Mon, 29 Aug 2016
Equi ty Research Display module sector TMT/ China
Riding on Technology upgrade
Increasing adoption of LTPS/AMOLED display in smartphones, benefiting small-mid size LTPS/AMOLED display module player
ADAS adoption is a mid-term catalyst for automotive display player
Top pick Truly (732 HK, BUY, TP HK$4.90), and TCL Display (334 HK, BUY, TP HK$0.72)
Increasing penetration of LTPS/AMOLED in smartphones to lift small-mid size display panel/module player ASP and margin. LTPS/AMOLED penetration rate in China is expected to near double to 45%/19% in 2018E from 28%/9% in 2015 due to its high resolution, vivid colors and quick response, providing opportunities for LTPS/AMOLED panel and module manufacturers.
We see there are potential LTPS/AMOLED panel shortage to occur in 1H17E, given that 1) iPhone 8 is expected to switch from LTPS to AMOLED, attracting Korea, Japan and Taiwan panel suppliers to upgrade their LTPS production line to AMOLED; however, it normally takes 18 months to upgrade and RMB10bn+ for OLED evaporation equipment. 2) AMOLED yield rate is relatively low at 40%-50% for major Chinese players except Samsung Display which can hit 80%+ yield rate. We forecast shortage of LTPS panel to be 226mn/166mn units in 2016/2017E, and shortage of AMOLED panel to be 62mn/71mn units in 2016/2017E, benefiting Truly (732 HK) which will start mass production (MP) of its G4.5 LTPS/AMOLED panel plant in 4Q16/2H17E and TCLD (334 HK) which can secure LTPS panel supply from its sister company, CSOT as CSOT’s G6 LTPS plant will start MP by end of Dec 2016E.
LTPS module ASP is ~2 times of TFT module with 1%-2% higher GPM; AMOLED module ASP is 30% higher than LTPS module due to lower product yield rate while cost is almost the same, thus we believe GPM of small-mid size display panel/module player can be improved. TCLD will benefit the most given its product mix upgrade from non-laminated module to laminated module while Truly will also gain.
ADAS adoption to boost mid-term growth for automotive display module player. Advanced Driver Assistant Systems (ADAS) are automotive systems developed to assist, complement and eventually substitute the driver to control a vehicle. It is developed in four stages, and China is in the early stage of Level 1 with 2%-5% ADAS adoption rate. According to CAAM, ADAS market in China is expected to grow at 64.4% 5-years CAGR to US$5.0bn in 2020E.
We believe ADAS adoption will boost automotive display module market growth as it boosts automotive display upgrade to TFT displays and stimulates shipment as future cars will be equipped with 10 displays. Given automobile display module has high entry barrier due to its long life cycle of 5-10 years as compared to 0.5-1.0 years of smartphone display module, we see more stabilized ASP and 21% automobile revenue CAGR for Truly in the coming three years.
Initiate BUY on display module player with LTPS/AMOLED panel arm, as they can secure panel supply, have high bargaining power to secure order from top smartphone clients, and are less affected by panel shortage. Our top pick is Truly (732 HK, BUY) with TP HK$4.90 based on 12x FY17E PE and 15.5% 3-year EPS CAGR in FY15-18E given (1) its 4.5G plant which commences LTPS/AMOLED panel MP in Aug16E/2H17E, (2) fingerprint business’ explosive growth from FY16E onwards, (3) strong pipeline of automotive displays. We initiate BUY on TCL Display (334 HK) with TP HK$0.72 based on 12x FY17E PE given 22.7% 3-year EPS CAGR in FY15-18E. We expect TCLD to pick up earnings growth momentum from 2H16E onwards given (1) its improved product mix from LTPS and laminated modules and (2) riding on CSOT’s G6 LTPS plant to expand its LTPS module business from FY17E onwards..
Chloe Liu
+852 2135 0209
Yuji Fung
+852 2135 0236
Sector Report
Exhibit 1: Recommendations summary
Company Stock code Rating Target Price
Target
Valuation
Closed
Price
Current
Valuation
Potential
Upside
Truly Int’l 732 HK BUY HK$4.90 12x FY17E HK$3.45 8.4x FY17E 42.0%
TCL Display 334 HK BUY HK$0.72 12x FY17E HK$0.60 10.0x FY17E 20.0%
Source: Bloomberg, OP Research
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Table of Contents
Table of Contents ......................................................................................................................................... 2
Investment Summary ................................................................................................................................... 3
Increasing adoption of LTPS/AMOLED to lift small-mid size display panel/module player margin ................ 4
ADAS adoption to boost mid-term growth for automobile display player .....................................................15
Truly Int’l (732 HK) – All-around player ........................................................................................................18
Fingerprint ramp up as a short-term catalyst ...............................................................................................19
Truly is well positioned to ride on the increase of LTPS/AMOLED adoption and potential upside on panel
shortage ......................................................................................................................................................23
Automotive products keep robust growth ....................................................................................................29
Initiate BUY with TP HK$4.90 with 42% upside ...........................................................................................34
Investment Risks .........................................................................................................................................37
Management profiles ..................................................................................................................................38
Shareholding structure ................................................................................................................................39
Financial Summary – Truly Int’l (732 HK) ....................................................................................................40
TCL Display (334 HK) – Rising star of TCL .................................................................................................42
Pick up growth momentum with improved product mix ................................................................................43
LTPS will be a key growth driver from FY17E onwards ...............................................................................46
Riding on the integrated platform of TCL Group ..........................................................................................49
Initiate BUY with TP HK$0.72 based on 12x FY17E PE ..............................................................................53
Investment risks ..........................................................................................................................................55
Management profiles ..................................................................................................................................56
Shareholding structure ................................................................................................................................57
Financial Summary –TCL Display (334 HK) ................................................................................................58
Appendix I: Upgrade from LTPS panel to AMOLED panel ...........................................................................60
Appendix II: ADAS background ...................................................................................................................61
Mon, 29 Aug 2016
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Investment Summary Increasing LTPS/AMOLED display penetration and potential shortage of
LTPS/AMOLED panel. Smartphone LTPS/AMOLED panel shipment in China is
expected to grow at 13.8%/34.8% CAGR from 2015 to 2020E, riding on the
increasing penetration of 28%/9% in 2015 to 40%/30% in 2020E, as increasing
first-tier smartphone vendors are upgrading their models from a-Si to
LTPS/AMOLED, thanks to the high resolution, vivid colors, and quick response of
LTPS/AMOLED display. More importantly, Apple iPhone 8 is expected to switch
from LTPS to AMOLED display, thus Korean and Japanese panel producers are
upgrading their production line to AMOLED, and China panel producers are
actively setting up and ramping up their LTPS/AMOLED capacity. We expect
there to be LTPS/AMOLED panel shortage in 1H17E given 1) Korea, Japan and
Taiwan panel producers are gradually upgrading their production line to AMOLED
to meet Apple’s demand; 2) it takes 1-2 years for China panel producers to ramp
up their LTPS and AMOLED capacity, especially given the current low yield rate
of AMOLED at ~40%-50%. Another catalyst is new demand from VR display, as
AMOLED is the most appropriate display for VR since it significantly shortens
response time and solves time latency problem.
ADAS adoption boosts mid-term growth for automotive display module
player. We expect the global automotive market to upgrade from ADAS level 1/2
to level 3/4 gradually in the coming 10 years, given the increasing demand for
driving security and regulation requirement. According to CAAM, the ADAS
market in China will grow at 64.4% CAGR from 2015 to 2020E, and further grow
at 45.6% CAGR from 2020E to 2025E. We believe the adoption of ADAS will
boost automotive display upgrade, from non-TFT display to TFT display, and also
drive shipment growth. We expect global TFT LCD automotive display to grow at
6.6% CAGR from 2015 to 2020E compared to overall automotive display growth
of 3%, and the number of displays in the future smart car will increase to 10
displays from current 1-3 displays, driving the shipment growth. Besides, as
automotive display has longer lifecycle of 5-10 years, higher entry barrier, higher
GPM than smartphone display module, we believe it can stabilize ASP and GPM.
Top pick Truly (732 HK) given 1) its fingerprint business ramp up in FY16/17E
with HK$1.6bn/HK$2.0bn sales, representing 7.6%/8.8% of total sales, from
HK$90mn sales in FY15; 2) G4.5 plant with LTPS/AMOLED panel will begin mass
production from 4Q16E onwards, and well-positioned to capture the increasing
LTPS/AMOLED display demand and potential panel shortage; 3) strong pipeline
of automotive display in the coming 2-3 years with capacity expansion from G5
plant which will start mass production in 1Q18E. Our target price of Truly is
HK$4.90 based on 12x FY17E PE.
New BUY on TCL Display (334 HK) given earnings growth momentum is likely
pick up from 2H16E onwards, thanks to 1) product mix upgrade with an
increasing proportion of laminated modules, we expect the laminated modules
shipment penetration will keep increasing to 45%/57%/65% in FY16/17/18E from
19% in FY15, driving sales CAGR of 26% from FY15 to FY18E, as laminated
modules ASP is three times of non-laminated modules ASP; 2) stable supply of
LTPS panel from its sister company, CSOT, G6 plant which begin mass
production by Dec 2016 will help TCLD to increase its bargaining power to obtain
large orders from top-tier smartphone venders; 3) integrated platform of TCL
Group by setting up JV with CSOT which will start LTPS module MP from Oct17E
onwards. Our target price for TCLD is HK$0.72 based on 12x FY17E PE.
Smartphone LTPS/AMOLED panel
shipment in China is expected to
record 13.8%34.8% CAGR from
2015 to 2020E, riding on the
increasing adoption of
LTPS/AMOLED display from
28%/9% in 2015 to 40%/30% in
2020E
ADAS adoption will boost
automotive display upgrade to
TFT display and stimulate the
shipment growth
Top pick Truly (732 HK) with TP of
HK$4.90 based on 12x FY17E PE
We initiate BUY on TCLD (334 HK)
with TP of HK$0.72 based on 12x
FY17E PE
Mon, 29 Aug 2016
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81 108 148 228 261 294 286282
3339
47
7095 122 164 212
0
100
200
300
400
500
600
700
800
2013 2014 2015 2016E 2017E 2018E 2019E 2020E
a-Si LTPS Oxide AMOLED
(mn units)
72%66%
58%
44%37%
31% 28% 24%
18%22%
28%
39%42%
45%42%
40%
8% 8% 9% 12% 15% 19%24%
30%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2013 2014 2015 2016E 2017E 2018E 2019E 2020E
a-Si LTPS Oxide AMOLED
Increasing adoption of LTPS/AMOLED to lift small-mid size display panel/module player margin
Increasing penetration of LTPS/ AMOLED display in smartphone
The LTPS/AMOLED smartphone panel shipments in China are expected to grow
at a 5-year CAGR of 13.8%/34.8% to 282mn/212mn in 2020E from 148mn/47mn
in 2015 thanks to increasing penetration and extension of market share of China
smartphone vendors.
Exhibit 2: Smartphone panel shipments by display technology in China
Source: IHS, CINNO Research, OP Research
We estimate the LTPS/AMOLED penetration in China to improve from 28%/9% in
2015 to 40%/30% in 2020E as China’s leading smartphone vendors, such as
Huawei, Oppo, Vivo, Xiaomi, Meizu, etc, will drive up LTPS/AMOLED adoption
from 2H16E onwards.
Exhibit 3: LTPS/AMOLED penetration in China
Source: IHS, CINNO Research, OP Research
Smartphone LTPS/AMOLED panel
shipment in China is expected to
record 13.8%34.8% CAGR from
2015 to 2020E
LTPS/AMOLED penetration in
China smartphones is expected to
hit 40%/30% in 2020E from
28%/9% in 2015
Mon, 29 Aug 2016
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46%
28%
30%43%
18% 14%
4%
25%
1%
38%24%
4%16%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Huawei OPPO Vivo Xiaomi Lenovo ZTE Coolpad Meizu
a-Si LTPS Oxide AMOLED2015
62%
48%
40%60%
24%
24%15%
56%
13%
45%32%
10% 10%23%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Huawei OPPO Vivo Xiaomi Lenovo ZTE Coolpad Meizu
a-Si LTPS Oxide AMOLED2016E
Huawei, No.1 of China smartphone vendor, is expected to hit 62%/13%
LTPS/AMOLED adoption in 2016E from 46%/1% in 2015; Oppo, China’s No.2
smartphone vendor, is expected to hit 48%/45% LTPS/AMOLED adoption in
2016E from 28%/38% in 2015; Vivo, another brand of BBK camp, is expected to
hit 40%/32% LTPS/AMOLED adoption in 2016E from 30%/24% in 2015; and
Xiaomi, China’s No.4 smartphone brand, is expected to hit LTPS/AMOLED
penetration rate of 60%/10% in 2016E from 43%/0% in 2015.
Exhibit 4: Display technology penetration by top China smartphone vendors, 2015 vs. 2016E
Source: CINNO Research, OP Research
China-based smartphone vendors are grabbing global market shares rapidly, it is
expected that Huawei, Oppo and Vivo will rank 3rd/4th/5th of global smartphone
shipments in 2016E. Therefore, we expect high penetration of LTPS/AMOLED of
China smartphone models to drive LTPS/AMOLED panel demand and module
shipments.
We believe Truly and TCLD are well positioned to capture the display module
upgrade from 2H16E onwards. Hence, we estimate 13% revenue CAGR for
Truly’s touch panel for smartphone related business from HK$7.9bn in FY15 to
RMB12.4bn in FY18E and 26% revenue CAGR for TCLD display module
business from RMB2.2bn to RMB5.3bn.
Exhibit 5: Global ranking of top 10 smartphone vendors
2Q16
Ranking
2015
Ranking Company 2Q16 market share 2015 market share
1 1 Samsung 22.4% 22.7%
2 2 Apple 11.8% 16.2%
3 3 Huawei 9.4% 7.4%
4 8 Oppo 6.6% 3.3%
5 9 Vivo 4.8% 3.0%
- - Other 45.0% 18.8%
- - Total Shipment
(mn units) 343.3 1,432.9
Source: IDC, OP Research
We see an increasing adoption of
LTPS/AMOLED display in first-tier
China smartphone vendors’
model, including Huawei, Oppo,
Vivo
China smartphone vendors are
grabbing global market share
rapidly.
We see Truly and TCLD are
well-positioned to benefit from
the display module upgrade with
sales CAGR of 13% and 26% in
2015 – 2018E, respectively
Mon, 29 Aug 2016
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Exhibit 6: Latest/upcoming smartphone adopting AMOLED & LTPS technology
iPhone 7/7Plus
Samsung Galaxy On7
Pro Huawei P9 Plus Oppo R9 Plus Vivo X7 Plus
CPU Dual core A10 Quad-core 1.2Ghz
Cortex- A53
Quad core 2.5GHz
Cortex A72
Quad core 1.8 Ghz
Cortex-A7
Quad core 1.8 Ghz
Cortex-A72
Storage 32/64/128GB 16GB(up to 256GB) 64GB 64GB (up to 128 GB) 64GB
Display 4.7" /5.5" QHD LTPS 5.5” QHD AMOLED 5.5' AMOLED 6” FHD AMOLED 5.7” FHD AMOLED
Camera
16MP(rear)9MP (front)
Dual Cam for iPhone
7Plus
13MP(rear)5MP(front) Dual 12MP(rear)
8MP(front) 16MP(rear)13MP (front)
16MP(rear)16MP(front
)
SIM Single SIM Dual SIM Single SIM Dual SIM Dual SIM
OS iOS 10 Android 6.0.1 Android 6.0 Android 5.1 Android 5.1
Launch time Sep 2016 July 2016 May 2016 March 2016 July 2016
Xiaomi Redmi 3S Meizu m3s Lenovo Phab2 Pro One Plus 3 idol 4
CPU Quad core 1.4Ghz
Cortex A5
Octa-core 1.5Ghz
Cortex A53
Quad core 1.4GHz
Cortex A53
Dual core 2.15Ghz
Kyro
Quad core 1.7GHz
Cortex A53
Storage 16GB(up to 256GB) 16/32GB(up to 256GB) 64GB (up to 256GB) 64GB 16GB(up to 512GB)
Display 5” FHD AMOLED 5”FHD LTPS 6.4" FHD AMOLED 5.5” FHD AMOLED 5.2" FHD LTPS
Camera 13MP(rear)5MP(front) 13MP(rear)5MP(front) 16MP(rear)9MP
(front) 16MP(rear)8MP (front) 13MP(rear)9MP (front)
SIM Dual SIM Dual SIM Dual SIM Dual SIM Dual SIM
OS Android 6.0.1 Android 5.1 Android 6.0 Android 6.0.1 Android 6.0
Launch time June 2016 June 2016 Sep 2016 June 2016 3Q16
Source: OP Research
Mon, 29 Aug 2016
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JDI, 34%
Samsung, 22%
Sharp, 16%
Tianma, 12%
AUO, 7%
Century, 4%
BOE, 3% Innolux, 3% LGD, 1%
Catalyst 1: potential upside for shortage of LTPS/AMOLED panel
driven by iPhone’s adoption of AMOLED
Apple is expected to release its first AMOLED-based iPhone 8 in 2017E,
switching from LTPS and 100% of the AMOLED panel supply is expected to come
from Samsung Display. According to DigiTimes. Samsung Display will supply
Apple with 40mn/80mn/120mn units AMOLED panels in 2017/2018/2019E, and
supply China-based smartphone vendors with 99mn/150mmn AMOLED panels in
2016E/2019E.
