Semiconductor display business contributes more than half, and TCL's revenue in the first three quarters exceeds 100 billion yuan | Hardcore Analysis

Author｜Huang Nan

Editor｜Yuan Silai

After the data verification in recent months, it is an indisputable fact that the consumer electronics market is recovering.

Since September, the implementation of the hundred-billion-level "trade-in for new" and "national subsidy" policies and a series of e-commerce platform incentives have stimulated consumers' purchasing enthusiasm, promoting the consumption upgrade and sales growth of household appliances such as televisions.

The multi-dimensional climbing data is a powerful evidence for manufacturers to go through the cycle. Focusing on each industrial chain side, the upstream supply chain end represented by display panels and others has also ushered in new opportunities.

Recently, TCL Technology announced its Q3 performance for the 2024 fiscal year. The total revenue in the first three quarters was 123.028 billion yuan, and the net profit attributable to the parent company was 1.525 billion yuan. Among them, in the core panel business, during the reporting period, TCL Technology's market share of TV panels remained firmly in second place globally.

With the technological progress and the recovery of market demand to a certain extent, in terms of the current changes in the domestic consumer market, driven by subsidy policies and the trend of large-sized and high-end televisions, the panel business is expected to usher in a new round of growth.

Largest Market Share in Large-Size Panels Globally

Judging from the performance of the main business, TCL Technology's semiconductor display business has performed outstandingly. During the reporting period, the supply-side pattern of the display industry was stable, the trend of large-sized panels drove the continuous growth of demand area, the supply and demand relationship in the industry remained healthy, and the profitability of mainstream products represented by TV panels improved year-on-year.

Reflected in the specific data performance, the revenue of the display business increased by 25.74% year-on-year to 76.956 billion yuan, accounting for more than 50% of the total performance. The net profit was 4.443 billion yuan, an improvement of 6.067 billion yuan year-on-year, and the operating net cash flow reached 19.838 billion yuan, with good profitability and cash flow conditions.

Currently, consumers' consumption preferences are more inclined to purchase large-sized TVs to obtain a better viewing experience. According to the data from Lotu Technology, in the third quarter of 2024, the sales share of 75-inch TVs in the Chinese TV market accounted for 20.8%, becoming the largest size in retail volume; the sales of 85-inch and 100-inch TVs increased by 48.4% and 182.7% respectively year-on-year.

The Trend of Large-Sized Panels (Source: Official Website)

From the perspective of panel size differences, TCL Technology has an absolute advantage in the large-size field. Its TV panel share currently remains firmly in second place globally, and the market share of 65-inch and 75-inch panels reaches the first place globally. The shipment area proportion of 65-inch and above products has increased to 55%, and it has also laid out ultra-large commercial displays such as interactive whiteboards and video walls.

However, affected by the slowdown of the global economic growth rate and the sluggish consumer demand, the market demand for large-size panels in the first three quarters remained sluggish. The price of TV panels rose moderately in the first half of the year, slightly declined since the third quarter, and is currently in a stable state.

Driven by policies such as "trade-in for new", it stimulates consumers' intention to purchase new large-size TV and other household appliance products, directly driving the sales growth of TCL large-size panel TVs, and it will continue to rise in the short term. TCL China Star is also increasing the production and supply of large-size panels to meet user needs while increasing the proportion of high-end products.

In August previously, TCL Technology announced that TCL China Star intends to acquire 70% of the equity of LG Display (China) Co., Ltd. and 100% of the equity of LG Display (Guangzhou) Co., Ltd. through a total consideration of approximately 11.1 billion yuan, becoming the preferred bidder for the equity of LG Display's subsidiaries in China.

TCL China Star Office Building (Source: Official Website)

According to DSCC's forecast, in the next few years, the demand for LCD panels calculated by area will exceed the production capacity; especially in the TV panel field, the growth of TV screens is the biggest driving force, and the proportion of TV panels in the display area demand exceeds 70%. Among them, in 2024, the global LCD TV panel shipment area is expected to reach 170 million square meters, an increase of 3.7% year-on-year. By 2028, the shipment area of LCD panels will maintain an average annual growth rate of about 5%.

This means that the global LCD production capacity may increase at an average annual rate of less than 1%, far lower than the demand growth rate. Next, there may be a shortage of supply of LCD panels, especially during the peak demand period.

Once the acquisition of TCL China Star and LG Display is completed, it can greatly enhance TCL Technology's production capacity and market share in the large-size panel market, and the bargaining power and discourse power in the LCD TV panel market will also be further enhanced.

Photovoltaic Business Still in Loss

With energy transformation becoming a global consensus, as one of the new energies with the most prominent economy, the global demand for photovoltaic has a long-term upward pattern. However, from the perspective of the actual industrial development trend, in recent years, under the double pressure of price wars and technological iterations, the prices of the midstream links of the photovoltaic industry chain such as silicon wafers and silicon materials have continued to fall sharply, leading to a decline in the profitability of enterprises and even losses.

TCL Zhonghuan's focused new energy photovoltaic industry is currently at the bottom of the cycle. Financial report data shows that the total operating revenue in the first three quarters of 2024 was 22.582 billion yuan, a year-on-year decline of 53.6%, and a loss of 6 billion yuan..

Moreover, the gross profit margin of the photovoltaic business has shown a downward trend in recent years. It fell within 10% in 2023, dropped to -16% in the second quarter of 2024, and further fell to -22% in the third quarter.

Although its new energy material business segment leads in cost per watt, the total loss has increased due to the impact of product prices and inventories. The competitiveness of the new energy battery module business segment is relatively insufficient, which further drags down the operating performance.

As the photovoltaic industry has fully entered the N-type era, the market share of N-type 210 silicon wafers is gradually increasing. N-type 210 silicon wafers refer to silicon wafers made of N-type silicon materials with a size of 210 millimeters. They are one of the basic units of photovoltaic cells, with higher electron density and better conductive performance. The 210-millimeter size makes the silicon wafers have a larger light-receiving area, which is beneficial to improving the power and efficiency of photovoltaic cells.

Currently, major manufacturers are increasing their research and development and production efforts of N-type 210 silicon wafers to meet the market demand for high-efficiency photovoltaic products.

According to the financial report data, in terms of research and development and innovation at TCL Zhonghuan, the proportion of research and development expenses in revenue has decreased in recent years. In the first three quarters of 2024, the company's research and development expenses were 539 million yuan, a year-on-year decline of 71.84%; the proportion of research and development expenses in revenue reached 2.39%, a year-on-year decrease of 1.55%.

3.168MW Huizhou Mobile Communication Project (Source: Official Website)

Despite the decline in research and development expenses, TCL Zhonghuan continues to advance in technological innovation and industrial 4.0 flexible manufacturing capabilities. Among them, in the first quarter, the shipment proportion of N-type and large-size 210 series products accounted for 88%, and the external sales market share of N-type 210 was more than 90%, maintaining a leading position. By the end of the third quarter reporting period, the N-type products achieved a leading monthly output of about 505kg per unit in the industry and a leading number of wafers per kilogram of about 1 wafer compared to the second-best in the industry.

Currently, the global new energy market still has a large growth space, and the global distribution of production capacity is unbalanced. With the changes in geopolitics and trade situations, economic anti-globalization is prominent. Facing the severe shock of the industrial adjustment period, the photovoltaic technology is in a period of rapid iteration, with the continuous emergence of new technologies and products. Cross-border integration and industrial chain integration have become trends. For Chinese enterprises including TCL Technology, opportunities and competitive games coexist.