cdot(334.hk); solid fy16; beneficiary of csot jv formation ... · instead of a reference price at...
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Sector
Rating
Price target
52wk H-L (HK$) 1.08-0.58
Market cap(HK$) 1,970.9m
Shrs outstanding 2,031.8m
Main ownership
12/15A 12/16A 12/17E 12/18E
EPS(HKD) 0.0381 0.0552 0.0856 0.1370
P/B(x) 15.9 5.4 3.6 2.4
P/E(x) 25.5 17.6 11.3 7.1
EV/EBITDA 13.0 9.1 7.7 4.6
Div. yield(%) N/A 2.0 2.0 2.0
ROE(%) 21% 25% 32% 34%
ROA(%) 2% 4% 8% 13%Sources: Company data, Bloomberg, Anli research
Sources: Bloomberg
Fig.1: Valuation comps
P/B(x)
2016A 2017E 2018E 2016A
732 HK TRULY INTL HLDGS 1,010 2.70 13.5 10.0 9.0 1.2 2.8 8.4 0.0 9.3 -10.6
285 HK BYD ELECTRONIC 3,196 11.02 17.8 14.4 12.3 1.9 5.3 11.1 -5.8 153.9 80.7
334 HK CH DISPLAY OPTOELECTRONICS 254 0.97 17.6 11.3 12.0 5.4 4.0 25.0 2.1 29.3 34.7
Average 16.3 11.9 11.1 2.8 4.0 14.8 n.a n.a n.a
000725 CH BOE TECHNOLOGY 19,084 3.79 n.a 111.5 32.4 1.6 -0.1 -0.3 3.6 49.8 32.5
Average n.a 111.5 32.4 1.6 -0.1 -0.3 n.a n.a n.a
5371 TT CORETRONIC CORP 631 44.45 9.9 9.5 9.1 0.9 3.8 8.8 -0.1 19.1 31.1
Average 9.9 9.5 9.1 0.9 3.8 8.8 n.a n.a n.a
Source: Bloomberg as of 10 Apr 2017, Anli research
Last Price
Price performance
Research Analyst
April 11, 2017
CDOT(334.HK); Solid FY16; Beneficiary of CSOT JV formation; Buy
Key data
TMT
Buy
HK$0.97
Key indicator forecast
HK$1.30Price(HK$) as of 10 Apr,2017
TCL Intelligent Display(36.77%)
Kimmy Tong/+852 23235118/[email protected]
Px % chg.
YTDROA (%) ROE (%)
P/E(x)
A share TMT
International TMT
Px % chg.
WTD
Px % chg.
1 yr
H share TMT
Ticker Company name Mkt Cap (US$m)
FY16 result upbeat with dividend surprise. China Display Optoelectronics Technology (CDOT) core profit increased 318% YoY to RMB92m in FY16 from RMB22m in FY15. Gross profit margin narrowed to 5.6% in FY16 from 7.9% in FY15 due to client bargaining on TFT LCD module prices in 1H16. However, CDOT has changed its pricing model in 2H16 which is based off actual customer prices instead of a reference price at the beginning of business period. Thus, the gross profit margin ticked up to 9.7% in 4Q16. The sales volume of laminated modules in company total sales dropped significantly from 44.2% in 3Q16 to 32.9% in 4Q16. We spoke with management on this issue, and they mentioned their client Meizu changed their TFT LCD modules orders from laminated to LTPS non-laminated module for their Meizu Note5 component. This order change drove up the overall blended ASP by 18% YoY to RMB59 per unit in FY16 given that LTPS has higher margins. The dividend payout ratio was 36.6% in FY16, which surprised positively given CDOT’s position as a growth company. Strong growth on 1Q17 TFT LCD module orders. Management mentioned that they received more LCD module orders in 1Q17 and predict sales will increase to 20% YoY in Feb 2017. Meanwhile, management also project total sales volumes to grow by a single digit percentage in 2017 as the capacity at Huizhou is close to being fully utilized and Wuhan’s slow ramp in capacity production. However, the blended ASP increase will offset this sales volume effect in 2017. Despite this, CDOT climbed into the Top 3 (Ranked 4th in 2015) of China’s largest LCD module manufacturers by revenue due to the jump in contributions from its PRC-based clients, accounting for 62.1% in FY16. CDOT is now working with the PRC’s top-tier clients. In addition, the strategic cooperation with its parent's subsidiary Wuhan CSOT for the development of LTPS LCD module production will largely support CDOT’s momentum growth. LTPS and AMOLED are the key growth drivers for CDOT in the next couple of years. The joint venture (JV) formation points to a clear LTPS development path for CDOT. The JV will operate 10 fully automated production lines