Exhibit 7: Samsung Display's smartphone AMOLED panel supply
Customer (mn units) 2016E as % of total 2019E as % of total
Samsung (Galaxy series) 239 70.7% 290 51.8%
China-based smartphone vendors 99 29.3% 150 26.8%
Apple (iPhone 8 & onwards) 0 0.0% 120 21.4%
Total 338 100.0% 560 100.0%
Source: DigiTimes, OP Research
In 2015, JDI, Samsung and Sharp are the three largest LTPS panel supplier of
china smartphones, we expect they to upgrade some of their production lines
from LTPS to AMOLED, to catch up apple’s demand switch to AMOLED. Thus,
there may be a panel shortage of LTPS panel supply in 1H17E as LTPS is widely
adopted backplane technology for both IPS LCD and OLED.
Exhibit 8: 2015 China Top 10 Smartphone Brand LTPS/Oxide Panel Supplier
Source: CINNO Research, OP Research
We also expect there may be shortage of AMOLED panel supply due to 1)
normally it takes 18 months to upgrade from LTPS to AMOLED, including
equipment order, equipment installation, and trial production. And CAPEX for
upgrade is at least RMB10bn for OLED evaporation equipment. 2) AMOLED yield
rate is relatively low at ~40%-50% for Chinese players except Samsung Display
can enjoy 80%+ yield rate, thus it takes time for suppliers to ramp up.
Shortage of panel provides ample opportunity for China’s panel suppliers such as
BOE, Tianma, Truly and CSOT, as their LTPS plants begin ramp up in 2016E and
AMOLED plants ramp up in 2017E-2018E.
Apple iPhone 8 is expected to
adopt AMOLED, and Samsung
will be its AMOLED panel
supplier
We expect there may be LTPS
panel shortage in 1H17E as the
three largest LTPS panel supplier
of China smartphones are
expected to upgrade some
production lines from LTPS to
AMOLED
We expect there may also be
shortage of AMOLED panel as
upgrade from LTPS to AMOLED
normally takes 18 months and
current AMOLED yield rate is at
~40%-50% only given increasing
penetration of AMOLED for
Chinese smartphone players
Potential shortage of
LTPS/AMOLED panel provides
opportunities for China panel
supplier
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Exhibit 9: Cost Comparison for 5 inch FHD Panels
US$ per pcs Rigid AMOLED Flexible AMOLED LTPS LCD
Material 6.3 10.9 9.4
- Array 0.3 1.2 0.3
- Cell 1.4 3.0 1.9
- Package 0.2 1.8 n.a.
- Module 4.4 4.9 7.2
Indirect expense 0.7 1.2 0.9
Labour 3.1 3.3 2.1
Depreciation 4.2 8.5 2.3
Yield 40%-80% ~60.4% ~90.3%
Total 14.3 23.9 14.7
Source: IHS, OP Research
We expect shortage of LTPS panels will be 226/166mn units in 2016/2017E, and
shortage of AMOLED panels will be 62/71mn units in 2016/2017E. Assuming: of:
1) 3.5/4/4.5/5.5/6 generation panel production line can cut 30/40/50/150/200 units
of screens per piece of glass; 2) 80%/80% utilization rate/yield rate for LTPS
panel production, 80%/70% utilization rate/yield rate for AMOLED panel
production; 3) LTPS penetration of global smartphone is 35%/40% in
2016E/2017E and AMOLED penetration of global smartphone is 20%/30% in
2016E/2017E.
Exhibit 10: Shortage of LTPS/AMOLED panel
(mn units) 2016E 2017E
Demand
Smartphone shipment 1,483 1,579
Penetration
LTPS 35% 40%
AMOLED 20% 30%
Total Demand
LTPS 513 632
AMOLED 297 474
Supply
Capacity
LTPS 449 728
AMOLED 419 719
Utilization rate
LTPS 80% 80%
AMOLED 80% 80%
Yield rate
LTPS 80% 80%
AMOLED 70% 70%
Total supply
LTPS 287 466
AMOLED 235 403
Shortage
LTPS 226 166
AMOLED 62 71
Source: Company, OP Research
We expect shortage of LTPS
panel to be 226/166mn units in
2016/2017E, and shortage of
AMOLED panel to be 62mn/71mn
units in 2016/2017E
Mon, 29 Aug 2016
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Truly is expected to commence its G4.5 LTPS/AMOLED panel mass production in
Aug16E/2H17E and TCLD’s sister company, CSOT will also start mass production
of G6 LTPS panel by end of Dec 2016E, we believe both Truly and CSOT will ride
on the increasing LTPS/AMOLED display penetration in smartphones and gain on
the potential LTPS/AMOLED panel shortage by securing stable LTPS panel supply
from their panel plant. The potential shortage of LTPS/AMOLED panel will help to
stabilize LTPS/AMOLED module pricing.
Exhibit 11: Truly and CSOT (TCLD’s sister company) LTPS/AMOLED
production line capacity and MP timetable
Company Gen Pieces/ month Location Status Technology
Truly 4.5 60k LTPS
Huizhou Aug16E MP LTPS
30k AMOLED 2H17E MP AMOLED
CSOT 6 30k LTPS Wuhan 1Q17E MP LTPS
Source: Truly, TCLD, OP Research
Truly is expected to start its G4.5
LTPS/AMOLED panel MP in
Aug16E/2H17E, and TCLD’s sister
company, CSOT will start its G6
LTPS panel MP by end of Dec
2016E
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6 8 9 12 20 0.7
2 11
17
50
0
10
20
30
40
50
60
70
80
2016E 2017E 2018E 2019E 2020E
VR Hardware VR Software
(US$ bn)
Display latency, 13.3ms, 69%
Rendering latency, 3ms,
16%
Process latency, 2ms,
10%
Tracking latecny, 1ms,
5%Total latency time: 19.3ms
Catalyst 2: VR creates new demand for AMOLED display module
Virtual Reality (VR) is the new trend in technology. Facebook invested US$2bn in
Oculus, Google invested US$542mn in Magic Leap, and Mircrosoft developed its
own HoloLeans. According to TrendForce, the market size of VR hardware in
2016E is expected to hit US$6bn, and grow at a 4-year CAGR of 35% to
US$20bn in 2020E, mainly driven by strong demand for premium gaming
experience. We see AMOLED display can capture such robust growth to reap
US$20bn VR hardware market by 2020E as it is the best solution for VR display.
Exhibit 12: Global VR market size from 2016E to 2020E
Source: TrendForce, OP Research
Many VR users experience motion sickness with symptoms like dizziness and
nausea when they wear VR devices. The main reason for that is latency, which
creates mismatch between the motion we see, among which, display latency is
the key factor, accounting for 69% of the total latency time. Normally, it takes
4-10ms to reflect image on LCD display, but AMOLED only needs 0.1-0.5ms as
AMOLED consists of small red, green and blue LED that directly create the
required color instead of filtering out white light. Therefore, AMOLED is the best
solution for VR display as it significantly shortens the response time at the
moment.
Exhibit 13: VR latency problem analysis – Oculus DevKit 1 for example
Source: Oculus, OP Research
Global VR hardware market is
expected to grow at 35% CAGR
from 2016E to 2020E
AMOLED display is the best
solution for VR display as it
significantly shortens response
time
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Currently, the VR mainstream products, including Oculus Rift, Sony PlayStation
VR, HTC Vive, and Gear VR all adopt AMOLED display, thus we see VR as a
mid-term catalyst for AMOLED demand, in apart from smartphone AMOLED
display penetration.
Exhibit 14: VR products in the market
Cardboard V2 Samsung Gear Huawei VR Xiaomi VR
HMD type Slide-on Slide-on Slide-on Slide-on
Vendors Google Samsung Huawei Xiaomi
Selling
price US$19.95 US$99.99 TBC TBC (RMB49 in test period)
Release
date Sep 2015 Dec 2015 Apr 2016 Aug 2016
Display N/A N/A N/A N/A
Resolution N/A N/A N/A N/A
Latency Depends on phone display <20ms <20ms Depends on phone display
Contain
platform
Android phone Galaxy S6, S6 Edge, Note 5.
S6 Edge+ (all use OLED
display)
Mate 8 (LTPS display)
P9 (LTPS display)
P9 Plus (AMOLED display)
Any cell phone with screen
size range from 4.7' to 5.7'
ex. Redmi Pro (OLED display)
Oculus Rift HTC Vive PlayStation VR Deepoon E2
HMD type Discrete Discrete Discrete Discrete
Vendors Facebook HTC Sony Deepoon
Selling
price US$599 US$599 US$399 RMB1,799 (US$270)
Release
date Mar 2016 Apr 2016 Oct 2016 Jun 2015
Display OLED OLED OLED Samsung AMOLED
Resolution 2160x1200 2160x1200 1920x1080 1920x1080
Latency <20ms <22ms <18ms <19ms
Contain
platform Oculus Home/SteamVR SteamVR/Viveport PS4 DK1, DK2
Source: OP Research
VR is a mid-term catalyst for
AMOLED display module player,
Truly is well-positioned to capture
the growth to compensate the
low-yield of its AMOLED panel
line
Mon, 29 Aug 2016
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Truly (732 HK) will commence G4.5 AMOLED panel mass production in 2H17E
with capacity of 30k pieces of glass per month. The AMOLED panel can be used
to produce Truly’s VR/AR related display products. Truly’s VR/AR related
products are summarized in the table below:
Exhibit 15: Truly’s VR/AR related business
Featured camera module solution Camera module & software assembly integrated solution
Dual camera recording
Oculomotor control
Gesture recognition
Iris recognition
188° super wide angle
Seamless assembly software
WIFI module integration
Customer A Customer I
Camera: Dual 1.2 megapixels Camera: Dual 10 megapixels
Aug 2016 MP 1Q16 MP
High definition display solution
Micro display/ AMOLED/ 2K display
Customer T Customer D
Display: 6 inch 2K Display: 5 inch FHD (AMOLED)
1Q16 MP Sep 2016 MP
Source: OP Research
Truly will commence G4.5
AMOLED MP in 2H17E, riding on
the mid-term VR growth.
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12.2
26.5
38.8
52.8
64.8
69.0
62.1 55.9
51.4 48.8
0
10
20
30
40
50
60
70
80
0
10
20
30
40
50
60
70
2016E 2017E 2018E 2019E 2020E
VR headset display Shipment ASP
(mn unit) (US$)
841.8
1,645.7
2,168.5
2,714.9
3,165.3
42.1 82.3 108.4 135.7 158.3
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2016E 2017E 2018E 2019E 2020E
VR headset display Market size Truly's potential market share
(US$ mn)
According to IDC, VR headset display shipment is expected to grow at 4-year
CAGR of 51.8% from 12.2mn in 2016E to 64.8mn in 2020E, which drives the total
market size to grow at a CAGR of 39.3% from US$842mn in 2016E to US$3.2bn
in 2020E.
Exhibit 16: Global VR headset display market size from 2016E to 2020E
Source: IDC, Oled-info, OP Research
Assuming Truly to gain 5% market share, we estimate Truly’s potential market
share from VR related business to be US$42mn in 2016E and would grow at
39.3% CAGR to US$158mn in 2020E, representing 3-4% upside on our current
sales estimate. We haven’t taken account of VR handset display revenue in our
forecast as we expect Truly AMOLED panel to be mass production in 4Q17E with
low yield.
Exhibit 17: Global VR headset market size vs. Truly’s potential market
share
Source: IDC, Oled-info, OP Research
VR headset display’s market size
is expected to grow at a 4-year
CAGR of 39.3% to US$3.2bn in
2020E
Truly’s potential market share
from VR related business is
US$158mn in 2020E
Mon, 29 Aug 2016
Display Module
Page 14 of 64
TCLD (334 HK)’s sister company, CSOT, also plans to establish its T4 plant for
AMOLED panel, without further confirmed details, we expect CSOT to commence
AMOLED mass production from 2019-2020E, thus bringing long-term VR growth
for TCLD as it can secure AMOLED panel supply.
TCLD’s sister company, CSOT
also plans to establish T4 plant
for AMOLED panel production, we
expect the MP to commence in
2019-2020E
Mon, 29 Aug 2016
Display Module
Page 15 of 64
0.4 0.5
5.0
33.0
0
5
10
15
20
25
30
35
2014 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E
Level 1 Level 2 Level 3 Level 4
(US$ bn)
ADAS adoption to boost mid-term growth for automobile display player
ADAS market in China is expected to grow at 45.6% four years CAGR
ADAS is developed in four stages: 1) Level 1 of driver assistance to provide
information and passive warning to driver, such as blind spot, drowsiness and
distance warning etc; 2) Level 2 of partial automation to briefly take active control
of the car in parking, prevent backing over unseen objects, and avoid collisions by
braking; 3) Level 3 of semi-automation to partially take over driving in certain
circumstances with driver’s control on dynamic driving environment and full
control in parking; 4) Level 4 of full automation to self-drive in all dynamic driving
tasks under all road and environmental conditions.
China is in the early stages of Level 1 with only 2~5% ADAS adoption rate. As the
demand for safety and convenience in driving keeps increasing, we expect ADAS
to experience robust growth in the following 10 years. According to China
Association of Automobile Manufacturers (CAAM), ADAS market size in China
would grow at a 5-year CAGR of 64.4% from US$0.4bn in 2015 to US$5.0bn in
2020E as China’s automobile steps in Level 2 by 2019E. In the expectation that
China’s automobile market would enter Level 3 in 2022E and approach Level 4 in
2025E driven by increasing ADAS adoption as ADAS technology gradually
matures, we estimate ADAS market size in China to hit US$33bn in 2025E,
representing a 5-year CAGR of 45.6%.
Exhibit 18: ADAS market size in China for 2015-2025E
Source: CAAM, OP Research
Adoption of ADAS to boost automotive display upgrade and
shipment growth
In the past displays in car were designed for entertainment like play music and
movies. In the early stage of ADAS development, displays had more functions
beyond entertainment. For example, drivers/passengers could read information
such as speed, distance and temperature collected by sensors on instrument
clusters and controlled part of car movement through touch panel monitors.
According to IHS, automotive display shipments will increase at 3.0% CAGR from
Body Text Body Text Body Text
Body Text ADAS is developed in four stages
and China is in the early stage of
level 1
ADAS market in China is
expected to record 64.4% CAGR
from 2015 to 2020E and 45.6%
CAGR from 2020E to 2025E
Automotive TFT display
shipments is expected to grow at
6.6% CAGR from 2015 to 2020E
thanks to automotive display
upgrade
Mon, 29 Aug 2016
Display Module
Page 16 of 64
6689
117 132 143 151 157 161 163 164
163
203221
233 241 248 253 256 257 259
0%
5%
10%
15%
20%
25%
30%
35%
40%
0
50
100
150
200
250
300
350
2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E
TFT LCD automotive display Others yoy% TFT LCD yoy%
(mn units) (%)
221mn units in 2015 to 256mn units in 2020E, driven by rapid-growing demand
for smart car with ADAS. TFT LCD as the mainstream of automotive display is
estimated to grow at 6.6% CAGR from 117mn units in 2015 to 161mn units in
2020E.
Exhibit 19: Global automotive display shipment for 2013-2022E
Source: IHS, OP Research
As ADAS technology matures, high-configuration intelligent cars in the future
would be equipped with 10 displays and 6 camera modules. We believe Truly will
capture the strong ADAS growth as it is the leading automotive TFT displays
supplier in China. Hence, we estimate 21% revenue CAGR in the coming 3 years
for automobile products for Truly.
Exhibit 20: Displays in future car
Source: Truly, OP Research
Future smart car would be
equipped with 10 displays,
stimulating automotive display
shipment growth
Mon, 29 Aug 2016
Display Module
Page 17 of 64
Long life cycle creates high entry barrier, stabilize ASP and margin
for automotive display module player
Car models normally have a long life cycle for 5 of 10 years, inclusive of 1)
pre-production period of 1.8 to 3.8 years from initial planning to design finalization;
2) production period of 9 months to 1 year from raw material preparation to final
production after testing; 3) post-production period of 3 to 6 years from production
launch to improvements based on customers’ feedback.
Exhibit 21: Life cycle of car model
Truly R&D Process Time consuming Description Truly shipment
Pre-production time 21 - 46 months
√ Initial planning 1-4 months Product planning/ marketing/engineering go over the big picture
√ Rough prototype building 2-6months Design team generate rough idea on the car model
√ Design refining 6 - 12 months One or two phases of builds have gone through for idea testing and
get verified for government regulations
√ Design finalization 12 - 24 months Prototypes are built and unveiled in public media
Production time 9 -12 months
Production and testing 9 - 12 months Purchase raw materials, recruit and train workers, testing on
preliminary products and retrofitting, mass production and storage √
Post-production time 36 -72 months
Sales & marketing 6 -12 months Car launched in the market √
Feedback and improvement 30 - 60 months Car manufactures collect customer usage feedback to launch
different series based on improved model √
Total life cycle time 66 – 130 months
Source: AutoNews, OP Research
The long life cycle creates high entry barrier for automotive components suppliers,
as it usually takes 1-2 years to obtain a car brand’s certificate. Besides, it also
stabilizes the ASP and gross profit margin as fewer competitors involved.
Truly enjoys a strong pipeline of automotive displays, and expected time for mass
production varies from FY16E-FY22E, which supports our estimate of robust
growth in automotive displays.
