From the perspective of operating a company, if a company wants to surpass the dividends of the times and obtain sustainable operation, the second growth curve is the key to judging its growth value.

Author | Guevara

Source | Pythagorean Big Data

Original "Innovation Theory" Schumpeter once said: No matter how many carriages are added together, a train cannot be built. Only when you jump from a carriage to a train can you achieve a tenfold increase.

From the perspective of operating a company, if a company wants to surpass the dividends of the times and obtain sustainable operation, the second growth curve is the key to judging its growth value. Previously, the annual report released by Skyworth (00751.HK) showed that the home intelligent ecosystem business (including home intelligent system technology business and Internet value-added business) that promotes Skyworth's transformation and development has continued the past high growth trend, with a new record of performance. Skyworth's technological attributes have further highlighted, and the home intelligent ecosystem business has become the growth driver of "new Skyworth".

So does this mean that Skyworth's second growth curve has been formed? What is the true value of Skyworth? Let's have an in-depth discussion.



1

The second growth curve shows that

Home intelligent ecosystem business opens up a new battlefield

Skyworth is the world's leading smart terminal and information technology platform . Its main business began with home appliances. As early as 2000, Skyworth TV has entered the first camp of domestic color TVs and was successfully listed on the Hong Kong Stock Exchange that year. It has been more than 20 years since then.

As a well-deserved leading domestic color TV company, Skyworth quickly transformed and targeted the huge market opportunity of AIoTh after its successful color TV business, and began to explore the second curve of growth. Since 2016, Skyworth has been planning a transformation and upgrading plan. In 2017, it formally proposed a five-year transformation and upgrading development strategy, called the "1334" strategy, which is to implement the three major strategies of intelligence, refinement and internationalization around the goal of achieving the revenue of 100 billion yuan, and promote the construction of three major bases of Shenzhen headquarters base, Guangzhou intelligent manufacturing base, and Chuzhou intelligent manufacturing base, and create four major business segments of multimedia, smart appliances, intelligent system technology and modern service industry .

Compared with the single home appliance manufacturing in the past, Skyworth’s transformation and upgrading strategy is committed to building four core businesses, vigorously promoting the development of home intelligent ecosystem business, vigorously promoting the research and development and application of intelligent system technology, and vigorously promoting Skyworth’s industry to achieve three major transformations:

First, the transformation from manufacturing to service industry , and has built an industrial system based on manufacturing and modern service industry as its new advantages.

Second, transform from the hardware industry to the software industry, gradually empower intelligent home appliances, and significantly increase the business share of content and information services.

The third transformation from terminal products to intelligent systems , guided by the research and development of intelligent system technology, to create a modern intelligent human settlement industry centered on "home".

Follow we will see how Skyworth promotes the development of the four major business segments through the 2019 financial report, gradually transforming from the traditional home appliance manufacturing business to the emerging home intelligent ecosystem business, and outline Skyworth's second growth curve.

a.Multimedia service

Multimedia service, mainly including smart TV system and "Cool Care System" Internet value-added service , etc. In 2019, the sector achieved overall revenue of RMB 21.505 billion, of which the Internet value-added services of Coocai System grew strongly, with revenue reaching RMB 826 million, a year-on-year increase of 50.2%. As of the end of 2019, Skyworth Coolcake System has a total of 44.3 million smart terminal startups in the Chinese market, and the monthly active users of smart terminals reached 28.94 million. Compared with Xiaomi , Xiaomi Smart TV and Xiaomi Box had 27 million monthly active users in 2019. Skyworth is already in the leading position, which further verifies Skyworth breaking from the hardware side to the online content side, realizing a comprehensive transformation to the development direction of Internet value-added business.





b·Intelligent system technology business

Intelligent system technology business includes home access system, park management system, intelligent manufacturing system, automotive electronic system and other electronic products.Skyworth has joined hands with the three major communication operators, radio and television operators, accelerated the construction of the smart home ecosystem, and actively deployed access system products such as set-top box + 5G + AI and third-party content operation services, and product sales have increased multiple times. In 2019, the home intelligent system business achieved revenue of RMB 7 billion, a year-on-year increase of 14%; the profit reached RMB 600 million, a year-on-year increase of 120%; among which the overseas market grew rapidly, achieving revenue of RMB 3.899 billion, a year-on-year increase of 39.4%.

c·Smart appliances and modern service industry business

Smart appliances, as a must-have product for future family life, are the most important smart terminals in the Internet of Things, and Skyworth has a first-mover advantage in this regard. In 2019, Skyworth's smart appliance business achieved revenue of 3.077 billion yuan in the domestic market, a year-on-year increase of 10.4%, and overseas market revenue was 1.218 billion yuan, a year-on-year increase of 55.4%. In addition, Skyworth has also explored the direction of intelligent manufacturing and industrial Internet. In terms of modern service industry, it achieved revenue of 1.852 billion yuan in 2019. Skyworth has integrated and reorganized its large logistics service business, covering 622 cities and 2,833 districts and counties across the country, and has built 200 service centers; at the same time, the construction of science and technology parks in the Yangtze River Delta, Pearl River Delta and other places has been launched one after another. Although the overall revenue share of the two major business segments of smart appliance business and modern service industry is relatively low, as an important support for Skyworth's transformation, it has laid an important foundation for improving the layout and development of smart ecological business.