of LTPS LCD modules for mobile phones, two of which are now in operation. The average monthly production is 500k to 600k units of laminated display modules. Management predicts all production lines will be in operation by end 2017. CDOT’s existing LTPS clients are WINGTEC and TCL Corporation. As we know, AMOLED will be the next premium driver in the LTPS LCD module industry. We are hopeful on CDOT's plans to develop a production line (named t4) specifically for AMOLED construction. However, it is difficult for the company to obtain AMOLED components from suppliers, given Samsung is the dominant player in the market. However, we are still positive given that CSOT started AMOLED trial production in 2016 and its cooperation with CSOT may push along further developments. Strong cashflow profile. CDOT’s B/S surprised with a lower gross gearing ratio while it enjoyed a net cash position. Total CAPEX will be RMB400m in 2017 for: 1) Ramp up of LTPS production plant between CSOT and CDOT; 2) Ramp up of the automated machinery system in Huizhou production plant; 3) RMB349m to be injected into the JV formation by CDOT. The cash balance was RMB465m in FY16 and the net proceeds from June 2016 share placement was HK$150m, which can cover this year’s CAPEX. For this reason, we have a positive outlook on the company’s cashflow. We maintain our Buy rating with target price HK$1.30, implying 34% upside. We are still confident on the growth momentum in China’s LCD module industry and CDOT’s vertically intergrated business model. We stay positive on CDOT’s LTPS growth and AMOLED development. Key risks: continually falling laminated module prices; delays in LTPS production and any slowdown in LTPS display module demand in China.
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HK$/shr pts Hang Seng Index(LHS)
CDOT(334.HK)(RHS)
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Source: Company data, Anli research Source: Company data, Anli research
Source: Company data, Anli research Source: Company data, Anli research
Fig.6: Company's client base widen
Source: Company data, Anli research Source: Company data, Anli research
Fig.8: Company sales volume increased 27.5% YoY
Source: Company data, Anli research Source: Company data, Anli research
April 10, 2017
Fig.9: Blended ASP increased due to increased LTPS non-
laminated modules order by Meizu
Fig.5: Management predicts laminated modules will have a
45% of total sales volume porportion in 2017 after Meizu's
order effect
Fig.2: Gross margin squeezed, while operating and net margin
tick up
Fig.3: Breakdown of gross profit margin show the main
downside driver in 1Q-2Q16
Fig.4: Non-laminated modules revenue contribution boosted by
client Meizu's change of order from laminated modules to
LTPS non-laminated modules
Fig.7: China revenue mix expanded; S.Korea expand given
LG's increase in orders
9.4%
7.9%
5.6% 4.9%
1.6%
3.3%
3.6%
0.6%
2.5%
0%
2%
4%
6%
8%
10%
FY14 FY15 FY16
Profitability analysis Gross margin(%) Operating margin(%) Net margin(%)
6.8% 6.5% 6.3% 5.5%
4.3%
2.2%
4.7%
9.7%
0%
2%
4%
6%
8%
10%
12%
1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Company quarterly gross margin
181
145 146 141
118
92 79 76 74 79 83 84
39 36 39 36 28 30 28 26 24 21 24
46
42 45 49 45 34 37 42 40 43 45 50
59
0
20
40
60
80
100
120
140
160
180
200
1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Rmb/unit TFT LCD modules blended ASP
Laminated modules Non-laminated modules Blended ASP
1 12 71 99 64 144 224 179 88 147 350 322 405
592
829
521
257 338
514 645
524 437
557 485
333 391
316 296 221
231
298
581
0
200
400
600
800
1000
1200
RMB(m) Revenue mix by TFT LCD modules
Laminated modules Non-laminated modules
258
350
585
744
588 581
781
664
421 538
666 618
626 823
1,127
1,102
55.4 57.6 58.4
74.5