Exhibit 22: Truly’s major automotive disaply pipeline
Brand Volkswagen FAW Mazda Ssangyong Ferrari Dongfeng
Citroen Benz Porsche
Logo
Car model
Display
Size 9.19 inch 7 inch 7 inch 8.8 inch 9 inch 10.25 inch 12.3 inch
MP 2016-2020 2016-2020 2016-2021 2017-2022 2016-2021 2018-2023 2016-2021
Source: Truly, OP Research
Car models normally have a long
life cycle of 5-10 years
Long life cycle creates high entry
barrier, stabilizes ASP and GPM
Truly enjoys strong automotive
display pipeline.
Mon, 29 Aug 2016
Truly Int’l (732 HK)
Page 18 of 64
Truly Int’l (732 HK) – All-around player Fingerprint ramp up in FY16E, expected to contribute RMB1.6bn sales,
representing 7.6% of total sales Truly is well positioned to ride on the rapid adoption of LTPS/AMOLED
display and potential upside on 1H17E panel shortage Initiate BUY with TP HK$4.90 based on 12x FY17E PE
Fingerprint ramp up as a short-term catalyst. Truly launched its fingerprint business in FY15 with HK$90mn revenue, representing 0.5% of total revenue. In FY16E, Truly expanded its fingerprint capacity from 2.5mn units in 1Q16 to 7.5mn units in Jun16, to ride on the rapid adoption rate of fingerprint in smartphones. We expect global/China fingerprint penetration will increase from 29%/15% in 2015 to 67%/65% in 2018E, which drives an enormous demand for fingerprint modules, as fingerprint offers a clear differentiation from non-fingerprint module-applied smartphones and facilitates mobile payments. We estimate Truly will ship 50mn/80mn/104mn units fingerprint modules in FY16E, and contribute HK$1.6bn/HK$2.0bn/HK$2.1bn sales, representing 7.6%/8.8%/8.2% of total revenue.
Well positioned to ride on increase of LTPS/AMOLED display adoption. In 2015, LTPS/AMOLED penetration in China market was ~28%/9%, and it is expected to hit 39%/12% in 2016E, and 45%/19% in 2018E, thanks to the better display effect and decreasing costs as production yield rate improves. iPhone 8 is expected to adopt AMOLED, and we expect China smartphone vendors will also increase LTPS/AMOLED displays in smartphones. Hence, Truly is well positioned to ride on the increase in LTPS/AMOLED adoption via its G4.5 plant, which plans to start LTPS/AMOLED MP with 60k/30k monthly capacity in Aug16/2H17E. Moreover, Samsung Display will be iPhone8’s AMOLED display suppliers, we expect that an increasing number of Japan and Taiwan panel suppliers will upgrade their production lines from LTPS to AMOLED, to catch up with the coming AMOLED heat. Thus, we forecast a likely LTPS/AMOLED panel supply shortage in 1H17E, which will provide further potential upside for Truly.
Strong automotive display pipeline and capacity expansion of G5 plant. Truly ranks 8th in global automotive TFT display in 2015, and is expected to increase TFT display shipment penetration from 21% in FY15 to 22%/26%/34% in FY16/17/18E, as global TFT display shipment proportion is expected to improve from 53% in 2015 to 61% in 2018E. As TFT display enjoys a higher ASP which is 5-10 times of non-TFT display, we believe it will drive a steady growth of sales. Besides, Truly enjoys a strong pipeline of automotive products in the coming 2-3 years, which guarantees a steady sales growth. Truly’s G5 plant is planned to start MP in 1Q18E with 100k monthly capacity, providing strong support for automotive business expansion. We expect automotive displays revenue to record 21% 3-year CAGR from FY16E to FY19E.
We initiate BUY with TP of HK$4.90 based on 12x FY17E PE, 52% discount to peers. We estimate Truly to record a 10%/16% revenue/net profit CAGR from FY15 to FY18E, given its main clients, China smartphones venders are grabbing market share rapidly, and it is actively diversifying its business, including fingerprint and automotive display, which help on margin expansion.
Risks: 1) delay or slow ramp up of G4.5 and G5 plant; 2) ASP erosion is faster than expected.
Initial Coverage
BUY
Close price: HK$3.45
Target Price: HK$4.90 (+42.0%)
Key Data
HKEx code 732 HK
12 Months High (HK$) 4.53
12 Month Low (HK$) 1.54
3M Avg Dail Vol. (mn) 17.98
Issue Share (mn) 2,907.10
Market Cap (HK$mn) 10,029.49
Fiscal Year 12/2016
Major shareholder (s) Lam Wai Wah (44.5%)
Source: Company data, Bloomberg, OP Research
Closing price are as of 26/08/2016
Price Chart
1mth 3mth 6mth
Absolute % -15.9 10.9 93.6
Rel. MSCI CHINA % -20.6 0.2 74.4
PE
Company Profi le Truly International Holdings Limited, through
its subsidiaries, manufactures and sells liquid
crystal display products, electronic consumer
products including calculators, pagers, MP3
player, and electronic components.
Exhibit 23: Forecast and Valuation Year to Dec (HK$ mn) FY14A FY15A FY16E FY17E FY18E
Revenue 21,416 19,427 21,006 23,230 26,011
Growth (%) 3.6 (9.3) 8.1 10.6 12.0
Net Profit 1,118.4 845.4 897.9 1,192.4 1,303.1
Growth (%) (31.0) (24.4) 6.2 32.8 9.3
Diluted EPS (HK$) 0.384 0.291 0.309 0.410 0.448
EPS growth (%) (33.1) (24.3) 6.2 32.8 9.3
Change to previous EPS (%)
0.0 0.0 0.0
Consensus EPS (HK$)
0.314 0.359 0.426
ROE (%) 16.0 11.9 12.1 14.7 14.4
P/E (x)
11.9 11.2 8.4 7.7
P/B (x) 1.4 1.4 1.3 1.2 1.1
Yield (%) 4.3 2.9 2.7 3.6 3.9
DPS (HK$) 0.150 0.100 0.093 0.123 0.134
Source: Bloomberg, OP Research
0.0
1.0
2.0
3.0
4.0
5.0
Aug/15 Nov/15 Feb/16 May/16
HK$732 HK MSCI CHINA
0
2
4
6
8
10
12
14
16
Dec/13 Jun/14 Dec/14 Jun/15 Dec/15 Jun/16
Forward P/E Ratio
+1std.
avg.
-1std.
Mon, 29 Aug 2016
Truly Int’l (732 HK)
Page 19 of 64
0%
20%
40%
60%
80%
100%
120%
0
200
400
600
800
1000
1200
1400
1600
1800
2014 2015 2016E 2017E 2018E 2019E 2020E
Fringerprint module shipment yoy%
(mn unit)
3%
15%
30%
50%
65%
19%
29%
40%
55%
67%
0%
10%
20%
30%
40%
50%
60%
70%
80%
2014 2015E 2016E 2017E 2018E
China Global
Fingerprint ramp up as a short-term catalyst
Rapid growth of fingerprint market and penetration of smartphone
The global shipment of fingerprint modules experienced rapid growth in 2015,
with ~65% yoy growth to ~550mn units. According to IHS, fingerprint module
shipment will continue the growth to hit ~1,240mn in 2018E, representing a
3-year CAGR of 30.3%. Meanwhile, the China/global smartphone fingerprint
penetration is expected to improve from 15%29% in 2015 to 65%67% in 2018E.
Exhibit 24: Global fingerprint module shipment from 2014 to 2020E
Source: IHS, OP Research
Exhibit 25: China/Global fingerprint penetration from 2014 to 2018E
Source: Statista, OP Research
Global fingerprint module
shipment is expected to record
30.3% CAGR from 2015 to 2018E.
China/global penetration is
expected to increase from
15%/29% in 2015 to 65%/67% in
2018E
Mon, 29 Aug 2016
Truly Int’l (732 HK)
Page 20 of 64
The rising penetration rate is the result of: 1) smartphone market players
following Apple’s adoption of fingerprint, making fingerprint modules a key
component in smartphone market. As fingerprint modules can be seen from the
outside, it offers a clear differentiation from non-fingerprint module-applied
smartphones and which customers find more attractive. 2) increasingly mobile
payments are adopting fingerprint for authentication, including Apple Pay, Alipay,
and Samsung Pay. We expect the penetration of mobile payments will continue to
improve in China market, thus driving the penetration of fingerprint modules in
smartphone.
Fingerprint industry value chain analysis
The key components of fingerprint module include sensor, metal loop, cover plate,
ect; among these components, the sensor is the most important. Currently, there
are mainly 8 integrated circuit (IC) developers, Authen Tec was acquired by Apple,
and provides sensor IC design for Apple exclusively, Synaptics mainly supports
Samsung and HTC, while other smartphone companies, like HuaWei, Oppo, Vivo
are supported by FPC (a Swedish company), Goodix and Silead (Chinese
companies), Crucial Tec (114120 KS), More DNA and Focal Tech (Taiwan
companies).
Truly procures sensors from China IC developers, eg. Goodix, Silead, and then
assemble them with metal loop, cover plate and other components.
Exhibit 26: Fingerprint value chain
Components Sensor Metal Loop Cover Plate Others Module
Process IC design Manufacturing Packing&Testing
Companies
Apple Authen Tec (US)
(acquired by Apple
in 2012)
TSMC (2330TT)
Xintech (3374 TT)
ASE (2311 TT)
WLCSP (603005
CH)
Sapphire Tech
Crystal Applied
Aurora (600666 CH)
ASE(2311 TT),
Sharp(6753 JP)
Samsung, HTC Synaptics
(Validity)(US)
SMIC (981 HK) TSHT (2185 CH)
JCET(600584 CH)
Aurora (600666 CH)
TDG (600330 SH)
O-film (002456 CH)
Truly (732 HK)
Q Tech (1478 HK)
CrucialTec (114120 KS)
Other brands
smartphones,
eg: Huawei,
Oppo, Vivo
Sweden: FPC
China: Goodix,
Silead, Microarray
Korea: CrucialTec
(114120 KS)
TW: More DNA,
Focal Tech
(3545 TT)
Source: OP Research
We believe fingerprint modules
are becoming a key component of
smartphones and it facilitates
mobile payments
Key components of fingerprint
module include sensor, metal
loop, and cover plate
Truly procures sensors from
China IC developers, Goodix,
Silead etc
Mon, 29 Aug 2016
Truly Int’l (732 HK)
Page 21 of 64
Truly keeps gaining market share with capacity expansion
Truly’s revenue from fingerprint module was HK$90mn in FY15, representing
0.5% of total revenue. Truly ranks number 3 for fingerprint module shipment in
1Q16 with 4mn shipment, jumping to number 2 in Apr 2016 with 3.2mn shipment.
Truly’s fingerprint shipment in 1H16 was 8.9mn, and we expect full year shipment
in FY16E to hit 50mn, given it expands capacity rapidly, from 2.5mn units/month
in 1Q16 to 7.5mn units/month in Jun16 and may further expand to 10mn
units/month by end of FY16E. Besides, utilization rate is expected to improve
from 60% in Jun16 to 90% in 4Q16E.
Exhibit 27: 2016 fingerprint shipment and target of leading suppliers
Company 1H16(mn units) FY16E target(mn units) 1H16 as % of FY16E target
O-film (002456 SZ) 70 120 58%
Truly (732 HK) 8.9 50 18%
Q Tech (1478 HK) 1.3 20 7%
Source: Company, O-film, Q-tech, OP Research
Exhibit 28: 2016 fingerprint monthly capacity of leading suppliers
Company Early 2016(mn units/month) By end of 2016(mn units/month)
O-film (002456 SZ) 18 22
Truly (732 HK) 2.5 7.5-10
Q Tech (1478 HK) 3.5 8-10
Source: Company, O-film, Q-tech OP Research
Currently, there are four types of fingerprint products, coating for low-to-mid-end
smartphones, while covered is used widely in mid-to-high end smartphones. Truly
has mastered the two technologies and will focus on promoting covered
fingerprint products, and targets to be global No.1 in terms of covered fingerprint
shipment in FY17E. Moreover, Truly is also schedules to start MP of underglass
fingerprint by end of 2016.
Exhibit 29: Type of fingerprint products
Coating Covered Underglass Aliveness Detection FPI
Economical solution for a
full range of mid-to low-end
smartphones
Unique oDLC surface
hardness solution matching
sapphire glass.
Truly has industry-leading
technology for indepth
customization. MP
expected by end of 2016.
Truly has leading
technology and potential
forMP in advance.
ASP: US$3.5-US$4 ASP: US$5
Source: Company, OP Research
Truly enjoys fingerprint module ASP of HK$39.3 in 1H16, and targets to further
improve ASP by increasing covered module proportion.
Exhibit 30: 1H16 fingerprint ASP of leading suppliers
Company 1H16
O-film (002456 SZ) ~RMB36
Truly (732 HK) HK$39.3
Q Tech (1478 HK) RMB29.7
Source: Company, O-film, Q-tech OP Research
We expect Truly to record 50mn
fingerprint shipment in FY16E, as
capacity expands from
2.5mn/month in 1Q16 to 10mn
units/month by end of FY16E
Truly mainly produce coating and
covered fingerprint module, and
is targeting to be global No.1 in
terms of covered fingerprint
shipment in FY17E.
Truly enjoys fingerprint module
ASP of HK$39.3 in 1H16
Mon, 29 Aug 2016
Truly Int’l (732 HK)
Page 22 of 64
90
1,600
2,048 2,130
-
500
1,000
1,500
2,000
2,500
FY15A FY16E FY17E FY18E
(HK$mn)
Truly’s fingerprint clients include top tier China smartphone vendors, notably Vivo,
Gionee, Letv, Meizu and TCL.
Exhibit 31: Truly’s fingerprint products
Vivo X7/ X7 PLUS Vivo V3/ 3MAX Letv 1S/2S/2S Pro Gionee M5/S6 Pro TCL 750 Meizu Meilan 3S
Source: Company, OP Research
Fingerprint module is expected to contribute HK$1.6bn revenue in
FY16E
Most Chinese fingerprint module companies produce coating solution, which has
lowest ASP of US$3.5-US$4.0. Cover solution has higher ASP of ~US$5, and
underglass ASP is even higher. Truly will focus on promoting covered solution in
FY16E, and is expected to hit HK$1.6bn revenue from fingerprint module in
FY16E with 50mn units sales volume.
Exhibit 32: Revenue of fingerprint products from FY14 to FY18E
Source: Company, OP Research
Truly’s fingerprint clients include
Vivo, Gionee, Letv, Meizu and
TCL.
Revenue of fingerprint modules is
expected to record a 3-year 187%
CAGR to HK$2,130mn in FY18E
Mon, 29 Aug 2016
Truly Int’l (732 HK)
Page 23 of 64
81 108 148 228 261 294 286282
3339
47
7095 122 164 212
0
100
200
300
400
500
600
700
800
2013 2014 2015 2016E 2017E 2018E 2019E 2020E
a-Si LTPS Oxide AMOLED
(mn units)
72%66%
58%
44%37%
31% 28% 24%
18%22%
28%
39%42%
45%42%
40%
8% 8% 9% 12% 15% 19%24%
30%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2013 2014 2015 2016E 2017E 2018E 2019E 2020E
a-Si LTPS Oxide AMOLED
Truly is well positioned to ride on the increase of LTPS/AMOLED adoption and potential upside on panel shortage
Increasing penetration of LTPS/ AMOLED display in smartphone
The LTPS/AMOLED smartphone panel shipments in China are expected to grow
at a 5-year CAGR of 13.8%/34.8% to 282mn/212mn in 2020E from 148mn/47mn
in 2015 thanks to increasing penetration and extension of market share of China
smartphone vendors.
Exhibit 33: Smartphone panel shipments by display technology in China,
Source: IHS, CINNO Research, OP Research
We estimate the LTPS/AMOLED penetration in China smartphone to improve
from 28%/9% in 2015 to 40%/30% in 2020E as China’s leading smartphone
vendors, such as Huawei, Oppo, Vivo, Lenovo, Meizu, etc, will increase
LTPS/AMOLED adoption from 2H16E onwards.
Exhibit 34: LTPS/AMOLED penetration in China
Source: IHS, CINNO Research, OP Research
LTPS/AMOLED smartphone panel
is expected to grow at
13.8%/34.8% CAGR from 2015 to
2020E
LTPS/AMOLED penetration in
China smartphone is expected to
improve from 28%/9% in 2015 to
40%/30% in 2020E
Mon, 29 Aug 2016
Truly Int’l (732 HK)
Page 24 of 64
46%
28%
30%43%
18% 14%
4%
25%
1%
38%24%
4%16%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Huawei OPPO Vivo Xiaomi Lenovo ZTE Coolpad Meizu
a-Si LTPS Oxide AMOLED2015
62%
48%
40%60%
24%
24%15%
56%
13%
45%32%
10% 10%23%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Huawei OPPO Vivo Xiaomi Lenovo ZTE Coolpad Meizu
a-Si LTPS Oxide AMOLED2016E
Huawei, No.1 of China smartphone vendor, is expected to hit 62%/13%
LTPS/AMOLED adoption in 2016E from 46%/1% in 2015; Oppo, China’s No.2
smartphone vendor, is expected to hit 48%/45% LTPS/AMOLED adoption in
2016E from 28%/38% in 2015; Vivo, another brand of BBK camp, is expected to
hit 40%/32% LTPS/AMOLED adoption in 2016E from 30%/24% in 2015; and
Xiaomi, China’s No.4 smartphone brand, is expected to hit LTPS/AMOLED
penetration rate of 60%/10% in 2016E from 43%/0% in 2015.
