased from 5 weeks to 6 weeks. Generally, the time from the bottom of the inventory to the top of the inventory is about 6 months. The industry generally gradually increases inventory from December or January of the following year, and is the inventory high when it approaches June. At this time, the industry entered the peak season. Due to the strong demand caused by new product launches and promotions, the industry entered the stage of inventory consumption and continued to reduce inventory until November. Therefore, the industry has entered a stage of significantly increasing inventory since Q1, and procurement demand has changed from weak to strong. The industry entered its peak season from Q2 and continued until Q4, and panel procurement volume showed a continuous growth trend.
We found that the previous rounds of industry price increases were basically concentrated in Q2 or Q3, 14Q2/16Q2/18Q3, respectively, and panel prices rebounded. We believe that the node that triggered the industry's rebound was more directly related to the seasonal changes in supply and demand at that time. That is, when the industry's supply and demand ease, seasonal changes in panel demand will trigger a rise in panel prices.
Take 32 inches as an example. The price bottomed out at US$77.83 in Q14, rebounding for 12 months, with a high of US$95.17 in Q15, with a rebound of 22%. In Q16, it bottomed out again at US$53.83, rebounded for 12 months, with a high of US$75 in 17Q1, with a rebound of 40%. The lowest price in Q2 in 2018 was US$46, rebounding for 3 months, with a high of US$57, with a rebound of 24%. We expect this round of rebound to start in Q2, 2019, with a minimum price of less than US$42, rebounding for 6 months, with a high of around US$50, with a rebound of 22%. We expect the net profit margin of opposite panel manufacturers to increase by 3 percentage points.
Cycle fluctuations in large-size LCDs come from the expansion and exit cycle of panel production capacity
Panel price fluctuations in the past two years are irregular, and there is even a special situation where there is only a three-month rebound in 2018. What is the specific reason for this phenomenon? In order to discuss in-depth discussion of the deeper reasons for the cyclical fluctuations in panel prices, we have counted the new production line capacity in the past 10 years. Due to the relatively concentrated release of production capacity in the panel industry, domestic LCD production expansion is faster than demand, and at the same time, the expansion production capacity shows cyclical and large fluctuations, which we call it the "production expansion cycle".
According to our statistics, China has started the capacity expansion of large-size LCDs in 10 years, and by 2020, it has formed a total of 4 concentrated capacity release cycles. Through comparison, we found that the gap during the capacity release cycle is basically consistent with the panel price fluctuation cycle. When a complete capacity release cycle ends, the improvement of supply and demand relationship is one of the decisive factors for the reversal of panel prices. Since the production capacity of panel manufacturers is always released in a centralized manner in the short term, in years with more new production capacity, it will have a certain impact on the supply and demand of the overall industry. The supply and demand ratio in the industry gradually deteriorates, and panel prices continue to decline. When the panel price fell to close to cash costs, the industry's supply side contracted passively, the industry entered a period of reshaping the pattern, and the supply-demand ratio eased again. If a complete expansion cycle comes to an end, the panel industry's prosperity will generally enter a freezing point, and the industry's supply has entered a period of easing, and the seasonal changes in demand bring about an increase in panel prices.
Through comparison, it was found that the capacity release cycle is basically consistent with the panel price fluctuation cycle. When a complete capacity release cycle ends, the reshaping of the industry's supply and demand pattern and the improvement of supply and demand relationships are one of the decisive factors for the reversal of panel prices.
On the other hand, from the perspective of capacity withdrawal, from 2015 to 2016, many Taiwanese, Korean and Japanese manufacturers have successively closed the old small-size mobile phone LCD production lines, mainly focusing on production lines below 6th and 6th generations. The products are mainly a-Si mobile phone panels. As the mobile phone panel market began to transform to LTPS and OLED, the a-Si small-size panel market is facing shrinking and transformation needs. The closure of the high-generation LCD production line started with Samsung's closing L7-1 in 2020, including the Panasonic Himeji 8.5-generation line, and the possible Samsung L8-1 in 2020. Since 2016, the total annual output area of high-generation LCD production lines has been withdrawn by about 21 million square meters. The supply and demand pattern of the industry has improved with the exit of production capacity and the end of the expansion cycle, so we expect that the tight balance of supply and demand in the industry will happen again after the second quarter of 2019, which will help large-size LCD panel manufacturers improve their profitability. According to the global LCD TV panel supply and demand ratio data of Qunzhi Consulting, the industry is expected to approach a tight balanced environment for supply and demand in 17 years.