0%
5%
10%
15%
20%
25%
30%
0
10
20
30
40
50
60
70
80
FY13 FY14 FY15 FY16
YoY change unit m
TFT LCD modules sales volume
volume YoY change
100% 99% 97% 97% 97% 92% 91% 91% 94% 89%
72% 73% 63% 59% 56%
67%
1% 3% 3% 3% 8% 9% 9% 6% 11% 28% 27%
37% 41% 44% 33%
0%
20%
40%
60%
80%
100%
Quarterly sales volume breakdown Non-laminated modules Laminated modules
3.2% 10.2%
47.4% 27.7%
49.4% 62.1%
0%
20%
40%
60%
80%
100%
FY15 FY16
Revenue mix by geography
South Korea Hong Kong Mainland China
52.5%
71.1%
47.5%
28.9%
0%
20%
40%
60%
80%
100%
FY15 FY16
Revenue mix by clients
Others TCL Comm
New clients added: 1) CHINO-E 2) Tecno mobile 3) Konka
2
Source: Company data, Anli research
Fig.11: Industry Ranking: Top 10 Chinese brand manufacturers of smartphone LCD display modules by revenue
Source: Company data, ASKCI consulting, Anli research
Fig.10: CDOT has significant net profit growth vs. peers Truly International
April 10, 2017
The main reason CDOT's net profit growth surged more than Truly International (732.HK) is that CDOT is a growth company, while Truly is now ex growth. In terms of net profit margin, we observe that Truly’s net profit margin fell while CDOT shows a significant upward trend. The reason is CDOT continues to promote high-end LTPS technology and has a strong foothold in the China LCD display market that is growing fast. We assume this growth momentum will continue for CDOT, and its net margin will exceed Truly International this year.
CDOT ranked 3rd, up from 4th amongst the Chinese brand manufacturers of LCD display modules by revenue in FY16 while its market share grew 2.18ppts, the greatest increase of the top 10 companies. On the contrary, Success Electronics (002289.SHE) market share dropped 4.07ppts in FY16. Management mentioned that the entry of smaller companies into the industry is a key factor influencing market share changes. As a fragmented industry, it is difficult for one company to establish a large operation, allowing smaller firms to gain or lose their presence in the market.
RMB (m)
Company Rank RevenueMarket
ShareRank Revenue
Market
ShareRank Revenue
Market
Share
Truly International (732.HK) 1 10,265 20.75% 1 8,948 22.45% - +14.6% -1.70%
BOE Technology (000725.SHE) 2 5,933 11.99% 2 4,405 11.04% - +34.7% +0.95%
Ch Display Opt (334.HK) 3 3,423 6.92% 4 1,890 4.74% +1 +81.1% +2.18%
Shenzhen DJN Optronics 4 2,558 5.17% 6 1,703 4.27% +2 +50.2% +0.90%
BYD Electronic (285.HK) 5 2,096 4.24% 5 1,835 4.60% - +14.2% -0.36%
Tianma (000050.SHE) 6 1,588 3.21% 7 1,285 3.22% +1 +23.6% -0.01%
Shenzhen TXD Technology (002845.SHE) 7 1,300 2.63% 8 1,169 2.93% +1 +11.2% -0.30%
SZ COE (5371.TWO) 8 1,192 2.41% 9 982 2.46% +1 +21.4% -0.05%
Lead Mobile Display 9 1,116 2.26% 10 852 2.13% +1 +31.0% +0.13%
Success Electronics (002289.SHE) 10 935 1.89% 3 2,377 5.96% -7 -60.7% -4.07%
Others - 19,094 38.53% - 14,444 36.20% - +32.2% +2.33%
Total - 49,500 100% - 39,900 100% - +24.1% -
FY16 FY15 YoY Change
Company Truly International CDOT
Ticker 732.HK 334.HK
Market capitalization
(US $m)1,010 254
Revenue growth in
FY16 (%)14% -0.3%
Net profit growth in
FY 16 (%)-27% 318%
Gross profit
margin (%)
Net profit
margin (%)
10.9%9.9%
0%
4%
8%
12%
FY15 FY16
4.7%
3.0%
0%
2%
4%
6%
FY15 FY16
7.9%
5.6%
0%
2%
4%
6%
8%
FY15 FY16
0.6%
2.5%
0%
2%
3%
5%
FY15 FY16
3
Source: Company data, Anli research
Source: Company data, Anli research
April 10, 2017
Fig.12: CSOT and CDOT JV's production plant
Fig.13: Major panel maker's China expansion plans for 2015-2019E
BOE Technology (000725.CH), ChinaStar, and CEC-Panda starting producing OLED, a driver in the lighting panel market since 2015. Foxconn plans to produce LTPS displays in 2019, while CSOT has plans to establish a LCD/AMOLED Display Panel Production Line, namely t4 by the beginning of 2018.
