TCLE Received Positive Recognition from Securites Firms With its Brilliant Performance of Interim Results

Since the release of its interim results on August 28, 2019, TCL Electronics (01070.HK, the Company) has received positive recognition from securities firms including Credit Suisse, CICC, Oriental Patron and First Shanghai Group. They have successively released research reports to maintain "Buy" or "Outperform the Industry" ratings, and are firmly positive about the Company's business performance and future development. Oriental Patron and First Shanghai Group raised the Company's target price to HK$5.96 and HK$6.05 respectively, reflecting the stock price of TCL Electronics has great potential.

Why do these securities firms all hold positive outlook on TCL Electronics? Let's take a close look at the Company's investment value through the research reports of various institutions:

1. Significant Increase in Profitability Beats Market Expectation

In the first half of 2019, TCL Electronics recorded turnover of HK$22.72 billion, up by 8.0% year-on-year, and the global TV sales volume of TCL Electronics was 15.53 million units, up by 17.9% year-on-year. Gross profit was HK$3.72 billion, up by 15.7% year-on-year. As a result of product mix optimization, gross profit margin increased by 1.1 percentage points to 16.4% year-on-year while expense ratio of the Company remained at 12.7%. Profit attributable to owners of the parent was HK$1.36 billion, significantly up by 138.1% year-on-year. Profit attributable to owners of the parent after deducting one-time non-operating gain increased by 32.9% to HK$554 million, showing brilliant performance in both revenue and profit of TCL Electronics.

Several securities firms have positive expectation on TCL Electronics' future growth. According to CICC's research report, the performance in 1H2019 of TCL Electronics beat their expectations. The Company's shipments ranked No.2 in the global market, after Samsung. Therefore, CICC raised the Company's net profit estimates to HK$1.85 billion for 2019. In addition, Oriental Patron revised up FY19/20E adjusted net profit estimates by 1.1%/3.2% to HK$1,015mn/HK$1,226mn. Moreover, OP also revised up their FY19/20 GMP by 0.8ppt/0.9ppt to 16.1%/16%. First Shanghai Group raised the adjusted EPS of the Company during 2019-2021 to HK$0.50/0.54/0.63.

2. Growth in Overseas Markets has been Spectacular

Overseas business is still an important development engine for TCL Electronics. In the first half of 2019, sales volume of TCL brand TV increased by 49.8% year-on-year to 7.07 million units, and the turnover reached HK$10.77 billion, up by 32.5% year-on-year in overseas markets. First Shanghai Group pointed out in the report that the Company's sales volume has increased substantially while its profitability has also risen steadily. Gross profit margin increased by 1 percentage point year-on-year to 15.1% in 1H2019, and gross profit margin reached 17.1% in the second quarter of 2019, hitting a new high in the past two years. Segment operating result was HK$440 million with a substantial increase of 132.1%, indicating significant increase in its overseas profitability.
It is worth mentioning that in the first half of 2019, TV sales volume of TCL Electronics in the North American markets rose by 75% year-on-year, ranking No.2 in the US market. Emerging markets are also expanding rapidly, with sales volume up by 216.8% in India and 64.4% in Argentina. In addition, overseas markets have maintained strong growth in various regions.

In addition, with global production capacity layout, besides China, TCL Electronics has factories in Mexico, Vietnam, Poland, India and South America. Its overseas production capacity layout exceeds 15 million units per year, which can effectively mitigate potential risks. According to First Shanghai Group, TCL Electronics has shown remarkable competitiveness in overseas markets, especially in North American markets. The globalization advantage of the Company has been strengthened with obvious growing trend in both sales volume and profitability in overseas markets, and it is expected that the overseas business will remain as a major driver for the revenue and earnings growth. CICC emphasizes that with its vertical integration of industrial chain and global production capacity layout, TCL Electronics has cost-effective advantage in overseas markets. Therefore, it will be able to achieve good development in the future.

3. Promising Prospect with Breakthrough in Internet Business

Both CICC and First Shanghai Group recognized the Internet business breakthrough of the Company in the report, that its Internet business user base continues to expand and its operational capability and monetization capacity continue to be enhanced. In the first half of 2019, the Company's Internet business revenue was HK$349 million, up by 125.2% compared to the same period of last year. Moreover, revenue of Falcon Network Technology in 1H2019 was about HK$253 million, up by 63.3% year-on-year. In addition, the Company received overseas Internet revenue of HK$96 million through cooperation with Roku and Google, becoming the first company in the industry to achieve breakthrough in overseas Internet business.

Credit Suisse expects good growth momentum from overseas Internet business with TV shipment growth in North America, South America and Europe. Oriental Patron sees a potential re-rating opportunity of TCLE on its Internet business given its asset-light model, high margin, and robust growth potential in both China and overseas markets.

Conclusion:
From the above information, it can be seen that institutions have positive views on TCLE's future development, which also reflects the capital market's recognition of TCLE's business performance and financial stability. Rating and target price issued by securities firms have always been important investment indicators. As the market becomes more aware, it is believed that the value of TCL Electronics will be further recognized by the market. Moreover, under the Matthew Effect, the Company will continue to increase its operating value. With its excellent business performance, it is expected to stimulate the capital market, leading to a new round of value revaluation on TCL Electronics, and thus accelerating reflection of the Company's growth potential.