20160829-东英亚洲证券-Display_module_sector__Riding_on_Technology_upgrade_64页_2mb

Sector Report Summary: Display Module Sector

Core Content

This report analyzes the opportunities in the display module sector, focusing on the increasing adoption of LTPS/AMOLED technology in smartphones and the mid-term growth potential from ADAS (Advanced Driver Assistant Systems) in the automotive industry. It also highlights the investment potential in two key players: Truly International (732 HK) and TCL Display (334 HK), based on their strategic positions and expected performance in the evolving market.

Main Points

1. Increasing Adoption of LTPS/AMOLED in Smartphones

• Penetration Growth: LTPS/AMOLED penetration in China smartphones is expected to rise from 28% / 9% in 2015 to 40% / 30% in 2020E.
• Market Drivers: High resolution, vivid colors, and quick response time of LTPS/AMOLED displays are key factors driving adoption.
• Smartphone Vendors: Leading Chinese smartphone vendors such as Huawei, Oppo, Vivo, Xiaomi, and Meizu are expected to increase LTPS/AMOLED adoption from 2H16E onwards.
• Panel Shortage: Potential shortages of LTPS and AMOLED panels are expected in 2016E and 2017E due to the shift from LTPS to AMOLED by top-tier vendors and the low yield rate of AMOLED panels in China.
• Truly and TCLD Advantage: Both companies are positioned to benefit from the shortage due to their own panel production capabilities and access to stable supply from sister companies.

2. ADAS Adoption Boosting Automotive Display Growth

• ADAS Development Stages: ADAS is developed in four stages, with China currently at Level 1 (2%–5% adoption rate).
• Market Growth: ADAS market in China is expected to grow at a 64.4% CAGR from 2015 to 2020E and 45.6% CAGR from 2020E to 2025E.
• Automotive Display Upgrade: ADAS adoption is expected to drive upgrades from non-TFT to TFT displays and increase the number of displays in future vehicles to 10.
• Stable ASP and GPM: Automotive display modules have a longer lifecycle (5–10 years), higher entry barriers, and better gross margins compared to smartphone displays.
• Growth Projections: Truly is expected to achieve a 21% CAGR in automotive display revenue over the next three years.

3. Investment Recommendations

• Truly International (732 HK):

  • Rating: BUY
  • Target Price: HK$4.90
  • Target Valuation: 12x FY17E PE
  • Potential Upside: 42%
  • Reasons: 4.5G plant commencing LTPS/AMOLED mass production in 2016E/2017E, strong fingerprint business growth, and a robust automotive display pipeline.

• TCL Display (334 HK):

  • Rating: BUY
  • Target Price: HK$0.72
  • Target Valuation: 12x FY17E PE
  • Potential Upside: 20%
  • Reasons: Improved product mix with laminated modules, secure LTPS supply from sister company CSOT, and access to TCL Group's integrated platform.

Key Information

• Smartphone Display Shipment Growth: Expected to grow at 13.8% and 34.8% CAGR in China from 2015 to 2020E.
• Panel Shortage: LTPS shortage of 226mn/166mn units in 2016E/2017E, and AMOLED shortage of 62mn/71mn units in 2016E/2017E.
• VR Growth: Global VR hardware market is expected to grow at 35% CAGR from 2016E to 2020E, reaching US$20bn.
• AMOLED for VR: AMOLED is the preferred display technology for VR due to its low latency and quick response time.
• Truly's VR/AR Business: Expected to gain market share with a potential US$42mn in 2016E and growing at 39.3% CAGR to US$158mn in 2020E.
• CSOT's AMOLED Production: Plans to establish T4 plant for AMOLED production, expected to start mass production in 2019–2020E, supporting TCLD's long-term VR growth.

Investment Risks

• Panel Production Delays: Upgrading production lines to AMOLED takes 18 months and significant CAPEX.
• Yield Rate Challenges: AMOLED yield rates are low for Chinese manufacturers, affecting supply and pricing.
• Market Competition: Increasing competition from global players like Samsung and Apple could impact market share.
• Technological Uncertainty: Rapid technological changes in the display and VR sectors may affect demand and supply dynamics.

Strategic Positioning

• Truly: Benefits from both LTPS/AMOLED panel shortage and VR growth, with a strong product pipeline and production capacity.
• TCL Display: Leverages its sister company CSOT for stable LTPS supply and improved product mix, while also benefiting from the integrated platform of TCL Group.

Financial Highlights

• Truly: Sales CAGR of 13% from 2015 to 2018E, with a strong fingerprint business and automotive display growth.
• TCL Display: Sales CAGR of 26% from 2015 to 2018E, driven by product mix upgrades and stable panel supply.

Conclusion

The display module sector is poised for growth due to the increasing adoption of LTPS/AMOLED in smartphones and the mid-term potential from ADAS in the automotive industry. Truly and TCL Display are well-positioned to capitalize on these trends, with strong financial growth projections and strategic advantages in panel supply and product diversification.