It is not difficult to see from the development of the four major business sectors that Skyworth has successfully achieved the basis of the second curve of growth: the business model develops towards the home intelligent ecosystem business, and through intelligent hardware, it comprehensively deploys the layout of IoT (smart Internet), smart cars and other fields, and at the same time, combining its own core technologies, it extends to operating systems, cloud platforms, and AI algorithms, focusing on several major business sectors such as smart screens, smart home appliances, smart set-top boxes, and industrial Internet, and achieving all-round empowerment and transformation with core technologies.

It is worth mentioning that the establishment of the second growth curve has also enabled Skyworth to get rid of the sluggish domestic color TV market, the gross profit margin has been continuously improved, and the net profit attributable to shareholders has risen sharply by 22.9% against the trend. Looking ahead, the second curve of is expected to drive the company's development to continue to improve, and the enhanced performance certainty has also brought a high margin of safety and investment opportunities have emerged.

2

High-quality assets highlight the safety margin

valuation level has a large upward space

From the valuation level, Skyworth's price-to-earnings ratio and price-to-book ratio are benchmarked against Internet technology companies such as Xiaomi that involve smart manufacturing, and are at a significantly undervaluation level. Xiaomi Group's current dynamic price-to-earnings ratio reaches 27.5 times, while Skyworth is less than 7.4 times. The valuation given by the market is still in the traditional home appliance manufacturing industry. I believe that with the deepening of market awareness, there is considerable room for valuation to increase.



We believe that Skyworth has excellent asset quality and strong appreciation potential. The valuation given by the market does not match Skyworth’s actual value; its security margin is sufficient, and there is huge room for future valuation to rise. Let us analyze it from four levels: book value, cash and cash equivalent value, real estate property value, and high growth Venture Capital project equity value.

1·Book value

From the perspective of book value, as of the end of 2019, Skyworth's book value per share reached RMB 5.93, while so far P/B is only 0.35 times, and the stock price and net assets are in an inverted state. Considering that there are still a large number of assets on the company's books that are not calculated at market prices (such as building and industrial park assets), Skyworth's P/B is actually lower, which means that Skyworth's current stock price has a relatively high safety margin and a higher probability of future valuation repair.

2·Cash and cash equivalents value

From a cash perspective, Skyworth (0751.HK) currently has a market value of HK$5.6 billion, with a share price of HK$1.95 per share. According to the latest quarterly report data, as of the end of March 2020, the company has mortgaged bank deposits, restricted bank deposits, bank balances and cash of RMB 6.8 billion, which is converted to approximately HK$2.4 per share, which is far higher than the current share price.The company has abundant cash flow, and the bank balance and cash alone are equivalent to the market value, which to a certain extent reflects the company's undervaluation status in the capital market.



3·Real estate property value

From the perspective of real estate property value and value-added potential, the company has accelerated asset structure adjustment. As of the end of 2019, the book value of Skyworth's right-to-use assets, investment properties, and property inventory was RMB 2.496 billion, RMB 0.04 billion and RMB 4.171 billion, respectively. The total book value of the three reached RMB 6.671 billion, which has significantly exceeded Skyworth's overall market value. It is worth noting that according to the prospectus, the property ownership interests purchased by Skyworth when it was originally paid include the leased land and the building part, and the total consideration is distributed between the leased land and the building part at a relatively fair value ratio when initially recognized. In other words, the value estimates of these properties are still calculated at cost. There is no doubt that the actual value of today's properties has long been far higher than the current book value.

In view of the location where Skyworth Property is located, its real estate in science and technology parks in Shenzhen has reached 1 million square meters, of which the existing and under-construction properties in the Qianhai Free Trade Zone have reached more than 100,000 square meters, with huge value-added potential. In addition, Skyworth also has 2,000 acres of industrial land for science and technology parks and 2 million square meters of production and operational housing in other regions across the country. From this we can see that its property value is considerable and has huge potential, and the current valuation given by the capital market is far lower than its actual value.



4·The equity value of high-growth venture capital projects

Skyworth has high-quality equity assets, of which the company owns investments from 39 unlisted companies, with a total fair value of 1.983 billion yuan. In addition, Skyworth also holds equity investments in many listed companies and a number of high-growth venture capital projects, with huge room for appreciation in the future.





In fact, only from Skyworth's listed holding subsidiaries, Skyworth (00751.HK) market value is far less than Skyworth Digital (000810.SZ). Currently, Skyworth Digital's market value has reached 12 billion, twice the market value of the parent company.