Fig. 2: Major panel makers' China expansion plans for 2015-2019
2015 2016 2017 2018E 2019EDesigned
Capacity
BOE (B5) Hefei G8 (30K: Oxide + W-OLED) 115K
(B6) Ordos G5.5 60K LTPS&OLED (10K: RGB OLED) 60K
(B8) Chongqing G8 145K 145K
(B10) Fuqingu G8 140K 140K
(B7) Chengdu G6 LTPS 45K 45K
(B9) Hefei G10.5 115K 115K
(B11) Mianyang G8 60K 60K
ChinaStar (T1) Shenzhen G8 150k 150K
(T2) Shenzhen G8 120K 120K
(T3) Wuhan G8 30K LTPS&OLED 30K
(T4) G6 LTPS 20K 20K
(T6) G11 120K 120K
CEC-Panda (C1) Nanjing G8 95K 95K
(C2) Nanjing G6 60K 60K
(C3) Cheungdu G8.6 120K 120K
Foxconn Guizhou G6 LTPS 40K 40K
Zhengzhou G6 LTPS 30K 30K
4
Source: TrendForce, Anli research
Source: TrendForce, Anli research Source: TrendForce, Anli research
Source: HIS, CINNO Research, Anli research Source: HIS, CINNO Research, Anli research
April 10, 2017
Fig.14: Comparison between LTPS and other display technologies
Fig.15: Samsung Display has dominated the AMOLED markets,
while China also started picking up the trend since 2016 Fig.16: Samsung mobile devices used to AMOLED modules
Fig.17: LTPS and AMOLED modules will be the main trend in the
next couple of years Fig.18: Major OLED Panel makers' production capacity
Column1 A-Si-TN LTPS-IPS AMOLED
Self- illuminated No, BLU required No, BLU required Yes
Contrast Poor Good Excellent
Viewing angle Narrow Wide Wide
Resolution Low High OK
Thickness Thick Regular Thin
Response Time Slow Regular Fast
Power consumption Heavy Regular Regular
Bendable No No Yes
Color decay No No Yes
Cost Cheapest Around 15% higher than A-Si Around 30% higher than LTPS
2015 market penetration
rate58% 28% 9%
Revenue contribution in
LCD display in 2020E18% 51% 30%
Adopted phonesHuawei Y6, Meizu m3,
ZTE Grand X3
Iphone 6s, Huawei P9,
LG G5, Xiaomi Mi 5
Samsung S7, Huawei Mate S,
OPPO R7s, Meizu Pro 6
Apple’s AMOLED panels in the latest MacBook Pro and Apple Watch Series 2 makes the introduction of AMOLED modules into the iPhone 8 more likely given the demand for better and faster technology. China mobile phone players like Oppo, Vivo and Meizu have adopted AMOLED since 2015. It is clear that the lighting panel market will be dominated by AMOLED, however it requires an LTPS backplane which could make it more costly. Currently, Samsung Display is the dominant supplier of AMOLED panels. BOE Technology (000725.CH), EverDisplay and CSOT are existing Chinese LCD display manufacturers that have already started AMOLED production. We believe the development of LTPS will be an important milestone for CDOT since CSOT adapted AMOLED related technology last year, which will allow CDOT to benefit from these synergies in the future. Consensus is forecasting 51% of revenue is contributed by LTPS given the yield rate and lower costs.
