20171123-东英亚洲证券-TCL多媒体-01070.HK-3Q17_results_trump_expectations_6页_439kb

TCL Multimedia (1070 HK) Equity Research Summary

Core Content

TCL Multimedia (1070 HK) is a leading television manufacturer with a vertically integrated business model, ranking among the top 3 in the Global LCD TV market and No. 3 in the PRC. The company reported strong results for 3Q17, with revenue increasing by 18.8% year-over-year (YoY) to HK$11.23bn and 9M17 total revenue rising by 19.3% YoY to HK$28.25bn, exceeding expectations. This performance was driven by strong overseas shipments and higher average selling prices (ASP) due to the increasing adoption of 4K, large size, and curved panels.

The company's market share in the PRC market showed resilience, with only a 10.1% YoY decrease in shipments compared to an industry average of 19.7% shrinkage. The strategic alliance with Tencent further boosted the Internet service business, with a 46.6% and 85.3% YoY growth in September DAU and 9M revenue contribution respectively.

Key Financial Highlights

Revenue and Net Profit

• FY17E Revenue: HK$38.82bn (up 16.4% YoY)
• FY18E Revenue: HK$42.89bn (up 10.5% YoY)
• FY17E Net Profit: HK$515.5mn (up 182% YoY)
• FY18E Net Profit: HK$759.9mn (up 47.4% YoY)
• FY19E Net Profit: HK$898.8mn (up 18.3% YoY)

Earnings Per Share (EPS)

• FY17E EPS: HK$0.288 (up 21.1% YoY)
• FY18E EPS: HK$0.425 (up 11.8% YoY)
• FY19E EPS: HK$0.502 (up 18.3% YoY)

EBIT and Operating Profit

• FY17E EBIT: HK$710mn (up 18.8% YoY)
• FY18E EBIT: HK$1,079mn (up 11.0% YoY)
• FY17E Operating Profit: HK$646mn (up 175% YoY)
• FY18E Operating Profit: HK$1,015mn (up 47.4% YoY)

Operating Margin

• FY17E Operating Margin: 1.8%
• FY18E Operating Margin: 2.5%
• FY19E Operating Margin: 2.8%

Gross Margin

• FY17E Gross Margin: 15.3%
• FY18E Gross Margin: 16.0%
• FY19E Gross Margin: 16.1%

Key Assumptions and Forecasts Revisions

Valuation and Target Price

• Current Close Price: HK$4.89
• Target Price (TP): HK$6.40 (+30.9%)
• Prior TP: HK$5.70
• Revised TP Based On: 15x FY18E earnings

Risks

1. ASP erosion may be faster than expected.
2. Slower than expected recovery in the PRC market.
3. Overseas market performance is dependent on exchange rate risks.

