The downturn of the panel cycle continues.
After AUO and Innolux encouraged employees to take vacations to cope with the panel downturn, LG also took measures to reduce production capacity such as stopping production of LCD TV panels until next year. Counting from the third quarter of last year, the panel industry has been in decline for more than ten months. However, with the continued unfavorable environment and other factors, the current bad situation of panel manufacturers is likely to continue.
Affected by this, the stock market of panel manufacturers is not optimistic. Even so, TCL Technology still chose to complete the fixed increase at this time. Recently, it announced that the China Securities Regulatory Commission has passed the review of its non-public offering of A shares exceeding 10 billion yuan.
However, given the relatively calm market sentiment of TCL technology investors and the continuous damage to the fundamentals, the result of this fixed increase is likely to be difficult to meet expectations, especially as it will further enhance its seller sentiment. In this way, even if the panel cycle falls to the bottom or even bottoms out, the cloud over TCL Technology's head may not be too thin.
Revenues stall, profits plummet
Affected by the downturn of the panel cycle, TCL Technology’s performance fluctuated significantly. According to its first-quarter financial report, its revenue was 40.598 billion yuan, a year-on-year growth rate of only 26.21%, which was 80.43% lower than the same period last year, and its net profit was a year-on-year decline. 43.73% to 1.353 billion yuan, and the deduction of non-net profit dropped by 71.19%.
With the adjustment of production capacity of panel manufacturers and the continued sluggish market demand and other factors, TCL Technology's performance in the first half of this year has continued to fluctuate significantly. The performance forecast disclosed by TCL Technology two weeks ago stated that the operating income in the first half of 2022 will be 84 billion to 85.5 billion yuan, with a year-on-year growth rate of between 13% and 15%, and the net profit attributable to shareholders of listed companies will be 1.85 billion Between RMB 500 million and 2.05 billion, compared with the same period last year, the highest drop was 90%, and the non-net profit was deducted from profit to loss, and the net loss was between 560 million and 660 million yuan.
Judging from the performance in the first quarter, TCL Technology's high financial costs and other factors led to a decline in its net profit. The financial report shows that TCL Technology's financial expenses in the first quarter of 2022 will be 991 million yuan, a year-on-year increase of 33.93%, and a quarter-on-quarter increase of 10.07%. Coupled with factors such as rising raw material prices and inventory impairment, the profit margin will naturally shrink. Judging from TCL Technology's performance forecast announcement and the current market environment, these factors are likely to continue into the second quarter.
Of course, TCL Technology is not the only one that is not optimistic about the performance. LG’s net loss in the second quarter reached 290 million US dollars, Innolux’s net loss after tax in the second quarter was about 1 billion yuan, and AUO’s net loss attributable to the parent company reached 1.28 billion yuan. The stock is expected to have a net loss of 1.1 billion to 1.2 billion in the first half of 2022. Many panel manufacturers have fallen into a situation of significant decline in net profit or even losses, which shows that the performance fluctuations brought about by the industry downturn are large.
Although TCL Technology's net profit performance is not bad among its peers, the loss of deducting non-net profit also indicates that its profitability is not optimistic. The main sources of TCL Technology's revenue are divided into semiconductor display, new energy photovoltaics, and investment. According to the performance forecast of TCL Zhonghuan, the net profit attributable to shareholders of listed companies in the first half of the year was 2.85 billion to 3.05 billion yuan. Combined , TCL Technology's panel business is at a loss.
In other words, TCL CSOT is likely to increase its revenue and expand its losses. Given the pessimistic overall environment of the panel market, TCL Technology's net profit performance is obviously somewhat uncompetitive. This also shows from the side that the industry cycle is going down. Technology is under obvious pressure, and the slowdown in revenue growth can also prove this point.
The financial report shows that the revenue growth rate of TCL Technology in the past two quarters was 52.33% and 26.18% respectively, and the year-on-year growth rate dropped from three digits to double digits, and then nearly cut in half. The growth rate of TCL Technology in the first half of this year was 13%- 15%, the growth rate just corresponds to the down time of the panel cycle. That is to say, whether it is revenue performance or the decline in net profit, TCL Technology is not less affected by industry cycle changes. The result of a large family and a large business is that the damage will be greater when the risk comes.
The bottom of the cycle has come?
As a strong cyclical market, the panel industry has obvious differences between the up and down cycles. To put it simply, the panel industry only has winter and summer. Now that the LCD panel industry has entered a mature period of capacity release and cost control, the cyclical characteristics of the panel industry are more obvious, and it is more limited in the cycle of production line investment to capacity release-excess demand-production reduction-demand increase-increase capacity Among them, the panel price is the wind vane of the up and down in the industrial cycle.
The data shows that since the third quarter of last year, the prices of LCD panels of all sizes have continued to fall, with a drop of more than 50%. For example, the average price of 32-inch TV panels dropped from an average price of US$87 per piece in June last year to US$27 in July this year. The dollar, down nearly 70%. As a result of the fluctuating price drop, the pressure on the operation of panel makers has doubled, and at the same time, the seller's sentiment in the stock market has risen.