Large-size LCD long cycle affects changes in the competitive landscape and the continuous growth of demand
At present, AR and VR are important technologies for information interaction in the next era, but due to the different application scenarios and display needs, the most mainstream way to obtain information with your eyes is still the screen. The global display panel market is in the total level of US$150 billion. Although the growth rate of this market has slowed down, the concentration of leading manufacturers is increasing. This can be seen from the current market share of various panel manufacturers and the capital expenditures in recent years. As new display technology replaces old display technology, multiple types of technologies coexist, and each seizing the target market will be the main trend in the display industry in the next 5 to 10 years. What determines the size of different display technology market size will be cost-effectiveness, which means how many people are willing to pay a premium for the improvement of technology to improve display effects? From the current perspective, with the continuous upgrading of traditional product parameters, the promotion of new technologies and the expansion of the market must be closely related to "cost-performance ratio". This is the case with a-Si, LTPS, OLED, and so is the case with quantum dots and MicroLED.
has now formed a three-legged stalemate in mainland China, Taiwan and South Korea in the TV panel industry. In the market share of 18H1's TV panel shipments, the market share of domestic panel factories has further increased. Among them, BOE (first), Huaxing Optoelectronics (fourth) has begun to take the lead. We believe that the panel industry represented by LCD, as a typical heavy asset industry, has several significant characteristics, which determines why China can come from behind and eventually surpass Japan, Taiwan and South Korea to become the world's number one.
1. The underlying core technology of LCD has matured 30 years ago. After several transfers and authorizations, there are no extremely high barriers to breakthrough in patents and technology in China.
2. The technological progress of LCD is mainly improved technology and cost-reducing technology. There is no upgrade similar to Moore's Law. The product iteration speed is slow, making it easy to overtake the leading competitors.
3. With the upgrade of generation lines, the amount of investment in LCD continues to rise. In addition, the new entry is facing huge losses. Through industrial support and subsidy policies, the scale of domestic manufacturers has been rapidly expanded and gradually seized the lead.
4. China has the best "cost-performance" professional and professional talents, relatively low labor costs, but relatively high personnel quality. Combined with the "engineer dividends" of the past twenty years, it has built the most solid human resources advantage.
5. China has the world's largest downstream terminal market demand and the most complete downstream complete machine module industry chain, and also has a group of excellent terminal brand manufacturers. Local panel manufacturers are more likely to benefit from localization advantages. In the early stage of the development of the panel industry, the reversal of its economic cycle is mainly driven by the demand side. At this stage, in the context of the continued overcapacity of overall production capacity, the reversal of the industry's economic cycle mainly comes from the supply side's capacity reduction.The capacity withdrawal of the panel industry is mainly determined by several factors:
1. Natural aging of machinery and equipment: The lifespan of equipment that produces panels can theoretically remain for 20 years, but due to the upgrading of products and technologies, as well as the adjustment of manufacturers' own strategies, the actual service life is often around 10 to 15 years.
2. Technology upgrade and product iteration: Due to the continuous upgrading of high-generation lines in the panel industry and technological progress, the production cost of panels will be significantly reduced and product added value will be increased. Although old production lines can be transformed and upgraded by adding equipment, the new production lines have greater advantages in terms of efficiency and product strength.
3. Declining manufacturer competitiveness and transfer of industries: The competitive advantages of the panel industry are reflected in the technological cost advantages and industrial cluster advantages. Japan's steadily retreat on LCDs and ultimately closing LCD panel factories all indicate that companies that have lost their competitive advantage will gradually lose market share until they exit completely.
4. Changes in manufacturers' competitive strategies: At present, we divide it into four competitive quadrants in the panel industry from the size of technical advantages and product differentiation. The current competitive strategies of overseas panel manufacturers are mainly divided into differentiated and niche product routes represented by Taiwanese panel manufacturers, and technologically leading differentiated product routes represented by Korean panel manufacturers. This led South Korea to take the lead in withdrawing from the LCD competition toward OLED. After three major industrial transfers, the entire industry attributes have gradually changed from growth to mature industries. Now the driving force of large cyclical fluctuations in the panel industry has gradually transformed into "supply-side reform", that is, changes in the industry's competitive landscape, thereby affecting the industry's prosperity and further affecting corporate profits. In the first half of 2016, due to the withdrawal of Samsung L7-1 and Himeji Panasonic's 8.5 generation lines, the supply and demand of global panel production capacity has reversed. The panel price has continued to rise for nearly a year, causing a sharp increase in the profits of panel companies, which is a typical industrial structure.