. Skyworth Digital can have such outstanding performance in the capital market due to a successful capital operation. In 2014, the Digital TV Division entered the Shenzhen Stock Exchange with a backdoor China Resources Jinhua. After its listing, Skyworth Digital has successively acquired Skyworth Automotive Electronics, Strong Group, a well-known European set-top box brand, Skyworth LCD, and other high-end consumer electronics company Caldero, which has established the ability to expand globally and coordinate supply chains, forming a strong competitive barrier. Combined with the upcoming opportunities of ultra-high definition, VR and Wifi 6, Skyworth Digital's potential is currently continuing to amplify.

In addition to Skyworth’s digital, which has achieved remarkable results, Skyworth does not lack high-quality assets that can be operated by capital. In recent years, Skyworth has been actively participating in mixed-ownership reform projects of state-owned enterprises, successively completing investment in venture capital projects such as Tianjin Optoelectronics and Bailiyitong, and continuously evolving its own capital operation capabilities. At present, Skyworth Coolcake is an Internet value-added service platform that combines the three major sectors of home entertainment, consumption and financial services that the company has made, and there are rumors that it may be listed separately. If Coolcake really enters the capital market in the future, it will undoubtedly help to more objectively evaluate Skyworth Group's valuation.



AIoT+5G empowers

Value logic may be in line with the technology sector

After active exploration in recent years, Skyworth has accelerated its transformation to the "AIoT+5G" technology direction and has seen a beginning of clue.

First of all, Skyworth AIoT ecosystem has basically completed its layout. The value of the Internet of Things depends on the number of smart devices that can be connected. Only when the connected devices reach a certain level of magnitude can they have the right to make statements of standards and standards. Unlike Internet companies that need to make extensive layouts of smart hardware when entering the Internet of Things, Skyworth naturally has the advantages of the industrial chain:

On the one hand, smart TVs, as the IoT intelligent center with high expectations, have always been Skyworth's strong field. Skyworth color TV shipments have ranked among the top in the industry for many years, and the basic market has ensured a wide layout in the terminal market.The product is equipped with the Cookai AIoT platform control center, which realizes the link between smart home and smart screen, and creates a family smart center. In addition, smart TVs continue to iterate, and in the future, it is expected to create interactive capabilities such as video chat, remote monitoring, and video conferencing around smart terminal cameras to achieve value growth.

On the other hand, Skyworth has completed the intelligent upgrade of each product line. Skyworth has joined hands with the strategic partners of the three major communication operators to accelerate the development of the smart home ecosystem business, and has laid out the entrances of the smart home (entertainment entrance, connection entrance, and control entrance), achieving a multiple increase in sales of products such as ultra-high-definition video boxes, intelligent networking, and IoT pan-smart terminals.

Secondly, Skyworth’s intelligent human settlement industry is ready to go. Last year, Skyworth used advanced technologies such as digital audio and video technology, network communication technology, cloud technology, artificial intelligence technology, multi-touch technology, and other advanced technologies to develop and launch the world's first intelligent control center product through system integration and innovation. Combined with human-machine interconnection functions such as color, ice, washing, air, and small home appliances, it will form a broad home AIoT ecosystem in the future. Through self-cultivation and extensive cooperation, Skyworth's intelligent human settlement industry centered on "home".

Third, Skyworth is accelerating the upgrade to "5G+AI+ terminal products". has launched 8K+Alot+5G smart TV, and focuses on the development of 5G multi-band antennas, researching solutions for 5G+8K TVs for industry applications such as online live broadcast, online on-demand, video surveillance, and launched 5G+8K ultra-high-definition box. Skyworth also focuses on developing WIFI6 distributed router products and upgrading split CPE equipment, which can complete the product reserves of 5G home network WiFi routing and 5G CPE, and launches the world's first VR all-in-one machine that supports 8K hard decoding, and accelerates the layout of 5G+VR/AR products. In addition, Skyworth has also developed and upgraded intelligent control center products to achieve the upgrade of 5G+ intelligent human settlement system and the upgrade of 5G+ vehicle networking. Skyworth has also carried out multi-product 5G technology development and product reserves.

4

ending

Skyworth's second curve of growth attributes driven by the technology of the home intelligent ecosystem technology has formed a home AIoT ecosystem based on intelligent hardware and Internet platforms, cloud platforms, and AI algorithms as the core. In the future, the development positioning of "5G+AI+Application Terminal" will continue to empower Skyworth, and a richer and more dynamic intelligent human settlement ecosystem is gradually being formed. The author believes that we can no longer regard Skyworth as a traditional manufacturing enterprise with a traditional perspective. At present, Skyworth has formed a second growth curve, and its investment value as a smart technology enterprise has been highlighted. I believe that with the deepening of market awareness and the continuous release of the performance potential of Skyworth's various undertakings, the capital market will surely give it a new understanding and valuation.