Exhibit 35: Display technology penetration by top China smartphone vendors, 2015 vs. 2016E
Source: CINNO Research, OP Research
China’s first-tier smartphone
vendors, including Huawei, Oppo,
Vivo and Xiaomi are all expected
to improve LTPS/AMOLED
penetration in their model
Mon, 29 Aug 2016
Truly Int’l (732 HK)
Page 25 of 64
Supply of LTPS/AMOLED ramp up from 2017E onwards
Currently, only Samsung can produce small-to-medium sized AMOLED panel
with satisfied yield, and Japanese companies (JDI and Sharp) dominate the
majority of LTPS panel supply. We see China panel suppliers, including CSOT,
Truly, BOE and Tianma are setting up and expanding their LTPS/AMOLED
production lines and capacity is expected to ramp up from 2017E onwards, while
Taiwan, Korea, and Japan panel suppliers focus more on AMOLED capacity
expansion.
Exhibit 36: Small and medium size LTPS & AMOLED lines operated in China
Company Gen pcs per month Location Status Technology
CSOT 6 15k (30k max) Wuhan 1Q17 MP LTPS
BOE
5.5 30k LTPS
Ordos 2014 MP LTPS
30k AMOLED 2Q16 MP AMOLED
6 45k LTPS
Chengdu 2Q17MP LTPS
48k AMOLED 2Q18MP AMOLED
Tianma
5.5 30k Xiamen 2015 MP LTPS
5.5
15k LTPS
Shanghai
1Q16 MP LTPS
30k AMOLED 2Q16 MP AMOLED
6 30k Xiamen 3Q16 MP LTPS
6 30k Wuhan 2Q17 MP LTPS/AMOLED
Truly 4.5
60k LTPS
Huizhou
Aug16 MP LTPS
30k AMOLED 4Q17 MP AMOLED
AUO 6 20k (30k max) Kunshan 4Q16 MP AMOLED
EverDisplay 4.5 15k Shanghai 3Q17 MP LTPS/AMOLED
6 TBC Shanghai 2Q18 MP AMOLED
GoVisionox 5.5 15k Kunshan 3Q16 MP AMOLED
Hon Hai 6 20k Guiyang, 2018 MP LTPS/AMOLED
6 24k Zhengzhou 2018 MP LTPS/AMOLED
Total 374k LTPS/257k AMOLED
Note: Total capacity is the maximum productivity of mother class, and AMOLED production line can produce LTPS as well
Source: Company data, OP Research
China panel suppliers are
expanding their LTPS/AMOLED
capacity from 2017E onwards,
while TW, Korea, and Japan
supplier focus more on AMOLED
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Exhibit 37: Small and medium size LTPS & AMOLED lines operated in Taiwan, Korea and Japan (patial)
Taiwan
Company Gen pcs per month Location Status Technology
AUO 3.5 8k (50 max) Linko, TW 2012 MP LTPS/AMOLED
4.5 15k (45 max) Singapore 2012 MP LTPS/AMOLED
Innolux 3.5 70k Chunan, TW 2013 MP LTPS/AMOLED
6 24k Kaohsiung, TW 2Q16MP LTPS
Total 189k LTPS/165k AMOLED
Korea
Company Gen pcs per month Location Status Technology
Samsung Display
4.5 55k Asan, KR 2012 MP Rigid AMOLED
5.5
105k Rigid AMOLED (phase I+II)
Asan, KR
2013 MP Rigid AMOLED
35k Flexible AMOLED (phase III) 2014 MP Flexible AMOLED
6
15k (phase I)
Asan, KR
2015 MP Flexible AMOLED
30k (phase II) 1Q17 MP Flexible AMOLED
45k (phase III) 2Q17 MP Flexible AMOLED
30k (phase IV) 1Q18 MP Flexible AMOLED
LGD
4.5 14k Paju, KR 2013 MP LTPS/Rigid AMOLED
6
40k (60k max) LTPS
Kumi, KR
1Q17 MP LTPS
7.5k (phase I) 1Q17 MP Flexible AMOLED
7.5k (phase I) 2Q17 MP Flexible AMOLED
Total 74k LTPS/344k Rigid AMOLED/
170k Flexible AMOLED
Japan (partial)
Company Gen pcs per month Location Status Technology
Sharp
3.5 18k Kameyama, JP 2012 MP LTPS
4 100k Kameyama, JP 2013 MP LTPS
4.5 13k Kameyama, JP 4Q17 MP AMOLED
6 22K Kameyama, JP 2014 MP LTPS
6 11.5k Kameyama, JP 4Q17 MP AMOLED
6 34.5k Kameyama, JP 4Q17 MP AMOLED
Japan Display
4.5 32k LTPS
Ishikawa, JP 2012 MP LTPS
4k (15k max) AMOLED 1Q18 MP AMOLED
4.5 46k Higasiura, JP 2013 MP LTPS
5.5 30K Nomi, JP 2013 MP LTPS
6 24k (50 max) Mobara, JP 2013 MP LTPS
6 25k Hakusan, JP TBC LTPS
Total 323k LTPS/ 74k AMOLED
Note: Total capacity is the maximum productivity of mother glass, and AMOLED production line can produce LTPS as well
Source: Company data, OP Research
Mon, 29 Aug 2016
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Truly’s G4.5 LTPS/AMOLED panel production lines capture increase
of LTPS/AMOLED display adoption in smartphone
Truly’s G4.5 production line is scheduled to begin mass production of
LTPS/AMOLED in Aug16/2H17E with capacity of 60k/30k pieces of glass per
month, yield rate is targeted to hit 90%/50%. We believe G4.5 plant captures
increase of LTPS/AMOLED display adoption in smartphones.
The G4.5 production line is under Truly (Hui Zhou), with Truly holding 53% stake
of the company, and the result of Truly (Huizhou) will be recorded as “share of
associate companies” in financial statements.
Exhibit 38: G4.5 production line in Huizhou
LTPS AMOLED
Expected MP time Aug16E 2H17E
Capacity 60k pieces/month 30k pieces/month
Target yield rate 90% 50%
Source: Company, OP Research
We see potential LTPS/AMOLED panel supply shortage in 1H17E, given that an
increasing number of smartphone models are adopting LTPS/AMOLED display
and it takes time for panel suppliers to expand capacity and ramp up.
We expect shortage of LTPS panel will be 226mn/166mn units in 2016/2017E,
and shortage of AMOLED panel will be 62mn/71mn units in 2016/2017E.
Assuming: 1) 3.5/4/4.5/5.5/6 generation panel production line can cut
30/40/50/150/200 units of screens per piece of glass; 2) 80%/80% utilization
rate/yield rate for LTPS panel production, 80%/70% utilization rate/yield rate for
AMOLED panel production; 3) LTPS penetration of global smartphone is
35%/40% in 2016E/2017E and AMOLED penetration of global smartphone is
20%/30% in 2016E/2017E.
Shortage of LTPS/AMOLED panel is likely to stabilize ASP with increasing
penetration to drive display module shipment growth, we see Truly is
well-positioned to capture the rapid increase of LTPS/AMOLED smartphone
penetration in China.
Despite the G4.5 LTPS/AMOLED panel plant JV may record a loss in FY16/17E,
we see the panel arm helps Truly to be more defensive during panel shortage
time and increase its bargaining power to secure top-tier smartphone clients
order.
Truly’s G4.5 plant is expected to
commence LTPS/AMOLED MP in
Aug16E/2H17E with capacity of
60k/30k pieces of glass per month,
and target yield is 90%/50%
Truly holds 53% stake of the G4.5
plant, and result of the plant will
be recorded as “share of
associate companies” in financial
statements
We expect there may be
LTPS/AMOLED panel supply
shortage in 1H17E
We expect shortage of LTPS
panel to be 226mn/166mn units in
2016/2017E, and shortage of
AMOLED panel to be 62mn/71mn
units in 2016/2017E
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Exhibit 39: Shortage of LTPS/AMOLED panel
(mn units) 2016E 2017E
Demand
Smartphone shipment 1,483 1,579
Penetration
LTPS 35% 40%
AMOLED 20% 30%
Total Demand
LTPS 513 632
AMOLED 297 474
Supply
Capacity
LTPS 449 728
AMOLED 419 719
Utilization rate
LTPS 80% 80%
AMOLED 80% 80%
Yield rate
LTPS 80% 80%
AMOLED 70% 70%
Total supply
LTPS 287 466
AMOLED 235 403
Shortage
LTPS 226 166
AMOLED 62 71
Source: Company, OP Research
Mon, 29 Aug 2016
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JDI, 18%
Sharp, 15%
AUO, 13%
LGD, 11%
CPT, 9%
Innolux, 8%
Tianma, 7%
Truly, 7%
Others, 12%2015
Total: 101.5mn units
Automotive products keep robust growth
Leading market player ranked 8th globally
Truly ranked 8th in global automotive TFT display in 2015 with 7mn units shipment,
representing 21% of total automotive display shipment, and TFT display shipment
is expected to maintain robust growth and represents an increasing proportion of
total shipment.
Exhibit 40: 2015 Global ranking of automotive TFT display by shipment
Source: Techno Systems Research, OP Research
Increasing TFT application in automotive display stimulates sales
Truly produced TFT display and non-TFT display for automobiles, the ASP of TFT
display/non-TFT display is HK$210/HK$25 in FY15, revenue of TFT
display/non-TFT display for FY15 is HK$1,490mn/HK$680mn, and the proportion
of TFT display revenue increased from 56% in FY14 to 60% in FY15. Given
global TFT display shipment penetration is expected to improve from 53% in 2015
to 61% in 2018E and TFT display enjoys a higher ASP (5-10 times of non-TFT
display), we expect Truly’s revenue of automotive displays will keep robust
growth with 21% CAGR from FY16E to FY19E.
Truly ranked 8th
in global
automotive TFT display in 2015
We expect TFT display’s
shipment penetration to keep
increasing and revenue to deliver
21% CAGR from FY16E to FY19E
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6689
117 132 143 151 157 161 163 164
163
203221
233 241 248 253 256 257 259
0%
5%
10%
15%
20%
25%
30%
35%
40%
0
50
100
150
200
250
300
350
2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E
TFT LCD automotive display Others yoy% TFT LCD yoy%
(mn units) (%)
40.5%
43.8%
53.0%
56.7%
59.2%
61.0%62.0%
63.0%63.5% 63.4%
40.0%
45.0%
50.0%
55.0%
60.0%
65.0%
2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E
1,090 1,490
1,824 2,232
3,188 870
680
636
513
415 190
210 214 218 223
29 25 21 18
15
0
50
100
150
200
250
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
FY14A FY15A FY16E FY17E FY18E
Automotive TFT display revenue Automotive non-TFT display revenue
Automotive TFT display ASP Automotive non-TFT display ASP
(HK$)(HK$mn)
Exhibit 41: Global automotive display shipment from 2013 to 2022E
Source: IHS, OP Research
Exhibit 42: TFT automotive display shipment penetration from 2013 to
2020E
Source: IHS, OP Research
Exhibit 43: Sales and ASP of Truly’s automotive products
Source: Company, OP Research
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0.4 0.5
5.0
33.0
0
5
10
15
20
25
30
35
2014 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E
Level 1 Level 2 Level 3 Level 4
(US$ bn)
ADAS as a mid-term catalyst for automotive display
Advanced Driver Assistant Systems (ADAS) are automotive systems developed
to assist, complement and eventually substitute the driver in the complex process
of controlling a vehicle, aiming to improve driving safety and efficiency. ADAS is
developed in four stages: 1) Level 1 of driver assistance to provide information
and passive warning to driver, such as blind spot, drowsiness and distance
warning etc; 2) Level 2 of partial automation to briefly take active control of the car
in parking, prevent backing over unseen objects, and avoid collisions by braking;
3) Level 3 of semi-automation to partially take over driving in certain
circumstances with driver’s control on dynamic driving environment and ful
control in parking; 4) Level 4 of full automation to self-drive in all dynamic driving
task under all roadway and environmental conditions.
China is in the early stage of Level 1 with only 2~5% ADAS adoption rate. As the
demand for safety and convenience in driving keep increasing, we expect ADAS
to experience robust growth in the following 10 years. According to China
Association of Automobile Manufacturers (CAAM), ADAS market size in China
would grow at a 5-year CAGR of 64.4% from US$0.4bn in 2015 to US$5.0bn in
2020E as China’s automobile steps into Level 2 by 2019E. In the view that
China’s automobile market would enter Level 3 in 2022E and approach Level 4 in
2025E driven by increasing ADAS adoption as ADAS technology gradually
matures, we estimate ADAS market size in China to hit US$33bn in 2020E,
representing a 5-year CAGR of 45.6%.
Exhibit 44: ADAS market size in China for 2015-2025E
Source: CAAM, OP Research
Additional application by ADAS for display panel besides
entertainment needs
In the past, displays in car were designed for entertainment like play music and
movies. In the early stage of ADAS development, displays have functions beyond
entertainment. For example, drivers can read information such as speed,
distance and temperature collected by sensors on instrument clusters and control
part of car movements through touch panel monitor. We expect automotive
display shipments to increase at 3.0% CAGR from 221mn in 2015 to 256mn in
ADAS has four stages and China
is in the early phase of stage 1
ADAS market in China is
expected to record 64.4% CAGR
from 2015 to 2020E and 45.6%
CAGR from 2020E to 2025E
Automotive TFT display is
expected to grow at 6.6% CAGR
from 2015 to 2020E thanks to
automotive display upgrade
Mon, 29 Aug 2016
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6689
117 132 143 151 157 161 163 164
163
203221
233 241 248 253 256 257 259
0%
5%
10%
15%
20%
25%
30%
35%
40%
0
50
100
150
200
250
300
350
2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E
TFT LCD automotive display Others yoy% TFT LCD yoy%
(mn units) (%)
2020E, driven by rapidly-growing demand for smart cars with ADAS. TFT LCD as
the mainstream of automotive display is estimated to grow at 6.6% CAGR from
117mn in 2015 to 161mn in 2020E.
Exhibit 45: Global automotive display shipment from 2013 to 2022E
Source: IHS, OP Research
As ADAS technology matures, high-configuration intelligent cars in the future will
be equipped with 10 displays and 6 camera modules. We believe Truly will
capture the strong ADAS growth as it is the leading automotive TFT displays
supplier in China.
Exhibit 46: Displays in future car
Source: Truly, OP Research
Future car would be equipped
with 10 displays, stimulating
automotive display shipment
growth
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1,960 2,170
2,460 2,746
3,602
10.7%
13.3%11.6%
31.2%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2014 2015 2016E 2017E 2018EAutomotive products YoY%
(HK$mn)
Strong pipeline of automotive products
Truly currently provides central control, meter and color TFT to end customers,
including BMW, Audi, FIAT, Mercedes-Benz,, Nissan etc, and has a strong
pipeline for the coming 5 years. Given that the automotive display has higher
entry barrier, and normally needs 1-2 years to obtain end customers’ certificate,
we see it will help Truly to maintain robust 10%-30% yoy sales growth in the
coming three years to FY18E.
Exhibit 47: Truly’s major automotive disaply pipeline
Brand Volkswagen FAW Mazda Ssangyong Ferrari Dongfeng
Citroen Benz Porsche
Logo
Car model
Display
Size 9.19 inch 7 inch 7 inch 8.8 inch 9 inch 10.25 inch 12.3 inch
MP 2016-2020 2016-2020 2016-2021 2017-2022 2016-2021 2018-2023 2016-2021
Source: Company, OP Research
G5 TFT production line provides strong supply for automotive
display expansion
Truly bought G5 TFT production line from Samsung, with capacity of 100k sheets
per month, the mass production expected to begin in 1Q18E, to provide solid
support for automotive display expansion.
Exhibit 48: Sales of automotive products from FY14 to FY18E
Source: Company, OP Research
Truly enjoys strong pipeline of
automotive products and
expected to maintain 10%-30%
yoy sales growth to FY18E
Truly’s G5 TFT plant is expected
to start MP in 1Q18E, providing
solid support for automotive
display expansion.
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21,416 19,427
21,006 23,230
26,011
3.6%
-9.3%
8.1%
10.6%12.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
0
5,000
10,000
15,000
20,000
25,000
30,000
2014 2015 2016E 2017E 2018E
Revenue (HK$mn) YoY%
(HK$mn)
Initiate BUY with TP HK$4.90 with 42% upside
Steady revenue growth thanks to robust increase of Chinese
smartphone vendors and diversified business
We expect Truly to recover from revenue decrease in FY15, and experience ~10%
yoy revenue growth from FY16E onwards. Despite the slowdown in global
smartphone shipment growth, we believe it will be offset by fast growth of
Chinese smartphone vendors, including Huawei, Vivo and Oppo, which are also
Truly’s major clients. Besides, Truly is diversifying business, including fingerprint
and automotive displays to keep the steady growth.