Peer Group Comparison

| Company | Ticker | Price (HK$) | Mkt Cap (US$m) | 3-Month Avg T/O (US$m) | PER Hist (x) | PER FY1 (x) | PER FY2 (x) | EPS FY1 YoY% | EPS FY2 YoY% | 3-Yr EPS Cagr (%) | P/B Hist (x) | P/B FY1 (x) | P/B FY2 (x) | EV/EBITDA Hist | EV/EBITDA Cur Yr Hist (%) | Net Gearing (%) | Gross Margin Hist (%) | Net Margin Hist (%) | ROE Hist (%) | ROE FY1 (%) |
|--------|--------|------------|----------------|------------------------|--------------|------------|------------|--------------|--------------|------------------|--------------|------------|------------|----------------|--------------------------|----------------|----------------------|------------------|----------------|------------|------------|
| TCL Multimedia | 1070 HK | 4.89 | 1,093 | 1.1 | 37.6 | 13.7 | 9.3 | 175.0 | 47.4 | 32.1 | 1.5 | 1.06 | 0.99 | 4.94 | 4.46 | 8.4 | 15.3 | 16.1 |
| HSI | - | 30,003.49 | - | - | 13.9 | 13.7 | 12.5 | 1.9 | 9.0 | 32.1 | - | - | - | - | - | - | - | - | - |
| HSCEI | - | 11,958.63 | - | - | 9.5 | 9.1 | 8.3 | 4.1 | 9.8 | 32.1 | - | - | - | - | - | - | - | - | - |
| CSI300 | - | 4,227.57 | - | - | 17.5 | 16.2 | 14.1 | 7.9 | 14.6 | 32.1 | - | - | - | - | - | - | - | - | - |
| Skyworth Digital | 751 HK | 3.76 | 1,474 | 7.0 | 8.4 | 22.4 | 6.7 | -62.4 | 236.3 | 14.9 | 1.5 | 1.0 | 1.1 | 0.71 | 0.65 | 21.9 | 11.1 | 3.1 | 1.8 |
| Hisense Elec-A | 600060 CH | 15.94 | 3,152 | 38.7 | 11.9 | 15.4 | 11.7 | -22.8 | 31.6 | 5.2 | 2.95 | 2.5 | 1.8 | 1.57 | 1.50 | 11.4 | 15.4 | 0.0 | 16.1 |
| Sichuan Chang-A | 600839 CH | 3.95 | 2,756 | 40.7 | 32.9 | 43.9 | 39.5 | -25.1 | 11.1 | N/A | N/A | N/A | N/A | 1.44 | 1.40 | 21.9 | 11.1 | N/A | 13.7 |
| Leshi Internet-A | 300104 CH | 15.33 | 9,243 | N/A | 105.7 | 49.0 | 29.6 | 115.9 | 65.5 | 75.6 | 0.65 | N/A | 0.0 | 4.90 | 3.50 | 26.4 | 18.0 | 65.1 | 16.4 |
| TCL Corp-A | 000100 CH | 4.7 | 8,713.0 | 124.9 | 36.0 | 21.3 | 17.5 | 69.2 | 21.6 | 33.9 | 0.63 | 1.7 | 1.7 | 2.34 | 2.24 | 31.2 | 81.8 | 0.0 | 15.4 |
| Skyworth Digit-A | 000810 CH | 9.50 | 1,538 | 5.9 | 19.8 | 17.4 | 15.0 | 14.0 | 15.7 | 21.0 | 0.83 | 1.2 | N/A | 3.87 | 3.19 | 23.7 | 15.5 | 50.4 | 20.9 |
| Huayi Brothers-A | 300027 CH | 8.19 | 3,434 | 30.1 | 28.2 | 26.8 | 22.0 | 5.5 | 21.9 | 11.8 | 2.27 | 0.4 | 0.5 | 2.40 | 2.34 | 59.2 | 23.0 | 28.4 | 50.9 |
| Netflix Inc | NFLX US | 196.23 | 84,915 | 1,262.4 | 446.0 | 114.3 | 75.7 | 290.2 | 51.0 | 113.2 | 1.01 | N/A | 0.0 | 25.52 | 25.86 | 201.4 | 81.8 | 60.8 | 31.7 |
| Amazon.Com Inc | AMZN US | 1,139.49 | 549,089 | 3,342.5 | 227.4 | 97.9 | 70.8 | 132.3 | 38.3 | 67.9 | 1.44 | N/A | 0.0 | 22.27 | 20.89 | 46.2 | 30.2 | 0.0 | 35.1 |

Historical Recommendations and Target Prices

Summary of Key Points

• TCL Multimedia has shown strong performance in 3Q17 with revenue growth and beating expectations.
• The company's market share in the PRC market is growing despite an overall market downturn.
• Strategic alliances, such as with Tencent, are contributing to growth in the Internet service business.
• Earnings estimates have been revised upwards for FY17 and FY18 due to improved product mix and overseas expansion.
• The target price has been revised to HK$6.40 based on a 15x FY18E PE.
• Risks include faster-than-expected ASP erosion, slower recovery in the PRC market, and exchange rate risks affecting overseas performance.
• The company's financial performance shows improving gross and operating margins, along with positive net profit growth.