In addition to changes in the industry's supply side, the continuous growth of the demand side is also the main reason why large-size LCDs can return to growth from cyclical troughs. In 2017, the annual compound growth rate of LCDTV panels above 65 inches was 21.5%, and the annual compound growth rate of above 75 inches reached 35.7%. With the advent of the 5G era, signal transmission rates have further improved, and high-definition and large-size have become the key directions of the display industry. LCDs have many advantages such as high technological maturity, low cost, high yield, and easy technical improvement. According to data from Aowei Cloud Network, the product structure changed significantly in the first half of 2018, showing a phenomenon of "one big and one small, two ends growing". The main reason for this phenomenon is that the main demand for TVs in most regions around the world, such as Latin America and Southeast Asia, is still concentrated on smaller TV products of 32-inch sizes, while most demand in regions such as China and the United States is concentrated on large-size TVs.
With the development of smart homes and the arrival of 5G Internet of Things, TVs are no longer simple as a screen. TVs will become an important part of the entire intelligent life scene, and the combination with IOT, intelligence and 5G will be closer. Although the popularity of 4K TVs is as high as 67%, there is very little content for real 4K. With the arrival of 5G, the enrichment of 4K and 8K content will further open up the application scenarios of TVs, and large-size is imperative.
3. Profitability and valuation elasticity of the panel industry
Mainland panel manufacturers are moving towards a new cycle with a comprehensive rise
Comparing the gross profit margins and net profit margins of major panel manufacturers in the past 10 years, most of the time, the gross profit margins of various manufacturers have basically maintained the same direction, indicating that the gross profit margins of the panel industry companies are fundamentally consistent with the industry trend and prosperity. BOE has the largest change, but it has basically maintained the largest gross profit margin level in the industry since 2011 years. JDI and Shentianma, which are mainly small-size panels, have relatively small fluctuations because most of their products are customized and the industry has a small expansion.
is the main reason for that in 2010, China officially entered the manufacturing of the large-size panel industry. The main production lines put into production at that time were BOE Beijing 8.5th generation line and Huaxing Optoelectronics T1, which were in the period of climbing capacity and yield.This is the time when the panel industry ushered in the largest downward cycle of prosperity in the past decade, and BOE and Huaxing both suffered losses to varying degrees. The gross profit margin has recovered since 12 years since the industry's prosperity has gradually recovered and the production capacity and yield continue to rise. Since 12 years, BOE's gross profit margin has become the first echelon in the industry. From the second half of 2016 to the booming cycle of large-size panels in Q2 2017, the gross profit margins of related large-size panel manufacturers began to rise sharply. BOE still maintained the first-rate gross profit margin, while the gross profit margins of Qunchuang and Huaxing increased the most significant, with an increase of 13.9 and 12.7 percentage points year-on-year respectively.
From the perspective of net profit margin level, almost all panel manufacturers are close to the edge of the loss line, while some manufacturers such as JDI have begun to lose huge losses. In 18Q3, the net profit level of domestic panel manufacturers was around 5%, the net profit margin of Taiwanese manufacturers was 1%, LGD and JDI were already in losses. If Samsung excludes OLED, its LCD business will also begin to fall into losses. Why does
have such a difference? This needs to start with the cost structure of the panel. Let’s take the detailed cost data disclosed by Huaxing Optoelectronics as an example to illustrate why the gross profit margin of the panel industry is high. The reason for choosing Huaxing Optoelectronics as the representative is that Huaxing Optoelectronics currently has two main production lines, and TCL information disclosure is relatively sufficient, making it easier to disassemble it. At the same time, Huaxing Optoelectronics, as the second largest panel manufacturer in China, is also representative. However, considering Huaxing’s special product structure (mainly 32 and 55 inches), the cost structure of general manufacturers may be slightly different.
Huaxing Optoelectronics' main business costs are mainly composed of manual wages, fixed asset depreciation expenses, intangible asset amortization expenses, long-term deferred expenses, material expenses, kinetic energy expenses, maintenance expenses and other manufacturing expenses. The two largest proportions are raw material cost (53%) and depreciation (22%). It is worth noting that the proportion of the main materials and energy costs disclosed by Huaxing Optoelectronics to total costs has been increasing in the past three years (44.8%, 48.9%, 54.2%), which means that the proportion of labor, amortization, maintenance costs, manufacturing costs, kinetic energy costs, etc. has continued to decline. This shows that after the factory is running stably, factors such as the increase in the number of films, the stability of yield, and subsidies will bring about a continuous decline in costs. We can see that the average cost per large film has been continuously reduced during the 2015-2017Q1 period, with an average annual decline of more than 10%. We expect that as the depreciation of T1 in 2019 is completed, the company's costs will further decline and help improve the company's profitability.
can be seen through the above cost split. We believe that compared with Korean and Taiwanese manufacturers, there are several main reasons why the overall cost in China is low.