Exhibit 49: Revenue from FY14 to FY18E
Source: Company, OP Research
Improved product mix with higher GPM
In FY15, touch panel for smartphone related and smartphone displays without
touch panel accounted for the largest and second largest proportion of revenue,
representing 41%/19% of total revenue. Smartphone displays without touch panel
are mainly supplied to Samsung for its low end handsets, therefore its GPM is
relatively low, we expect its proportion of revenue will decrease from 19% in FY15
to 6% in FY16E, and further decrease to 1% in FY18E. Instead, the proportion of
automotive products/fingerprint module is expected to increase from 11%/0% in
FY15 to 12%/8% in FY16E and further increase to 14%/8% in FY18E, thanks to
G5 plant mass production start in 1Q18E (mainly for automotive displays) and the
ramp up and capacity expansion of fingerprint module. As automotive displays
and fingerprint module has higher GPM of ~15%/12%, we believe the (1)
improved product mix and (2) economics of scale of its fingerprint business can
help GPM expansion from 10.9% in FY15 to 11.4% in FY16E and 11.8% in
FY18E.
We expect Truly to record ~10%
yoy sales growth from FY16E
onwards, thanks to robust growth
of major clients, China top
smartphone vendors and
diversified revenue sources
including fingerprint and
automotive displays
We expect GPM expansion to hit
11.4% in FY16E from 10.9% in
FY15 thanks to upgraded product
mix.
Mon, 29 Aug 2016
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9% 11% 12% 12% 14%
11%14% 14% 14% 14%
44%41%
44% 47%48%
13% 15%16%
16% 16%23% 19% 6% 2% 1%
8% 9% 8%
0%
20%
40%
60%
80%
100%
2014 2015 2016E 2017E 2018E
Automotive products Industrial, medical, and other productsTouch panel for smartphone related Compact camera moduleSmartphone display (without touch panel) Fingerprint identification module
7.8%
5.2%
4.4% 4.3%
5.1% 5.0%
14.0%
11.6%10.9%
11.4%11.8% 11.8%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
FY13A FY14A FY15A FY16E FY17E FY18E
Net profit margin Gross profit margin
Exhibit 50: Revenue by segment from FY14 to FY18E
Source: Company, OP Research
Exhibit 51: Overall GPM from FY13 to FY18E
Source: Company, OP Research
1H16 result review. Revenue was up 2.2% yoy in 1H16 to HK$9.72bn, touch
related products for smartphone and compact camera modules recorded robust
growth of 23% and 18% yoy growth, while smartphones display without touch
panel was down 67% yoy, reflecting the upgrade of product mix. 2Q16 GPM
dropped to 10.6% from 12.2% in 1Q16, mainly due to panel price increase.
Management has actively renegotiated the products price to clients in 2H16E, to
transfer material costs increase, we see margin will gradually recover in 3Q16
onwards. Net profit was down 12.3% to HK$390mn, due to 1) HK$79mn
exchange loss, 2) HK$74mn share of loss from Huizhou associate. Huizhou
associate will start MP from Aug16E, we expect it to record HK$192mn/HK$77mn
/HK$77mn net loss in FY16/17/18E due to significant depreciation and interest
expenses, however, it can strengthen its market position by securing in-house
panel supply to module production, and increase bargaining power to obtain large
orders.
Initiate BUY with TP of HK$4.90 based on 12x FY17E PE, 52% discount to
peers. We believe Truly is well-positioned to ride on increasing LTPS/AMOLED
adoption in smartphones, fingerprint business ramp up and capacity expansion in
FY16E and strong automotive displays pipeline in the coming few years.
1H16 sales was up 2.2% yoy
thanks to robust growth of touch
related products for smartphones
and compact camera module. Net
profit was down 12.3% yoy due to
exchange loss and loss from G4.5
plant associate
Initiate BUY with TP of HK$4.90
based on 12x FY17E PE.
Mon, 29 Aug 2016
Truly Int’l (732 HK)
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Exhibit 52: Results summary
HK$ mn 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16
2Q16
YoY
2Q16
QoQ 1H16 2H16E
Revenue 4,310 5,215 3,773 5,752 4,672 4,849 4,972 4,935 4,694 5,031 4% 7% 9,725 11,282
COGS (3,773) (4,556) (3,241) (5,088) (4,177) (4,242) (4,503) (4,383) (4,123) (4,497) 6% 9% (8,621) (10,000)
Gross profit 537 658 532 664 494 606 469 552 571 534 -12% -6% 1,104 1,282
Other income & gains (15) (7) (56) 34 15 17 (41) 34 (10) (44) -355% 328% (54) 41
Selling exp (83) (111) (106) (88) (107) (97) (111) (118) (84) (87) -10% 3% (171) (178)
Admin exp (124) (82) (81) (125) (92) (105) (89) (125) (116) (97) -7% -16% (213) (236)
Other opex 0 0 7 (7) 0 (8) (20) (1) 0 (3) -58% n.a. (3) (29)
Operating profit (EBIT) 315 458 295 478 310 414 208 341 361 302 -27% -16% 663 880
Provisions or other items 0 0 0 0 0 0 0 0 0 0 n.a. n.a. 0 0
Finance costs (19) (24) (10) (32) (26) (24) (28) (24) (29) (29) 22% 0% (59) (80)
Profit after financing costs 296 435 285 446 284 390 180 317 331 273 -30% -18% 604 800
Associated cos 0 (2) 9 (11) (11) (11) (7) (19) (27) (46) 305% 68% (74) (118)
Jointly controlled cos 0 0 0 0 0 0 0 0 0 0 n.a. n.a. 0 0
Pre-tax profit 296 433 294 435 273 379 173 299 304 227 -40% -25% 530 682
Tax (58) (111) (54) (114) (63) (87) (40) (5) (55) (46) -48% -18% (101) (138)
Minority interests (27) (30) (20) (37) (13) (40) 8 (38) (25) (11) -73% -57% (36) (39)
Net profit 211 292 219 284 198 251 141 256 223 170 -32% -24% 393 505
QoQ%
Revenue 21% -28% 52% -19% 4% 3% -1% -5% 7%
Gross profit
22% -19% 25% -26% 23% -23% 18% 3% -6%
Net profit 38% -25% 30% -30% 27% -44% 82% -13% -24%
YoY%
Revenue 8% -7% 32% -14% 0% 4% 2% 14%
Gross profit
-8% -8% -12% -17% 15% -12% 0% 26%
Net profit -7% -14% -36% -10% 13% -32% -12% 27%
Key ratios
GPM 12.5% 12.6% 14.1% 11.5% 10.6% 12.5% 9.4% 11.2% 12.2% 10.6% 11.4% 11.4%
Selling exp 1.9% 2.1% 2.8% 1.5% 2.3% 2.0% 2.2% 2.4% 1.8% 1.7% 1.8% 1.6%
Admin exp 2.9% 1.6% 2.2% 2.2% 2.0% 2.2% 1.8% 2.5% 2.5% 1.9% 2.2% 2.1%
EIT 19.7% 25.4% 19.1% 25.6% 22.1% 22.3% 22.1% 1.5% 16.7% 16.7% 16.7% 17.2%
Net margin 4.9% 5.6% 5.8% 4.9% 4.2% 5.2% 2.8% 5.2% 4.8% 3.4% 4.0% 4.5%
Source: Company, OP Research
Mon, 29 Aug 2016
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Investment Risks
Demand for smartphone slows down. Smartphone shipment growth in China
slowed down in 2015 due to downward pressure of China’s economy. Truly as the
component supplier of Chinese smartphone brands may suffer from slower
revenue growth if Chinese smartphone shipment remains sluggish. However,
Truly’s expansion of its product portfolio to automotive products helps it to capture
the demand growth of automobiles in China and offset the slower growth of
smartphone business.
ASP erosion and margin pressure of smartphone display panel. ASP of
smartphone display module declined over 25% yoy in 2015 and the downtrend
remains due to fierce competition in the display panel market. Truly will still be
able to stabilize its margin in LTPS/AMOLED supply thanks to 1) increasing
penetration of LTPS/AMOLED in upcoming Chinese smartphone brands and 2)
earlier ramp up of its G4.5 LTPS/AMOLED plant in 4Q16E, compared to peers in
2017E-18E.
Delay of slow ramp up of G4.5 LTPS/AMOLED plant. Truly’s LTPS/AMOLED
production line in G4.5 plant is expected to commence mass production by
4Q16/4Q17. Any delay or slow ramp up resulting in low yield rate may impair
Truly’s profitability.
Intensifying competition in fingerprint module market. Increasing adoption
of fingerprint module in mid-to-high end smartphones are attracting new
competitors into the market. We see that there are many fingerprint
manufacturers, such as O-Film, Primax and SPEED has surpassed the original
leader CrucialTec and Dreamtech. The intensified competition may trigger price
war in fingerprint module market like the one in the camera module and touch
panel market
Mon, 29 Aug 2016
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Management profiles
Exhibit 53: Management profiles
Name Age Position Role and responsibilities Description
Mr. Lam Wai Wah 63 Chairman, Founder Overall strategic planning and business
development
Mr. Lam has over 39 years of experience in the
electronics industry.
Mr. Wong Pong Chun,
James
57 Chief Operating Offier
Internal control, risk management,
investors’ relationship, and external affairs
Mr. Wong joined the Group in 1987.
He has over 30 years of industry experience.
Mr. Cheung Tat Sang 60 Executive Director Sales of LCD products and other electronic
components
Mr. Cheung joined the Group in 1989.
He had been the sales manager for a number of
electronics companies for over 10 years.
Mr. Li Jian Hua 52 Non-executive Director Factory production management Mr. Li joined the Group in 1989.
He graduated from the Jilin University of Technology
and Engineering Management in 1987.
He is also the Managing Director of a PRC
subsidiary of the Company, Truly Opto-Electronics
Limited.
Mr. Ma Wai Tong 44 Chief Financial Officer,
Company Secretary
Overall strategy and financial affairs Mr. Ma joined the Group in January 2011.
He holds a Bachelor’s degree in Accountancy and a
Master’s degree of Professional Accounting from the
Hong Kong Polytechnic University.
He has 19 years’ experience of auditing.
Source: Company, OP Research
Mon, 29 Aug 2016
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44.5% 7.3% 48.2%
Chan Kin SunLam Wai Wah
(Chairman)Public
Truly
Semiconductors
5G TFT
production line
4.5G AMOLED
production line
Truly contribution to registered capital: RMB6mn
Truly investment: RMB3.3bn (total RMB6.3bn)
Investment: RMB3.9bn
Truly (Shanwei)
100%100%
Huizhou Zhongkai
53%27.12% 100%
Huizhou
Investment
19.88%
Shareholding structure
Exhibit 54: Shareholding structure
Source: Company, OP Research
Mon, 29 Aug 2016
Truly Int’l (732 HK)
Page 40 of 64
Financial Summary – Truly Int’l (732 HK) Year to Dec FY14A FY15A FY16E FY17E FY18E
Year to Dec FY14A FY15A FY16E FY17E FY18E
Income Statement (HK$ mn)
Ratios
LCD Products 18,540 16,068 15,550 16,896 19,280
Gross margin (%) 11.6 10.9 11.4 11.8 11.8
Electronic consumer products 2,876 3,359 5,457 6,334 6,731
Operating margin (%) 8.1 6.6 7.3 8.0 7.8
Net margin (%) 5.2 4.4 4.3 5.1 5.0
Selling & dist'n exp/Sales (%) 1.8 2.2 1.7 1.7 1.8
Turnover 21,416 19,427 21,006 23,230 26,011
Admin exp/Sales (%) 2.0 2.1 2.1 2.2 2.3
YoY% 4 (9) 8 11 12
Payout ratio (%) 39.1 34.4 30.0 30.0 30.0
COGS (18,929) (17,305) (18,620) (20,478) (22,950)
Effective tax (%) 22.7 16.6 17.0 17.0 17.0
Gross profit 2,486 2,122 2,386 2,752 3,061
Total debt/equity (%) 76.8 68.9 107.1 122.0 110.1
Gross margin 11.6% 10.9% 11.4% 11.8% 11.8%
Net debt/equity (%) 25.1 38.9 36.8 36.3 49.1
Other income 79 25 (14) 64 68
Current ratio (x) 1.0 1.1 1.4 1.6 1.4
Selling & distribution (396) (433) (348) (404) (464)
Quick ratio (x) 0.9 0.9 1.2 1.4 1.2
Admin (429) (410) (449) (519) (603)
Inventory T/O (days) 29 37 37 37 37
R&D 0 0 0 0 0
AR T/O (days) 95 94 94 94 94
Other opex (7) (30) (32) (36) (40)
AP T/O (days) 109 119 119 119 119
Total opex (832) (873) (829) (958) (1,107)
Cash conversion cycle (days) 15 12 12 12 12
Operating profit (EBIT) 1,733 1,274 1,543 1,858 2,022
Asset turnover (x) 1.2 1.1 1.0 0.9 0.9
Operating margin 8.1% 6.6% 7.3% 8.0% 7.8%
Financial leverage (x) 2.5 2.6 2.8 3.1 3.1
Provisions 0 0 0 0 0
EBIT margin (%) 8.1 6.6 7.3 8.0 7.8
Finance costs (94) (103) (139) (222) (243)
Interest burden (x) 0.9 0.9 0.8 0.8 0.8
Profit after financing costs 1,640 1,171 1,404 1,636 1,779
Tax burden (x) 0.7 0.8 0.7 0.8 0.8
Associated companies & JVs (18) (48) (192) (77) (77)
Return on equity (%) 16.0 11.9 12.1 14.7 14.4
Pre-tax profit 1,622 1,123 1,212 1,559 1,702
ROIC (%) 15.2 10.8 11.9 13.1 12.3
Tax (373) (195) (239) (278) (302)
Profit from discontinued operations 0 0 0 0 0
Year to Dec FY14A FY15A FY16E FY17E FY18E
Minority interests (131) (83) (76) (88) (96)
Balance Sheet HK$ mn
Net profit 1,118 845 898 1,192 1,303
Fixed assets 6,781 6,969 8,065 9,244 11,755
YoY% (31) (24) 6 33 9
Intangible assets & goodwill 0 0 0 0 0
Net margin 5.2% 4.4% 4.3% 5.1% 5.0%
Associated companies & JVs 735 1,224 1,032 955 878
EBITDA 2,494 2,212 2,495 2,913 3,321
Long-term investments 134 77 77 77 77
EBITDA margin 11.6% 11.4% 11.9% 12.5% 12.8%
Other non-current assets 298 235 235 235 235
EPS (HK$) 0.384 0.291 0.309 0.410 0.448
Non-current assets 7,948 8,505 9,410 10,511 12,945
YoY% (33) (24) 6 33 9
DPS (HK$) 0.150 0.100 0.093 0.123 0.134
Inventories 1,511 1,776 1,911 2,101 2,355
AR 5,578 5,004 5,411 5,984 6,700
Year to Dec FY14A FY15A FY16E FY17E FY18E
Prepayments & deposits 4 5 5 6 6
Cash Flow HK$ mn
Other current assets 63 890 890 890 890
EBITDA 2,494 2,212 2,495 2,913 3,321
Cash 3,627 2,055 5,343 7,273 5,718
Chg in working cap 820 336 (113) (157) (163)
Current assets 10,784 9,730 13,560 16,253 15,669
Others 17 72 0 0 0
Operating cash 3,331 2,620 2,382 2,756 3,158
AP 5,657 5,652 6,082 6,688 7,496
Tax (457) (231) (1) (239) (278)
Tax 31 1 239 278 302
Net cash from operations 2,874 2,389 2,381 2,517 2,880
Accruals & other payables 0 0 0 0 0
Bank loans & leases 4,569 2,883 3,290 3,290 3,290
Capex (2,179) (1,439) (2,101) (2,323) (3,902)
CB & othe debts 0 0 0 0 0
Investments (600) (617) 0 0 0
Other current liabilities 33 43 43 43 43
Dividends received 0 0 0 0 0
Current liabilities 10,291 8,579 9,653 10,299 11,131
Sales of assets 9 6 0 0 0
Interests received 40 30 52 89 91
Bank loans & bonds 869 2,000 4,963 7,163 7,163
Others (116) (853) 0 0 0
CB & leases 0 0 0 0 0
Investing cash (2,847) (2,873) (2,048) (2,234) (3,810)
Deferred tax & others 49 60 60 60 60
FCF 28 (483) 333 283 (930)
MI 446 510 586 674 770
Issue of shares 0 0 0 0 0
Non-current liabilities 1,364 2,570 5,609 7,897 7,993
Buy-back (55) 0 0 0 0
Minority interests 0 0 0 0 0
Total net assets 7,077 7,086 7,708 8,569 9,491
Dividends paid (611) (378) (276) (331) (381)
Net change in bank loans 1,585 (543) 3,370 2,200 0
Shareholder's equity 7,077 7,086 7,708 8,569 9,491
Interests paid (94) (103) (139) (222) (243)
Share capital 58 58 58 58 58
Others 0 0 0 0 0
Reserves 7,019 7,027 7,650 8,511 9,433
Financing cash 825 (1,023) 2,955 1,647 (624)
BVPS (HK$) 2.45 2.43 2.44 2.65 2.95
Net change in cash 852 (1,506) 3,288 1,930 (1,555)
Exchange rate or other Adj (31) (66) 0 0 0
Total debts 5,437 4,883 8,253 10,453 10,453
Opening cash 2,806 3,627 2,055 5,343 7,273
Net cash/(debts) (1,774) (2,755) (2,837) (3,107) (4,662)
Closing cash 3,627 2,055 5,343 7,273 5,718
CFPS (HK$) 0.987 0.822 0.819 0.866 0.991
Source: Company, OP Research
Mon, 29 Aug 2016
Truly Int’l (732 HK)
Page 41 of 64
Exhibit 55: 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 %
Truly Intl Hldgs 732 HK 3.45 1,293 8.8 11.9 11.2 8.4 6.2 32.8 13.5 0.83 2.9 2.7 1.42 1.30 5.8 5.2 38.9 10.9 4.4 11.9 12.1 -15.9 10.2
HSI
22909.54
12.4 12.7 11.5 -2.9 10.3 5.9 2.15 3.6 3.4 1.18 1.15
9.6 9.1 4.7 11.3
HSCEI
9550.04
7.7 8.2 7.5 -6.1 9.7 3.8 2.14 3.9 3.6 0.94 0.90
12.2 11.0 6.6 11.1
CSI300
3307.09
14.8 13.8 12.2 7.4 12.6 10.6 1.30 2.2 2.1 1.82 1.66
12.3 12.1 3.2 8.0
Adjusted sector avg*
24.0 28.8 24.7 49.9 28.2 10.0 1.11 1.2 0.9 1.03 1.21 6.9 7.9 10.1 10.7 2.2 2.9 5.3 2.8 5.0
Tcl Display Tech 334 HK 0.60 157 0.3 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 6.2 N/A 226.0 8.9 -0.2 N/A N/A -6.2 -21.1
Varitronix Intl 710 HK 3.41 323 0.6 3.7 N/A N/A N/A N/A N/A N/A 52.9 N/A 0.59 N/A 5.1 N/A 0.0 N/A 12.1 16.3 N/A -4.2 -30.2
Q Technology Gro 1478 HK 2.74 366 0.4 23.3 11.8 9.5 98.0 23.5 42.1 0.28 N/A 1.9 1.87 1.72 13.8 8.7 0.0 10.9 4.6 9.9 15.5 56.6 81.5
Byd Electronic 285 HK 6.48 1,882 6.5 13.9 10.7 9.7 30.3 10.4 15.5 0.69 N/A 0.9 1.19 1.08 4.8 3.8 0.0 6.5 3.1 9.0 10.4 9.5 51.0
Shenzhen O-Fil-A 002456 CH 38.00 5,873 119.8 82.6 44.5 31.0 85.7 43.4 53.9 0.83 0.2 0.3 6.17 5.74 33.6 26.7 59.9 12.6 2.6 9.4 13.5 21.3 33.3
Boe Technology-A 000725 CH 2.45 12,799 82.4 53.3 39.5 30.2 34.8 30.6 19.8 2.00 0.8 0.9 1.11 1.07 9.0 7.6 6.6 19.8 3.4 1.0 3.1 4.3 4.3
Tianma-A 000050 CH 18.60 3,908 98.1 38.0 37.7 28.4 0.6 32.9 21.7 1.74 0.3 0.5 1.93 1.87 17.7 17.6 0.0 16.3 5.3 5.2 5.2 -7.7 -9.5
Au Optronics Cor 2409 TT 12.85 3,898 31.6 25.2 N/A 17.8 N/A N/A 19.3 N/A 2.7 2.5 0.72 0.67 2.9 4.3 14.9 11.1 1.4 -6.1 -0.2 1.6 42.5
Innolux Corp 3481 TT 11.65 3,654 22.8 10.7 N/A 49.4 N/A N/A -22.7 N/A 1.7 2.0 0.54 0.52 1.8 4.6 3.2 12.8 3.0 -6.8 -3.8 -1.7 19.1
Japan Display 6740 JP 140.00 831 12.5 N/A N/A 21.3 N/A N/A -69.3 N/A N/A 0.9 0.24 0.24 1.2 1.1 6.1 7.8 -3.2 -11.5 -1.5 -25.5 -28.9
Sharp Corp 6753 JP 131.00 6,445 23.3 N/A N/A 168.4 N/A N/A -121.7 N/A N/A 0.0 N/A 2.51 -16.4 15.6 N/A 9.5 -10.4 N/A -18.4 36.5 -10.9
Samsung Electron 005930 KS 1612000.00 204,123 350.3 12.8 10.4 9.6 22.6 8.9 12.9 0.80 1.3 1.6 1.14 1.31 3.4 3.1 0.0 38.5 9.3 10.2 12.8 5.6 25.7
Lg Display Co Lt 034220 KS 30500.00 9,755 30.9 11.3 23.0 12.5 -51.0 84.6 0.3 88.44 1.6 1.6 0.92 0.87 2.8 3.4 13.3 15.2 3.4 0.9 3.9 0.2 18.2
* Outliners and "N/A" entries are in red and excl. from the calculation of averages
Source: Bloomberg, OP Research
Mon, 29 Aug 2016
TCL Display (334 HK)
Page 42 of 64
TCL Display (334 HK) – Rising star of TCL Improved product mix with increasing proportion of laminated
modules.