15 60 60 45
150 23 28 10
50
25 35
25
35
45 55
65
0
50
100
150
200
250
300
350
2015 2016 2017E 2018E 2019E
(k) Global AMOLED average annualized capacity growth in 2015-2019E
Samsung LG Japan China
72% 77% 83% 79% 75%
53% 41%
28% 23% 17% 21% 25%
22%
19%
25% 40%
0%
20%
40%
60%
80%
100%
2012 2013 2014 2015 2016 2017E 2018E
AMOLED sales by customer trend
Samsung China/others Apple
72% 66% 58%
44% 37% 31% 28% 24%
18% 22%
28%
39% 42%
45% 42%
40%
8% 8% 9% 12% 15% 19% 24% 30%
2% 4% 5% 5% 6% 5% 6% 6%
0%
20%
40%
60%
80%
100%
2013 2014 2015 2016 2017E 2018E 2019E 2020E
LTPS display module penetration rate in China
A-Si-TN LTPS AMOLED Others
Mobile Capacity
units (m)2013 2014 2015 2016 2017E 2018E
Samsung Display 172 210 264 318 481 637
LG Display 4 6 9 9 69 143
Japan Display - - - 1 3 29
Sharp - - - - - 39
HonHai - - - - - -
BOE - 4 4 19 45 84
Tianma - - 8 15 41 54
Truly - - - 5 36 49
CSOT - - - 10 21 34
EverDisplay - - 4 5 18 44
GoVisionox - - - 9 19 32
Total 176 220 289 391 733 1,145
5
FY14 FY15 FY16 FY14 FY15 FY16
2,498 3,688 3,678 102 164 193
(2,263) (3,399) (3,473) 0.1 0.1 0.1
234 290 206 6.5 19 18
7 59 52 36 10 43
(102) (137) (110) 145 193 254
- (142) - 197 158 367
(3) (1) (5) 564 598 991
(14) (10) (20) Prepayment & other receivables 85 99 44
123 59 122 130 287 465
Profit/(Loss)before tax 123 59 122 976 1,141 1,867
(33) (32) (31) 1,121 1,334 2,121
90 26 91 Trade and bills payables 773 810 1,320
- (5) 1 Other payables 131 174 192
90 22 92 Tax payable 21 36 52
Bank loan 57 137 120
FY14 FY15 FY16 982 1,157 1,685
Deferred income 8 13 6
- 48% -0.3% Bonds payables - 59 63
- 24% -29% Total liabilities 990 1,229 1,753
- -52% 107% 131 105 368
Net profit - -76% 318%
.
9.4% 7.9% 5.6% FY14 FY15
4.9% 1.6% 3.3% Pre-tax profit 123 59
3.6% 0.6% 2.5% Depreciation 30 58
90.6% 92.2% 94.4% 0.1 0.1
4.1% 3.7% 3.0% Change in working capital 205 18
(3) 132
FY14 FY15 FY16 Operation cash flow 356 267
net cash net cash net cash CAPEX (110) (96)
1.0 1.0 1.1 Others 2 31
n.a 21% 25% (108) (65)
n.a 2% 4% Proceed from issue of shares - -
Inventories days n.a 30 27 - -
Receivable days n.a 70 57 Dividend paid (106) (118)
Payable days n.a 101 103 364 942
Cash conversion cycle n.a -1 -19 (383) (870)
Source: Company data, Anli research (126) (46)
- -123 156
Company description
Finance cost
Operating profit
Income tax
Profit of the period
Revenue
April 10, 2017
Balance Sheet (RMB m)
CDOT: Financial summary
Deferred tax assets
Profit and Loss (RMB m)
Revenue
COGS
Gross profit
Other revenue
PP&E
Intangible assets
Deposits for purchase PP&E
Trade and bills receivables
Listing expenses
Non-current assetSG&A
Other expenses
Inventories
Cash
Current asset
Operating profit
Earning growth drivers
YoY growth
Total asset
Net Profit
Exchange differences
Gross profit
Margin analysis
Others
Financing cashflow
Gross margin(%)
Operating margin(%)
Net margin(%)
COGS/sales(%)
ROE(%)
ROA(%)
Current ratio(x)
Net gearing(%)
Ratios
Others
SG&A/sales(%)
Net changes in cash
Current liabilities
Foreign exchange
Investing cash flow
Share issue expenses
Bank loan
Shareholders capital
Cash flow (RMB m)
Amortization
China Display Optoelectronics Technology Holdings Limited, former called TCL Display Technology (334.HK) is a small to medium sized display module manufacturing company. CDOT focus on TFT-LCD/CTP display development, production and sales of modules for mobile devices. In 2016, CDOT got 62% of total revenue come from China, ranked top 3rd in China LCD display modules industry. CDOT is affiliated to TCL Group (000100.CH). The latter has a 36.7% stake in CDOT.
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April 10, 2017
Important legal disclosures
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