Under the panel down cycle that has lasted for more than ten months, the continued decline in panel prices has also added more variables for the industry to get out of the shadow of the cycle. More than two months ago, Li Dongsheng, chairman of TCL Technology, said in a media interview that the inflection point of the panel down cycle is difficult to predict, and it is now close to the bottom.
According to TrendForce data, compared to the flat prices of most TV panels in the first half of July, the prices of TV panels of all sizes fell again in the second half of the year, among which the 65-inch panel saw the biggest drop; monitor panels also kept falling, with the 23.8-inch IPS panel dropping the most; In this way, the decline rate of 14.0-inch TN panel is the panel product with the highest decline rate of 7.8% this month.
Obviously, panel prices remain low, and the bottom of the downward cycle has not yet come. Although the price of mainstream LCD TV panel sizes fell below the cash cost in July, judging from the current panel price decline, the TV panel price situation in the third quarter is not optimistic enough. With the gradual expansion of pressure and damage to fundamentals, panel manufacturers have also begun to reduce production capacity in the past two months. For example, Samsung once again announced the suspension of supply chain procurement this month, but as demand continues to slump, the production reduction time is likely to continue.
According to data from Aowei Cloud.com, in the first quarter of 2022 in China's color TV industry, the omni-channel retail volume will be 8.831 million units, a year-on-year decrease of 10.8%; the retail sales volume will be 27.7 billion yuan, a year-on-year decrease of 11.0%. Volume and sales performance is still lower than in the past. It can be seen that due to the impact of lower panel prices, the reduction in TV prices has not played a role in promoting market growth.
The same is true for smartphone sales. According to Canalys, mainland smartphone shipments in the second quarter fell by 10% year-on-year, and sales this year are expected to be the worst since 2012. At the same time, global smartphone shipments fell again, with a drop of 8.7%, after three consecutive quarters of decline. The performance of the PC market is also not optimistic. Gartner statistics show that PC shipments in the second quarter fell by 12.6% year-on-year, the lowest point in the market in nine years.
That is to say, the continued sluggish demand in the downstream markets of the panel industry, such as TVs and smartphones, has also aggravated the difficulty for panel manufacturers to get out of the shadow of the industry cycle. It can be seen that TCL Technology wants to get out of the predicament as soon as possible.
Difficult way to break through
Looking back at the downward cycle of the panel, the time is close to the upward cycle that ended in the middle of last year, but whether it is the continued decline in panel prices, the long-term downturn in demand, and the downward pressure on the economy, it is difficult to predict the inflection point of the downward cycle of the panel .
The reason, on the one hand, is that the release of domestic LCD panel production capacity will take time. Due to the withdrawal of Korean companies, domestic panel manufacturers have released a large number of production capacity. In 2021, the production capacity of TFT-LCD will increase by 8.1% year-on-year. 37.60 days, BOE even increased to 66.04 days. Coupled with the continued decline in panel prices, the second half of this year still faces greater pressure to destock.
On the other hand, the production cuts of panel makers mostly started in the second quarter of this year, and the release of pressure on production capacity is more obvious in the short term. Moreover, as panel prices enter a long period of decline, the production cuts will expand, or even stop production. According to estimates, panel manufacturers cut production by around 20% in the third quarter, and TCL Technology cut production in June, including T6, T7, and T10. The specific scale of production reduction has not yet been disclosed.
However, judging from the performance in the first half of the year, the trend of increasing revenue growth and losses needs to expand the scale of production reduction, otherwise TCL Technology will also suffer a net profit loss. However, as panel prices continue to drop, TCL Technology will also face the problem of balancing production cuts and prices.
But judging from the current performance of TCL Technology, it is not easy to get out of the industry's predicament. The over 10 billion fixed increase plan that has just been passed is mainly used for the t9 project of the medium-sized 8.6-generation line that was built just last year. However, with the need for further industrial integration, the risks behind it will also become greater.
In addition, although domestic panel manufacturers occupy most of the LCD market share, TCL Technology is in an awkward position. On the one hand, there is an obvious gap compared with BOE, and on the other hand, Huike has quietly caught up. DISCIEN data shows that in the first half of 2022, CSOT’s market share for global TV panels will be 23.7%, while Huike’s market share will be 22.9%, with a gap of only 0.8%. As Huike moves towards the secondary market, the danger brought by Huike to TCL Technology cannot be underestimated.
In addition, as the OELD market is becoming a new battlefield for the panel industry, TCL Technology's competitiveness is not sufficient. How TCL Technology can break through the fierce market competition in the future is still a big problem. The next step is to increase the weight of new energy photovoltaics, or to enhance the competitiveness of the panel market, or to go hand in hand will determine whether TCL Technology can change the market sentiment of its stock market that is biased towards the seller, but judging from its past performance, the result is not unpredictable.