Riding on integrated platform of TCL Group, especially CSOT for LTPS modules.
Initiate BUY with TP HK$0.72 based on 12x FY17E PE.
Pick up growth momentum with upgraded product mix. TCLD is one of the
leading domestic smartphone LCD module manufacturers in China, it ranking 3rd
place with 5.9% market share in 1H16. Through vertical integration, we expect
TCLD to achieve significant growth with 26%/31% revenue/earnings CAGR from
FY15 to FY18E, thanks to 1) new customers gained 2) upgraded product mix with
an increasing proportion of laminated modules, 3) ramp up of LTPS modules
backed by sister company, CSOT’s G6 LTPS panel line from FY17E onwards.
LTPS is a key growth driver from FY17E onwards. LTPS smartphone
penetration in China is expected to reach 45% in FY18E from 28% in FY15.
TCLD plans to increase LTPS product sales to meet the future demand of HD
display modules for high-end smartphone manufacturers. As LTPS module ASP
is 2 times of TFT module ASP, we believe it will stimulate sales growth of 26%
CAGR from FY15 to FY18E. We expect LTPS will account for 27%/47% of total
revenue in FY16/17E from ~7% in FY15 thanks to CSOT’s panel supply. .
Riding on the integrated platform of TCL Group. TCLD’s sister company,
CSOT will commence mass production of its G6 LTPS production line from early
2017E with production capacity of 88mn units. Thus, from 2017E onwards,
TCLD’s LTPS panel supply can be secured by CSOT, which will help TCLD to
increase its bargaining power and obtain orders from top China smartphone
vendors. Moreover, the JV TCLD will set up with CSOT in Wuhan is expected to
start LTPS module mass production in Oct17E. We expect the mass production of
CSOT’s G6 plant and JV will help GPM expansion as it improves proportion of
LTPS module shipments which enjoys 1%-2% higher GPM and saves tariffs and
logistics expenses.
Initiate BUY with TP HK$0.72 based on 12x FY17E PE: With upgraded product
mix of more laminated modules and LTPS modules supported by CSOT, we
expect TCLD to record a 3-year EPS CAGR of 23% from FY15 to FY18E.
Risks: (1) Slowdown in LCD module demand in China, (2) ASP erosion in LCD
module market is faster than expected
Initial Coverage
BUY
Close price: HK$0.60
Target Price: HK$0.72 (+20.0%)
Key Data
HKEx code 334 HK
12 Months High (HK$) 1.55
12 Month Low (HK$) 0.59
3M Avg Dail Vol. (mn) 3.09
Issue Share (mn) 2,031.37
Market Cap (HK$mn) 1,239.13
Fiscal Year 12/2016
Major shareholder (s) TCL Group (36.8%)
Source: Company data, Bloomberg, OP Research Closing price are as of 26/08/2016
Price Chart
1mth 3mth 6mth
Absolute % -3.2 -19.7 -12.9
Rel. MSCI CHINA % -8.5 -30.6 -32.3
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 of
LCD modules for handheld mobile devices
on an ODM basis. TCL Display Technology
has operations throughout Asia and sells its
products globally.
Exhibit 56: Forecast and Valuation Year to Dec (RMB mn) FY14A FY15A FY16E FY17E FY18E
Revenue 2,614.0 2,242.8 2,924.9 3,720.2 4,484.1
Growth (%) 35.0 (14.2) 30.4 27.2 20.5
Adj. net Profit 124.4 72.6 43.4 102.8 164.6
Growth (%) 90.8 (41.6) (40.3) 137.0 60.1
Diluted EPS (HK$) 0.000 0.053 0.026 0.061 0.097
EPS growth (%) n.a. n.a. (51.3) 137.0 60.1
Change to previous EPS (%) 0.0 0.0
Consensus EPS (HK$) n.a. n.a.
ROE (%) 78.5 78.8 22.7 31.4 35.7
P/E (x) 0.0 11.6 23.8 10.0 6.3
P/B (x) 0.0 8.0 3.6 2.6 1.8
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
Aug/15 Nov/15 Feb/16 May/16
HK$334 HK MSCI CHINA
Mon, 29 Aug 2016
TCL Display (334 HK)
Page 43 of 64
(size <3.5") feature phone,
9%
(size 3.5"-6") smart phone,
83%
(size >6") other mobile devices,
8%
Pick up growth momentum with improved product mix
Ranking 3rd in China small-to-medium size display module market
TCLD is one of the major providers of small-to-medium size display modules in
the PRC, engaged primarily in the research and development, manufacture,
sales and distribution of LCD modules for use mainly in mobile phones. TCLD
provides display modules (size <3.5”) for feature, (size 3.5” – 6”) for smartphone
and (size >6”) for other mobile devices. In FY15, smartphone display modules
accounted for the 83% of total revenue.
Exhibit 57: TCLD FY15 revenue breakdown
Source: Company, OP Research
According to ASKCI Consulting, TCLD ranked 3rd
in smartphone LCD display
modules in 1H16 in terms of sales revenue. Among the top 10 smartphone LCD
display module manufacturers, only 4 companies have panel production line
support, TCLD is one of them, backed by sister company, China Star
Optoelectronic Technology (CSOT). Stable supply of panel is important for
module manufactures, as some large smartphone companies in China will only
place orders with module manufacturers which have their own panel production
line. Thus, we believe TCLD is well positioned to ride on CSOT to expand its
client base.
Exhibit 58: Top 10 smartphone LCD display module manufacturers in the PRC by sales revenue
(RMB million)
1H16
2015
Company Ranking Revenue Market share Ranking Revenue Market share Panel production line
Truly International (732 HK) 1 4,421 19.79% 1 8,958 22.45% √
BOE Technology (000725 CH) 2 2,189 9.80% 2 4,405 11.04% √
TCL Display Technology (334 HK) 3 1,319 5.90% 4 1,890 4.74% √
(Backed by CSOT)
Shenzhen DJN Optronics 4 1,015 4.54% 4 1,730 4.27%
BYD Electronic (285 HK) 5 907 4.06% 5 1,835 4.60%
Success Electronics (002289 CH) 6 742 3.32% 6 2,377 5.96%
Tianma Microelectronics(000050 CH) 7 655 2.93% 7 1,285 3.22% √
SZ COE (5371 TT) 8 563 2.52% 9 982 2.46%
Shenzhen TXD Technology 9 500 2.24% 8 1,169 2.93%
Lead Mobile Display 10 322 1.44% 10 852 2.13%
Source: ASKCI Consulting, OP Research
TCLD is the leading small and
medium size display module
providers in PRC
TCLD ranked 3rd in smartphone
LCD display module in 1H16 and
is one of the four module
manufacturers with panel
production line, backed by sister
company, CSOT
Mon, 29 Aug 2016
TCL Display (334 HK)
Page 44 of 64
1,754 2,003
1,336 822 629 509
183
611
907 2,103 3,092
3,975
9%
23%
40%
72%
83%
89%
0%
20%
40%
60%
80%
100%
0
1,000
2,000
3,000
4,000
5,000
FY13 FY14 FY15 FY16E FY17E FY18E
Laminated Modules Non-laminated Modules
Laminated modules revenue proportion
(RMBmn)
98%93%
81%
55%
43%35%
2%7%
19%
45%
57%65%
35
45
38 41
48
52
0
10
20
30
40
50
60
0%
20%
40%
60%
80%
100%
FY13 FY14 FY15 FY16E FY17E FY18E
Non-laminated modules Laminated modules Blended ASP (RMB)
(RMB)
Product mix improved with increasing laminated modules
penetration
TCLD’s display modules include laminated and non-laminated modules. In 1H16,
laminated modules shipment penetration hit 39% from 19% in FY15, and we
expect it will keep increasing to hit 45%/57%/65% in FY16/FY17/FY18E. As ASP
of laminated modules is 3 times of that non-laminated modules, we believe the
improved product mix will bring 3-years ASP CAGR of 11.2% to RMB52 in FY18E,
and thus revenue CAGR of 26% to RMB4,484mn in FY18E.
Exhibit 59: Laminated modules shipment penetration and blended ASP
Source: Company, OP Research
Exhibit 60: Sales by segment from FY13 to FY18E
Source: Company, OP Research
We estimate TCLD will record
26% revenue CAGR from FY15 to
FY18E, thanks to increasing
proportion of laminated module
Mon, 29 Aug 2016
TCL Display (334 HK)
Page 45 of 64
Turnaround player after getting listed in 2015
TCLD listed on HKEx mainboard by reverse takeover in 1H15:
Exhibit 61: Milestones of TCLD Technology
Aug 2010 Proview International suspended trading in HKEx
Feb 2014 Proview International announced acquisition of TCLD with aggregate consideration of
HK$ 550mn:
1) HK$205.5mn by issuance of 587,142,857 shares at HK$0.35 per share;
2) HK$199.5mn by issuance of CB, convertible into 570,000,000 shares at HK$0.35 per
share;
3) HK$ 10mn by issuance of the bond B to a wholly-owned subsidiary of TCL Corp.;
4) HK$135mn by issuance of 385,714,286 shares at HK$0.35 per share.
Mar 2015 Share consolidation of every ten shares at HK$0.01 each into one share at HK$0.10.
Apr 2015 Proview International allotted 972,857,143 shares at HK$0.35 per share, TCL Corp. &
associates hold 49.9% of total shares.
Dec 2015 Mr. Lau disposed 64,000,000 shares (5.56% of total shares) and remained the 2nd
largest shareholder.
Dec 2015 TCL Corp. converted 569,999,996 conversion shares at HK$0.35 per share, and
increased its equity share from 49.9% to 66.5%.
Jun 2016 TCLD issued new shares by placing 258.2mn shares at HK$0.62 per share,
representing 13.04% of enlarged share capital
Jun 2016 TCLD entered into a MOU with CSOT to form a JV, for LTPS display module
production. TCLD will hold not less than 50% stake and total investment of RMB900mn
Source: Company, OP Research
In FY15, TCLD recorded RMB70mn net loss, if exclude the one-off RMB142mn
listing expenses, the adjusted net profit should be RMB72mn, representing 42%
yoy decrease. The drop in FY15 net profit resulted from the 14.2% yoy decrease
of ASP and 2.9 ppt decrease in GPM to 6.2% while the sales volume remained
flat. We expect TCLD to achieve 26%/31% sales/net profit 3 years CAGR from
FY15 to FY18E, driven by: 1) orders from potential new clients as TCLD aims to
acquire two new clients in FY16E; 2) increasing order size from existing clients,
like Gionne, who jumped to 8th in PRC China mobile phone brands ranking in
1Q16; 3) upgraded product mix of higher laminated modules shipment
penetration to 45%/57%/65% in FY16/17/18E from 19% in FY15, and higher
LTPS modules shipment penetration to 9%/23%39% in FY16/17/18E from 0.5%
in FY15.
TCLD listed in HKEx by reverse
takeover of Proview International
Holdings Limited in Apr 2015
We expect TCLD to record
26%/31% sales/net profit CAGR
from FY15 to FY18E
Mon, 29 Aug 2016
TCL Display (334 HK)
Page 46 of 64
72%66%
58%
44%37%
31% 28% 24%
18%22%
28%
39%42%
45%42%
40%
8% 8% 9% 12% 15% 19%24%
30%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2013 2014 2015 2016E 2017E 2018E 2019E 2020E
a-Si LTPS Oxide AMOLED
81108 148 228 261
294
33
3947
7095
122
0
100
200
300
400
500
600
700
2013 2014 2015 2016E 2017E 2018E
a-Si LTPS Oxide AMOLED
(mn units)
LTPS will be a key growth driver from FY17E onwards
Increasing LTPS penetration in China
We expect smartphone LTPS display shipments in China to record a
3-year-CAGR of 25.8% from 47mn in 2015 to 122mn in 2018E, thanks to
increasing penetration and extension of China smartphone vendors’ market
share.
Exhibit 62: Smartphone display shipments in China from 2013 to 2018E
Source: IHS, CINNO Research, OP Research
LTPS penetration is China smartphone is expected to increase from 28% in 2015
to 45% in 2018E, given its appealing high resolution, vivid colors, and quick
response.
Exhibit 63: LTPS penetration in China
Source: IHS, CINNO Research, OP Research
Smartphone LTPS display
shipment in China is expected to
record 3-year CAGR of 25.8% to
2018E
LTPS penetration in China
smartphone is expected to
increase to 45% in 2018E from
28% in 2015
Mon, 29 Aug 2016
TCL Display (334 HK)
Page 47 of 64
46%
28%
30%43%
18% 14%
4%
25%
1%
38%24%
4%16%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Huawei OPPO Vivo Xiaomi Lenovo ZTE Coolpad Meizu
a-Si LTPS Oxide AMOLED2015
62%
48%
40%60%
24%
24%15%
56%
13%
45%32%
10% 10%23%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Huawei OPPO Vivo Xiaomi Lenovo ZTE Coolpad Meizu
a-Si LTPS Oxide AMOLED2016E
TCLD’s customers, including Huawei/Lenovo/Meizu, are expected to increase
their smartphone LTSP display penetration to 62%/24%/56% in 2016E from
46%/18%/25% in 2015.