, local resource cost advantage. is only considered from the perspective of manufacturing costs, and does not consider subsidy items included in non-operating income. At present, the local cost advantages of domestic LCD manufacturers will be reflected in cost items or subsidies such as land costs, living service costs, water and electricity costs, which will improve the competitiveness of domestic large-size LCD panel manufacturers to a certain extent.
, labor cost advantage. is based on data from Korean and Taiwanese media. In 2018, South Korea's per capita income was US$30,000 (average monthly income of RMB 16,700). In 2018, the average monthly recurring salary of all employees employed in Taiwan's industrial and service industries was NT$40,980 (RMB8,935). The actual salary of Chinese workers (including year-end bonus) in 2015 is RMB 4,216 per month. Although labor costs have increased in recent years, they are still lower than those of Taiwan and South Korea.
, product structure and manufacturing advantages. domestic large-size LCD surface manufacturers, most of their products are concentrated in mainstream products such as 32/43/55/65 inches, and are produced in the most economical cutting method, and the volume of tablets is large. The average monthly tablets of the mature LCD production line are above 140k. Coupled with the update of process and equipment transformation, some factories have already reached a monthly investment of 160k, which greatly diluted the cost.
, the advantage of domestic materials and equipment replacement. domestic materials and equipment imports directly reduce the material costs and depreciation costs of domestic panel manufacturers, including polarizers, target materials, liquid crystal materials, photoresist materials, glass substrates, chemical reagents, detection equipment, bonding equipment, bonding equipment, etc., some domestic substitutions have been achieved.
panel manufacturers huge profit elasticity
From the perspective of net profit margin level, the trend of convergence with the panel price changes is more obvious. We counted the price increase of 32-inch panels in the previous two rounds and made the following table and predicted the profits of panel manufacturers in this round of cycles.
If the final annual increase of 32-inch panel prices is 25%, then BOE's single-quarter net profit margin high is expected to be around 10%. With BOE's current market share and capacity increase, the peak revenue of the single quarter in 2019 is expected to be close to 30 billion, and the peak net profit in a single quarter is expected to be close to 3 billion. The reason why
has different improvements in net profits of BOE, INX and LGD is that considering the differences in competitive strategies and production lines of various manufacturers, the current large-size panel shipment size structure is completely different, and the rebound range of each size is different. We believe that the increase in small and medium-sized sizes this year will be higher than the increase in large-sized panels, so panel manufacturers that benefit from the increase in this round of price increases are mainly BOE, CSOT, etc.
Value of panel manufacturers - From the mainland, South Korea and Taiwan have fallen
In the past twenty years, the main global production capacity of the panel industry has undergone a transfer process from Japan to South Korea, Taiwan and then to mainland China. How to valuate the panel industry globally and what are the differences in the valuation levels of panel companies in different stages of development?
Taiwan panel companies rose after 2000 and have completely experienced the rise of the panel industry, and the data is highly traceable and more representative. Among them, AUO is the earliest panel company listed in Taiwan. It was listed in September 2000. First, let’s look at the comparison between AUO and the TWII trend of the Taiwan market during the same period. Its stock price trend can be clearly divided into two stages:
Phase 1: Before 2009, it rose and fell with the TWII index, but the volatility was greater than that of the market.
Phase 2: After 2009, it was in a slump, and the stock price trend was far worse than the market trend during the same period.
analyzed the fundamentals of AUO during the same period and found that its development also showed two different stages:
Stage 1: In 2007 and before, net assets and net profit showed an upward trend.
Phase 2: After 2007, net assets have been falling all the way, and net profit fluctuated significantly, and gradually declined.
From the perspective of valuation, in 2008 and before, PE was more than 30 times long, and PB was more than 2; after 2008, as the stock price fell, PB gradually stabilized between 0.5-1, and PE fluctuated significantly with the fluctuation cycle of panel price.
Qunchuang's situation is similar to AUO. It was listed late and was listed in October 2006. Compared with the Taiwan Market Index, its stock price can also be divided into two stages:
Stage 1: Qunchuang was listed in October 2006, and before October 2008, it rose and fell with the market, and the fluctuations were much greater than that of the market.