Exhibit 64: Display technology penetration by top China smartphone vendors, 2015 vs. 2016E
Source: CINNO Research, OP Research
China-based smartphone vendors are grabbing global market share rapidly. It is
expected that Huawei, Oppo, Vivo and Xiaomi will rank 3rd/4th/5th/6th in global
smartphone shipments in 2016E. Therefore, high penetration of LTPS of China
smartphone models will drive LTPS panel and module shipments.
Exhibit 65: Global ranking of top 10 smartphone vendors
2Q16
Ranking
2015
Ranking
Company
2Q16 market share
2015 market share
1 1 Samsung 22.4% 22.7%
2 2 Apple 11.8% 16.2%
3 3 Huawei 9.4% 7.4%
4 8 Oppo 6.6% 3.3%
5 9 Vivo 4.8% 3.0%
- - Other 45.0% 18.8%
- - Total Shipment
(mn units) 343.3 1,432.9
Source: IDC, OP Research
Margin expansion by increasing LTPS proportion
In FY15, LTPS sales contributed ~7% of total revenue, TCLD will continue this
trend and aims to further improve LTPS sales proportion to 24%/47% in
FY16/17E.
As TCLD’s LTPS module ASP is 2 times of its TFT module ASP, and enjoys
1%-2% higher GPM, we believe raising proportion of LTPS will help on margin
expansion and relieve ASP pressure.
We believe LTPS shipment in FY16/17/18E will hit 6mn/18mn/33mn units, with
RMB110/RMB99/RMB89 ASP in FY16/17/18E, LTPS sales will hit
RMB701mn/1,767mn/2,981mn in FY16/17/18E, representing 24%/47%/66% of
total sales.
China smartphone vendors are
rapidly grabbing global market
share rapidly
We believe TCLD will keep
increasing LTPS module
proportion, thus driving sales
growth and margin expansion
Mon, 29 Aug 2016
TCL Display (334 HK)
Page 48 of 64
0
6
18
33
58
64
60
52
0.5%
9.0%
23.0%
39.1%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
0
10
20
30
40
50
60
70
FY15 FY16E FY17E FY18E
LTPS shipment Non-LTPS shipment LTPS shipment penetration
(mn unit)
231
110 99
89
38 35 33 29
0
50
100
150
200
250
FY15 FY16E FY17E FY18E
LTPS ASP Non-LTPS ASP
(RMB)
157 701
1,767
2,981
2,086
2,224
1,954
1,503
7%
24%
47%
66%
0%
10%
20%
30%
40%
50%
60%
70%
-
1,000
2,000
3,000
4,000
5,000
FY15 FY16E FY17E FY18E
LTPS Non-LTPS LTPS revenue proportion
Exhibit 66: Shipment by LTPS/Non-LTPS module
Source: Company, OP Research
Exhibit 67: ASP of LTPS/Non-LTPS module
Source: Company, OP Research
Exhibit 68: Revenue by LTPS/Non-LTPS module
Source: Company, OP Research
Mon, 29 Aug 2016
TCL Display (334 HK)
Page 49 of 64
Riding on the integrated platform of TCL Group
Securing LTPS panel supply from sister company, CSOT, to increase
bargaining power for first-tier smartphone vendors orders
China Star Optoelectronic Technology (CSOT) is a hi-tech enterprise founded in
2009 in Shenzhen and 76% owned by TCL Group. CSOT is one of the major
large size display panel manufacturers ranking 5th and 6
th in 2014 and 2015.
Exhibit 69: Global ranking of top 6 TV display panel manufacturers
Rankings
2014 2015
Company Market Share Company Market Share
1 Samsung Display 22.4% LG Display 20.5%
2 LG Display 21.0% Innolux 19.2%
3 Innolux 20.3% Samsung Display 18.9%
4 AUO 11.6% BOE 13.2%
5 CSOT(SZ) 10.0% AUO 10.1%
6 BOE 5.8% CSOT(SZ) 9.5%
Others 9.0% Others 8.7%
Source: WitsView, OP Research
CSOT had two 8.5G LCD and AMOLED production lines in 2014 and is the major
TV panel supplier of TCL Multimedia (1070 HK). In order to diversify the product
portfolio, CSOT ventured into small and medium size panel market by building the
6G LTPS line in Wuhan in September 2014 with an investment capital of RMB
16.0bn.
On February 10th 2016, CSOT started trial operations of the first-ever 6G LTPS
line in Wuhan, and mass production is expected to begin in 1Q17E, being one of
the eight companies which can produce LTPS/AMOLED panel in China. The
maximum estimated production capacity will be 88mn units per year with
production value over RMB10bn.
Exhibit 70: 2016 Small and medium size LTPS & AMOLED lines operated in China
Company Gen pcs per month Location Status Technology
CSOT 6 15k (30k max) Wuhan 1Q17 MP LTPS/AMOLED
BOE
5.5 30k LTPS
Ordos 2014 MP LTPS
30k AMOLED 2Q16 MP AMOLED
6 45k LTPS
Chengdu 2Q17MP LTPS
48k AMOLED 2Q18MP AMOLED
Tianma
5.5 30k Xiamen MP LTPS
5.5
15k LTPS
Shanghai
1Q16 MP LTPS
30k AMOLED 2Q16 MP AMOLED
6 30k Xiamen 3Q16 MP LTPS
6 30k Wuhan 2Q17 MP LTPS/AMOLED
Truly 4.5
60k LTPS
Huizhou
Aug16 MP LTPS
30k AMOLED 2H17 MP AMOLED
6 TBC Huizhou TBC AMOLED
AUO 6 20k (30k max) Kunshan 4Q16 MP AMOLED
EverDisplay 4.5 15k Shanghai 3Q17 MP LTPS/AMOLED
6 TBC Shanghai 2Q18 MP AMOLED
GoVisionox 5.5 15k Kunshan 3Q16 MP AMOLED
CSOT is one of the leading large
size display panel manufacturer
owned by TCL Group, ranking
5th
/6th
in 2014/2015.
CSOT entered small and medium
size panel market by building the
6G LTPS line from September
2014.
CSOT started trial operations of
the first-ever 6G LTPS line in
Feb16 and MP is expected to
begin in 1Q17E.
Mon, 29 Aug 2016
TCL Display (334 HK)
Page 50 of 64
Source: Company data, OP Research
On 13 Jun 2016, TCLD announced that it had entered into a MOU with its parent
group 30.2% owned panel maker subsidiary, Wuhan CSOT, to form a JV that
TCLD would not less than 50% stake in the JV for expanding its LTPS display
module production capacity. Total investment for the JV is RMB900mn. The JV
will own 10 LTPS display module production lines with annual production capacity
of 50mn units (~57% of Wuhan CSOT’s LTPS panel total capacity). TCLD
expects completion of installation of the 10 production lines for the JV by Dec16E,
trial production in Jun17E and mass production in Oct17E. We haven’t taken into
account of JV in our forecast as currently only MOU is signed.
We believe the MP of G6 LTPS panel and JV will help TCLD secure LTPS panel
supply from CSOT, and increase its bargaining power to get orders from first-tier
China smartphone vendors. Moreover, the G6 plant will help TCLD to improve
ASP and GPM with an increasing proportion of LTPS module, besides, the JV is
set up near CSOT (Wuhan)’s panel plant, it can save logistic expenses, and tariffs
(currently LTPS panels are supplied by Sharp), thus further help margin
expansion.
Securing orders from sister group, TCL Communication (2618 HK)
and other China smartphone vendors
TCLC and Gionne are the largest customers of TCLD, accounting for over
27.8%/~25% of the total revenue in 1H16. As TCLC is undergoing its privatization
and restructuring its China business, we expect TCLD to benefit from the market
repositioning of TCLC in China market from FY17E onwards.
In 2Q16, 3 out of top 5 smartphone vendors are Chinese suppliers. Huawei, Oppo,
and Xiaomi stand in top 5 by surpassing LG, Coolpad and Sony. We expect
Chinese smartphone vendors to gain global market share from FY16E onwards
due to their increasing reputation and attractive price to performance ratio.
To diversify the risk of excessive reliance on TCLC and Gionne, TCLD has been
actively looking for more independent first-tier third party and gained 3 new
customers (Chino-e, Konka and Tecno) in FY15. TCLD will strive to acquire two
more core clients in FY16E.
TCLD will set up a JV with CSOT
in Wuhan, for LTPS module
production with 50mn units
capacity, expected MP time is
Oct17E.
We believe CSOT will help TCLD
secure LTPS panel, increasing
bargaining power to get order
from first-tier China smartphone
vendors, improve ASP and GPM.
Secure orders from TCLC and
other China smartphone vendors
China smartphone vendors are
expected to gain more market
share in 2016E.
TCLD has acquired 3 new clients
in FY15, and targets to acquire
two more core clients in FY16E.
Mon, 29 Aug 2016
TCL Display (334 HK)
Page 51 of 64
Exhibit 71: Global ranking of top 10 smartphone vendors
Rankings
2014 2015 2Q16
Company Market Share Company Market Share Company Market Share
1 Samsung 24.4% Samsung 22.7% Samsung 22.4%
2 Apple 14.8% Apple 16.2% Apple 15.3%
3 Lenovo+Motorola 7.2% Huawei 7.4% Huawei 8.2%
4 Huawei 5.7% Lenovo 5.2% OPPO 5.5%
5 LG 4.6% Xiaomi 4.9% Vivo 4.8%
6 Xiaomi 4.4% LG 4.2% Xiaomi 4.3%
7 Coolpad 4.2% TCL 3.5% Lenovo 4.1%
8 Sony 3.9% OPPO 3.3% LG 3.9%
9 TCL 3.3% Vivo 3.0% ZTE 3.1%
10 ZTE 3.1% ZTE 3.0% TCL 2.9%
Others 24.4% Others 18.8% Others 20.3%
Shipment Total
(Unit: mn) 1,301.7 1,432.9 343.3
Source: IDC, OP Research
Exhibit 72: TCLD’s suppliers, customers and strategic partners
Source: Company, OP Research
Mon, 29 Aug 2016
TCL Display (334 HK)
Page 52 of 64
Exhibit 73: Riding on the integrated platform of TCL Group
Source: Company, OP Research
Mon, 29 Aug 2016
TCL Display (334 HK)
Page 53 of 64
Initiate BUY with TP HK$0.72 based on 12x FY17E PE
Steady shipment growth with upgraded product mix. Shipment of 1H16
increased by 22.7% to 33.2mn units, mainly due to increased order from existing
clients, i.e. Gionee, and Tecno. Besides, laminated modules shipment penetration
increased from 19% in FY15 to 39% in 1H16, and LTPS shipment penetration
increased from 0.5% in FY15 to 5%-7% in 1H16. We expect FY16/17/18E
shipment to increase by 21%/10%/10% yoy as TCLD targets to acquire two more
core clients in FY16E and is grabbing market share by ranking 3rd
among
smartphone LCD module manufacturers in PRC in 1H16 from 4th in 2015. ASP is
expected to increase by 8%/16%/9% in FY16/17/18E, as laminated modules
shipment penetration will improve to 45%/57%/65% in FY16/17/18E from 19% in
FY15 and LTPS shipment penetration will improve to 9%/23%/39% in
FY16/17/18E from 0.5% in FY15. Thus, we expect sales will record 26% CAGR
from FY15 to FY18E.
Solid support from sister company, CSOT, whose G6 LTPS production line
starts MP from FY17E onwards. CSOT’S G6 LTPS production line is expected
to commence mass production from FY17E onwards, and from then CSOT can
provide LTPS panel supply to TCLD which helps TCLD to obtain large orders
from top China smartphone vendors. We expect TCLD’s GPM can be improved to
7.3% in FY18E from 6.2% in FY15 given an increasing proportion of higher
margin LPTS modules.
1H16 result review. Revenue was up 51.2% yoy to RMB1.45bn, thanks to 22.7%
shipment growth from existing clients, and 23.1% ASP growth from upgraded
product mix. GPM was down 3.5ppts yoy to 3.1%, due to the panel price surge.
Adj. net profit was down 90% yoy to RMB4mn driven by slump in GPM.
Management showed the confidence by improving GPM from 2H16E onwards as
they are now transferring the material costs increase to clients gradually. We
expect the FY16/17/18E GPM to be improved to 4.9%/6.5%/7.3%, respectively.
Initiate BUY with TP of HK$0.72: With better product mix of more laminated
modules and LTPS modules and stable panel supply by CSOT from FY17E
onwards, we expect TCLD to have a 3-year EPS CAGR of 31% from FY15 to
FY18E. We initiate our BUY rating on TCLD with a target price of HK$0.72 based
on 12x FY17E PE, representing 20% upside.
We expect shipment FY16/17/18E
to grow at 22%/10%/10% yoy and
ASP to grow at 8%/16%/9% in
FY16/17/18E, leading to 26%
CAGR of sales from FY15 to
FY18E.
CSOT’s G6 LTPS MP from FY17E
onwards helps TCLD to obtain
large orders from top China
smartphone vendors and margin
expansion.
1H16 sales was up 51.2% yoy
thanks to 22.7% shipment growth
and 23.1% ASP growth from
upgrade of product mix. Net profit
was down 90% yoy driven by
3.5ppts drop of GPM to 3.1%, due
to panel price surge.
We initiate BUY on TCLD with TP
of HK$0.72 based on 12x FY17E
PE.
Mon, 29 Aug 2016
TCL Display (334 HK)
Page 54 of 64
Exhibit 74: Results summary
RMBmn 1H13 2H13 1H14 2H14 1H15 2H15 1H16 1H16 YOY 2H16E
Revenue 608 1,329 1,169 1,445 959 1,284 1,450 51% 1,475
COGS (580) (1,183) (1,080) (1,295) (895) (1,208) (1,405) 57% (1,378)
Gross profit 28 146 88 150 64 76 45 -29% 97
Other income & gains 2 2 5 28 12 19 19 55% 5
Selling exp (9) (31) (22) (21) (12) (20) (18) 49% (22)
Admin exp (16) (28) (22) (32) (27) (24) (35) 31% (32)
Other opex 2 (3) (0) (0) (0) (142) (2) 517% 0
Operating profit (EBIT) 8 87 50 124 36 (92) 9 -76% 49
Provisions or other items 0 0 0 0 0 0 0 n.a. 0
Finance costs (1) (8) (6) (2) (3) (5) (8) 165% (6)
Profit after financing costs 7 79 44 122 33 (97) 1 -98% 43
Associated cos 0 0 0 0 0 0 0 n.a. 0
Jointly controlled cos 0 0 0 0 0 0 0 n.a. 0
Pre-tax profit 7 79 44 122 33 (97) 1 -98% 43
Tax (3) (17) (16) (26) 7 (13) 3 -55% (3)
Minority interests 0 0 0 0 0 0 0 n.a. 0
Adj. net profit 4 61 28 96 41 32 4 -90% 39
HoH%
Revenue 119% -12% 24% -34% 34% 13% 2%
Gross profit
416% -40% 70% -58% 19% -41%
117%
Net profit 1427% -53% 237% -57% -22% -87% 881%
YoY%
Revenue 92% 9% -18% -11% 51% 15%
Gross profit
212% 3% -28% -49% -29%
28%
Adj. net profit 611% 57% 43% -67% -90% 24%
Key ratios
GPM 4.7% 11.0% 7.6% 10.4% 6.6% 5.9% 3.1% 6.6%
Selling exp 1.5% 2.3% 1.8% 1.5% 1.3% 1.6% 1.3%
1.5%
Admin exp 2.6% 2.1% 1.8% 2.2% 2.8% 1.9% 2.4% 2.1%
EIT 39.4% 22.2% 35.6% 21.5% -22.3% -13.9% -505.7% 7.8%
Adj. net margin 0.7% 4.6% 2.4% 6.6% 4.3% 2.5% 0.3% 2.7%
Source: Company, OP Research
Mon, 29 Aug 2016
TCL Display (334 HK)
Page 55 of 64
Investment risks
Unstable global economy decelerates the demand for smartphone and
other mobile devices: Downward pressure of global economy slows down the
shipment growth of smartphones from 27.7% yoy in 2014 to 10% yoy in 2015,
which bought negative effect on sales volume of upstream components such as
LCD panel. However, we expect TCLD can still improve the sales volume by
riding on the faster growth of China smartphone vendors and transition from LCD
to LTPS/AMOLED.
Intensifying competition in the LCD panel module market: LCD panel module
market is highly competitive with thin margins due to fewer technical differences
and monopoly of suppliers. Price war may be triggered and TCLD may lose its
market share in China to competitors such as BOE Technology. However, from
2017 onwards, TCLD will become one of the four modules manufacturers which
have panel supply support, which will help TCLD to obtain orders of top China
smartphone vendors and increase its bargaining power.
Market expects downward movement on LCD panel ASP and margin:
Smartphone display module market is facing the price erosion and margin due to
oversupply. However, we expect TCLD to be able to maintain its GPM by
increasing proportion of laminated modules and LTPS modules in the product mix
and develop ultra-thin touch modules to increase ASP.
Relying on the trading business with a few customers: The largest customers
of TCLD is TCLC, As a result, the business of TCLD is easily affected by the
operation of the largest customers, especially the TCL Corporation. However,
TCLD is actively looking for potential clients, and has already added 3 new
customers in FY15.
Mon, 29 Aug 2016
TCL Display (334 HK)
Page 56 of 64
Management profiles
Exhibit 75: Management profiles
Name Age Position Description
Mr. Yuan Bing 45 Chairman Mr. Yuan joined TCL Group from 1999. Mr. Yuan is the chairman of the board of directors of
T.C.L. Industries Holdings (H.K.) Limited and the vice president of TCL Corporation and is
responsible for the overall operation and management.
He was an executive director and the chief financial officer of TCL Multimedia Technology
Holdings Limited, a company whose shares are listed on the Main Board of the Stock
Exchange (stock code: 1070), from October 2006 to January 2009. He was the
vice-president of TCL Corporation from July 2007 to January 2011. He was the senior
vice-president of TCL Corporation from February 2011 to July 2011.
Mr. Yuan has over 23 years of experience in the consumer electronics products industry.
Mr. Li Jian 45 CEO Mr. Li Jian joined TCL in 1996. Mr. Li Jian is the chief executive director and is responsible
for the full operational management.
Before Mr. Li became the CEO, he served as deputy general manager of TCL Display from
April 2008 to September 2010, responsible for marketing issues.
Mr. Li has extensive experience in sales, company and regional management.
Mr. Li obtained Bachelor of Human Resource Management Science (Online Education)
from Nankai University in July 2009. Mr. Li graduated from Triangle Institute of international
business management and innovative leadership training held by Tsinghua University in
March 2011 and achieved the Ursuline College MBA in January 2013.
Ms. Yang Yunfang 41 CFO Ms. Yang Yunfang joined TCL group in 2006. Ms. Yang is the executive director and is
responsible for the overall operation and management.
Since July 2010, she served as financial director, responsible for financial management
and supervision.
Ms. Yang has extensive experience in accounting and Finance. Prior to joining TCL display
in 2002 March to July 2005, Ms. Yang served as accounting director in Minghui Industrial
(Shenzhen) Co., Ltd. Ms. Yang worked in SONY precision parts (Huizhou) Co., Ltd from
August 2005 to July 2006 at the operation management and finance department.
Ms. Yang graduated from Jiangxi University of Finance and Economics in July 1999, and
received a bachelor degree of accounting.
Mr. Zhao Yong 46 Executive director Mr. Zhao joined TCL Group in 2004. Mr. Zhao was appointed as an executive director after
Mr. Li Yuguo’s resignation, responsible for the overall operational management of TCL
Display.. Mr. Zhao is also the chief operation officer and director of CSOT since Sep 2011,
responsible for supply chain management and monitoring of engineering related matters.
Mr. Zhao obtained an EMBA decree at China Europe International Business School in Sep
2011.
Mr. Ouyang Hongping 39 Executive director Mr. Ouyang joined the TCL group in 2004. Mr. Ouyang is the executive director and is
responsible for the overall operation and management
From August 2004 to December 2008, Mr. Ouyang served as the chief engineer in TCL
Display. Since January 2009, Mr. Ouyang became the deputy general manager of TCL
Display, responsible for the supervision of engineering related issues, including the
development, procurement, production planning and management.
Mr. Ouyang has more than 10 years of experience in LCD industry, and was awarded as
"TCL Group Star Manager of the year” in 2004, 2005, 2009 and 2011.
Mr. Ouyang graduated from Nanchang University in July 1999 and received a bachelor
degree in industrial automation.
Source: Company, OP Research
Mon, 29 Aug 2016
TCL Display (334 HK)
Page 57 of 64
36.77% 16.60% 38.90%7.73%
TCL AssociateTCLGroup Lau Ko Yuen, Tom Public
Shareholding structure
Exhibit 76: Shareholding structure
Source: Company, OP Research
Mon, 29 Aug 2016
TCL Display (334 HK)
Page 58 of 64
Financial Summary –TCL Display (334 HK) 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 1,336 822 629 509
Gross margin (%) 9.1 6.2 4.9 6.5 7.3
Laminated Modules 611 907 2,103 3,092 3,975
Operating margin (%) 6.6 (2.6) 1.8 3.4 4.4
Net margin (%) 4.8 3.2 1.5 2.8 3.7
Turnover 2,614 2,243 2,925 3,720 4,484
Selling & dist'n exp/Sales (%) 1.6 1.5 1.4 1.2 1.1
YoY% 35 (14) 30 27 21
Admin exp/Sales (%) 2.1 2.3 2.3 2.0 1.9
COGS (2,376) (2,103) (2,782) (3,480) (4,156)
Payout ratio (%) 0.0 0.0 0.0 0.0 0.0
Gross profit 238 140 142 240 328
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 86.4 63.0 43.9
Other income 31 30 18 4 4
Net debt/equity (%) 40.2 Net cash Net cash Net cash Net cash
Selling & distribution (43) (33) (40) (43) (49)
Current ratio (x) 1.0 1.0 1.1 1.1 1.1
Admin (54) (52) (67) (74) (84)
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) (1) (2) (2)
AP T/O (days) 84 141 141 141 141
Total opex (97) (227) (109) (119) (135)
Cash conversion cycle (days) (14) (16) (16) (16) (16)
Operating profit (EBIT) 172 (57) 52 125 197
Asset turnover (x) 2.3 1.8 1.9 1.8 1.8
Operating margin 6.6% -2.6% 1.8% 3.4% 4.4%
Financial leverage (x) 7.3 13.6 8.3 6.3 5.5
Provisions 0 0 0 0 0
EBIT margin (%) 6.6 (2.6) 1.8 3.4 4.4
Interest Income 2 2 5 4 5
Interest burden (x) 1.0 1.1 0.8 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) 43 121 194
Return on equity (%) 78.5 78.8 22.7 31.4 35.7
Associated companies & JVs 0 0 0 0 0
ROIC (%) 66.9 (43.8) 227.3 443.0 988.9
Pre-tax profit 167 (64) 43 121 194
Tax (42) (6) 0 (18) (29)
Year to Dec FY14 FY15 FY16E FY17E FY18E
Minority interests 0 0 0 0 0
Balance Sheet (RMB mn)
Adj. net profit 124 73 43 103 165
Fixed assets 169 164 198 231 276
YoY% 91 (42) (40) 137 60
Intangible assets & goodwill 0 0 0 (0) (0)
Net margin 4.8% 3.2% 1.5% 2.8% 3.7%
Associated companies & JVs 0 0 0 0 0
Reported net profit 124 (70) 43 103 165
Long-term investments 14 18 18 18 18
EBITDA 214 (19) 92 166 242
Other non-current assets 8 10 10 10 10
EBITDA margin 8.2% -0.8% 3.1% 4.5% 5.4%
Non-current assets 191 193 227 260 304
EPS (RMB) 0.000 0.042 0.021 0.049 0.078
YoY% n.a. n.a. (51) 137 60
Inventories 187 158 209 262 313
DPS (HK$) 0.000 0.000 0.000 0.000 0.000
AR 291 598 779 991 1,195
Prepayments & deposits 120 99 129 164 197
Year to Dec FY14 FY15 FY16E FY17E FY18E
Other current assets 231 0 0 0 0
Cash Flow (RMB mn)
Cash 203 287 483 602 764
EBITDA 214 (19) 92 166 242
Current assets 1,033 1,141 1,600 2,018 2,469
Chg in working cap 33 271 52 31 32
Others 0 (55) 0 0 0
AP 546 810 1,072 1,340 1,601
Operating cash 247 198 144 197 274
Tax 46 36 0 18 29
Tax (42) (20) (36) 0 (18)
Accruals & other payables 143 174 227 289 348
Net cash from operations 205 178 108 197 255
Bank loans & leases 106 137 180 180 180
CB & othe debts 175 0 0 0 0
Capex (73) (64) (73) (74) (90)
Other current liabilities 0 0 0 0 0
Investments 0 0 0 0 0
Current liabilities 1,016 1,157 1,479 1,827 2,158
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 5 4 5
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) (68) (71) (85)
MI 0 0 0 0 0
FCF 134 144 40 127 170
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 194 105 276 379 544
Minority interests 0 0 0 0 0
Dividends paid (75) (79) 0 0 0
Shareholder's equity 194 105 276 379 544
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) 138 240 405
Others 9 0 0 0 0
Financing cash (49) (30) 156 (8) (8)
BVPS (HK$) 0.00 0.08 0.17 0.23 0.33
Net change in cash 85 113 196 119 163
Total debts 281 196 239 239 239
Exchange rate or other Adj (18) (30) 0 0 0
Net cash/(debts) (78) 91 244 363 526
Opening cash 136 203 287 483 602
Closing cash 203 287 483 602 764
CFPS (HK$) 0.000 0.129 0.064 0.117 0.151
Source: Company, OP Research
Mon, 29 Aug 2016
TCL Display (334 HK)
Page 59 of 64
Exhibit 77: 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 0.60 157 0.3 11.6 23.8 10.0 (51.3) 137.0 22.7 1.05 0.0 0.0 8.01 3.59 (51.4) 10.8 Net cash 6.2 3.2 78.8 22.7 (4.8) (22.1)
HSI 22,909.54 12.2 12.7 11.5 (4.2) 10.2 5.4 2.36 3.6 3.4 1.18 1.15 9.7 9.1 3.4 12.2
HSCEI 9,550.04 7.6 8.2 7.5 (7.3) 9.6 3.3 2.48 3.9 3.6 0.93 0.90 12.3 10.9 5.1 11.7
CSI300 3,307.09 14.7 13.7 12.2 7.1 12.5 2.2 2.1 1.8 1.7 12.4 12.1 1.2 8.0
Adjusted sector avg* 22.1 25.3 22.0 18.9 23.4 6.4 1.2 1.5 1.1 1.0 1.1 5.6 6.7 8.9 12.2 3.3 2.2 5.5 (1.9) 20.0
Truly Intl Hldgs 732 HK 3.45 1,293 8.8 11.9 11.0 9.6 8.0 14.3 13.6 0.81 2.9 2.9 1.40 1.26 6.5 6.0 36.3 10.9 4.4 11.0 12.1 (16.1) 14.2
Byd Electronic 285 HK 6.48 1,883 6.4 13.9 10.7 9.7 30.3 10.4 15.5 0.69 N/A 0.9 1.19 1.08 4.8 3.8 0.0 6.5 3.1 9.0 10.4 8.7 51.8
Shenzhen O-Fil-A 002456 CH 38.00 5,870 117.7 82.6 44.5 31.0 85.7 43.4 53.9 0.83 0.2 0.3 6.17 5.74 33.6 26.7 59.9 12.6 2.6 9.4 13.5 12.5 35.1
Boe Technology-A 000725 CH 2.45 12,791 80.6 53.3 39.5 30.2 34.8 30.6 19.8 2.00 0.8 0.9 1.11 1.07 9.0 7.6 6.6 19.8 3.4 1.0 3.1 2.9 6.5
Tianma-A 000050 CH 18.60 3,906 100.0 38.0 38.3 28.9 (0.8) 32.5 21.2 1.80 0.3 0.5 1.93 1.88 17.7 17.6 0.0 16.3 5.3 5.2 5.2 (15.1) (8.6)
Au Optronics Cor 2409 TT 12.85 3,900 31.5 25.2 N/A 17.8 N/A N/A 19.3 N/A 2.7 2.4 0.72 0.67 2.9 4.3 14.9 11.1 1.4 (6.1) (0.2) 3.2 43.3
Innolux Corp 3481 TT 11.65 3,656 22.9 10.7 N/A 49.4 N/A N/A (22.7) N/A 1.7 2.0 0.54 0.52 1.8 4.6 3.2 12.8 3.0 (6.8) (3.8) (0.4) 21.4
Japan Display 6740 JP 140.00 838 12.7 N/A N/A 21.3 N/A N/A (69.3) N/A N/A 0.9 0.24 0.24 1.2 1.1 6.1 7.8 (3.2) (11.5) (1.5) (24.3) (28.2)
Sharp Corp 6753 JP 131.00 6,499 23.5 N/A N/A 168.4 N/A N/A (121.7) N/A N/A 0.0 N/A 2.51 (16.4) 15.6 N/A 9.5 (10.4) N/A (18.4) 37.9 (7.1)
Samsung Electron 005930 KS 1,612,000.00 204,786 349.2 12.8 10.4 9.6 22.6 8.9 12.9 0.80 1.3 1.6 1.14 1.31 3.4 3.1 0.0 38.5 9.3 10.2 12.8 5.4 24.4
Lg Display Co Lt 034220 KS 30,500.00 9,786 30.9 11.3 23.0 12.5 (51.0) 84.6 0.3 88.44 1.6 1.6 0.92 0.87 2.8 3.4 13.3 15.2 3.4 0.9 3.9 4.3 19.1
* Outliners and "N/A" entries are in red and excl. from the calculation of averages
Source: Bloomberg, OP Research
Mon, 29 Aug 2016
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Page 60 of 64
LTPS backplane
LTPS-LCD AMOLED
LCD Injection OLED Injection
LTPS process portion: ~50% LTPS process portion: ~70%
Appendix I: Upgrade from LTPS panel to AMOLED panel
LTPS panel production line can be upgraded to AMOLED panel production line by
upgrading production process from injecting liquid crystal to make LTPS-LCD to
injecting organic light-emitting diode (OLED) to make AMOLED, as they use the
same LTPS backplane as the base material. Benefiting from the self-illuminated
nature, AMOLED panel is nearly 2/3 thinner than LTPS-LCD panel as it has fewer
layers such as Back Light Unit and Color Filter Glass.
Exhibit 78: Difference process of LTPS and AMOLED panel
Source: Tianma, OP Research
Exhibit 79: Cost Comparison for 5 inch FHD Panels
US$ per pcs Rigid AMOLED Flexible AMOLED LTPS LCD
Material 6.3 10.9 9.4
- Array 0.3 1.2 0.3
- Cell 1.4 3.0 1.9
- Package 0.2 1.8 n.a.
- Module 4.4 4.9 7.2
Indirect expense 0.7 1.2 0.9
Labour 3.1 3.3 2.1
Depreciation 4.2 8.5 2.3
Yield 40%-80% ~60.4% ~90.3%
Total 14.3 23.9 14.7
Source: IHS, OP Research
Body Text Body Text Body Text
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Mon, 29 Aug 2016
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Appendix II: ADAS background
Advanced Driver Assistant Systems (ADAS) are automotive systems developed
to assist, complement and eventually substitute the driver in the complex process
of controlling a vehicle, aiming to improve driving safety and efficiency. ADAS
provide features including Blind Spot Detection (BSD), Driver Drowsiness
Detection (DDD), Auto Emergency Brake (AEB), Front Collision Warning (FCW),
Automatic Parking System (APS), Lane Keeping System (LKS), Panorama
Parking Assist (PPA), Adaptive Cruise Control (ACC), Lane Departure Warning
(LDW), Pedestrian Collision Warning (PCW), Intelligent Headlight Control (IHC)
and Night Vision Device (NVD). Sensor devices such as video camera, infrared
camera, radar and LIDAR (Laser Imaging Detection Ranging) are adopted to
support these functions.
Exhibit 80: ADAS typical technology features
Name Blind Spot Detection
Driver Drowsiness
Detection
Auto Emergency
Brake
Front Collision
Warning
Automatic Parking
System
Lane Keeping
System
Short form BSD DDD AEB FCW APS LKS
Chinese 盲區監測 疲勞預警 自動緊急制動 前車防撞預警 自動泊車 車道保持
Illustration
Description Detect vehicles in
driver's blind spot
Detect driver's
drowsiness and
provide warning
Track cars in front
and brake
automatically
Alert the driver if
closing in too quickly
on a car ahead
Automatically move
the vehicle from a
traffic lane into a
parking sot
Automatically keep
the car in the correct
lane
Example Volvo XC 60
Audi Q5
Haval H9
VW Tiguan
Toyota Highlander
Nissan Qashaqai
Nissan Murano
Luxgen 7
Ford Kuga
Nissan X-Trail
Audi Q3
Jeep Cherokee
Name Panorama Parking
Assist
Adaptive Cruise
Control
Lane Departure
Warning
Pedestrian Collision
Warning
Intelligent Headlight
Control
Night Vision Device
Short form PPA ACC LDW PCW IHC NVD
Chinese 全景泊車 自我調整巡航 車道偏離警示 行人偵測警示 遠近光動輔助 夜視輔助
Illustration
Description Provide a panorama
view of the vehicle
when parking
Automatically adjust
speed to maintain a
safe distance from
traffic ahead
Alerts driver when the
vehicle begins to
move out of its lane
Detects pedestrian
ahead and warns the
driver
Automatically and
optimally controlling
the headlight during
night-time
Able to see clearly in
darkness
Example Haval H8
Geely GX9
Ford EDGE
Toyota Highlander
Hyundai Santa Fe
Jiangling X7
Nissan Qashqai
Luxgen U6
Toyota RAV4
Volvo XC60
Luxgen U6
Luxgen 7
Source: Gasgoo, OP Research
Mon, 29 Aug 2016
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Page 62 of 64
Exhibit 81: ADAS Technology Overview
Source: Texas Instruments, OP Research
Mon, 29 Aug 2016
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Page 63 of 64
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