Phase 2: Since October 2008, the stock price has been in a slump, far inferior to the market trend during the same period.
From the fundamentals of Qunchuang, net profit increased explosively from 2005 to 2007 before listing, and then showed a significant fluctuation, while net assets maintained a continuous growth trend. In terms of valuation, in 2008 and before, Qunchuang's PE was as high as more than 50 times. At this time, Qunchuang's market value was as high as NT$1 trillion, higher than AUO during the same period. After that, PE fluctuated with the fluctuation of net profit, and the PB gradually stabilized between 0.5-0.7.
Let’s look at the comparison between LGD listed on the US stock market and S&P 500. Overall, LGD's stock price did not experience a significant decline in AUO and Chuang, but showed cyclical fluctuations, which can also be divided into two stages according to the fluctuation amplitude.
Phase 1: Before July 2011, the stock price showed a large fluctuation in two years and was very low in correlation with the market trend.
Stage 2: From July 2011 to the present, the stock price fluctuation has become smaller, and the trend is weaker than the market trend during the same period, but there has been no sharp decline like AUO and T.C. The valuation is relatively stable. LGD's valuation data has shown that since 2012, its PB has fluctuated between 0.6 and 1.4, and its center value is 1.0.
Through the comparison of the valuations of panel manufacturers in South Korea and Taiwan, we can summarize the following conclusions:
1. Before 2008, the LCD industry grew rapidly and the LCD production capacity was transferred to South Korea and Taiwan. South Korea and Taiwan increased their market share through rapid expansion, and enterprises accelerated their growth. LCD companies in both places enjoyed high valuations.
2. High PE during the growth period, Taiwan's LCD companies' revenue increased and the pace of significantly expanded production, enjoying the high PE of high-growth stocks, with PE as high as 30 times.
3. In 2008, especially after 2011, the domestic production began to expand significantly. South Korea and Taiwan's competitiveness are declining, and the industry is in a bloody competition. In addition, Taiwan's enterprises have limited capital expenditures, and OLED development speed is lagging behind, and its market value is in a state of lower than net assets for a long time. PB fluctuates between 0.5-1.
4. The mainland LCD industry is rising, and the mainland has become the world's largest LCD production site. At the same time, the development speed of OLED is rapidly catching up with Samsung. Currently, the industry's overall PE of about 20 times, and 1.5 times PB is not high compared to the valuation given by Taiwan's LCD companies when they rose.
We use BOE, LGD and AUO to compare valuation safety margins and room for growth in domestic panel manufacturers.
Only from the average PB valuation level in 2012 to 2019, the average PB of BOE, LGD and AUO in the past few years was 1.36/0.91/0.64 times respectively. Currently, BOE's PB is around 1.54, and its valuation has been repaired to above the average in advance, but there is still a lot of room to go from the peak of PB at 2.59 times the previous large cycle. From the perspective of the industry's development space, OLED has become a major trend and China has quickly caught up with Samsung's momentum, domestic leading panel manufacturers should give higher valuations.
In addition to the PB valuation method, we adopt another EV/EBITDA (excluding monetary funds), that is, the enterprise value multiple valuation method commonly used in the international heavy asset industry, to evaluate it. At present, after the sharp rise in February, what valuation level is there compared with other companies and their own history? Due to the limited Wind sample data, we only compare BOE, TCL Group, Shenzhen Tianma, Qunchuang Optoelectronics and Xinli International.
Because domestic panel manufacturers have fluctuated significantly in the past 2009 to 2012. We selected data samples from 13 years. As of February 23, 2019, BOE's current corporate value multiple was 8.44 times, higher than TCL Group's 7.99 times, but lower than Shenzhen Tianma's 22.27 times. Compared to itself, it is still at a low valuation. Overseas manufacturers such as Qunchuang have the largest corporate value multiple in the past 10 years reached 18 times, but since 2013, the corporate value multiple has always hovered within 3 times, while Xinli International, the Hong Kong stock market, has remained at a level of about 4 to 7 times.
We have compiled the enterprise value multiples from 13 years to compare it.
It can be seen that both the corporate value multiples of BOE and TCL Group have not yet reached the average level in the past 7 years. There is still a lot of room for market value to rise from the maximum value of the enterprise value multiple in the past seven years. We are optimistic that BOE and TCL Group will further repair their valuation levels as this round of upward cycle of large-sized LCD panels.
