Leading Panel Manufacturer Emerges from Downturn

Author | Huang Yu

Editor | Zhou Zhiyu

After experiencing the cold winter of the panel industry, TCL Technology finally saw a rebound in its performance.

On April 29, TCL Technology (000100.SZ) disclosed its 2023 annual report. Last year, it achieved a revenue of 174.367 billion yuan, a year-on-year increase of 4.69%; a net profit of 4.781 billion yuan, a year-on-year increase of 167%; a net profit attributable to the parent company of 2.215 billion yuan, a year-on-year increase of 748%; at the same time, its cash generation ability improved, with a year-on-year increase in net operating cash flow of 37% to 25.315 billion yuan.

Against the backdrop of improved supply and demand in the semiconductor display industry, TCL Technology's profitability improved significantly last year. For comparison, in the full year of 2022, TCL Technology's revenue increased slightly by 1.8% to 166.55 billion, with a net profit attributable to the parent company of only 260 million yuan, a year-on-year decrease of 97.4%.

Semiconductor display panels are a recognized cyclical industry, with its cyclicality mainly caused by the superposition of capacity and demand cycles with economic cycles. In order to find new growth momentum, TCL Technology acquired Zhonghuan in 2020, which focuses on new energy photovoltaics and semiconductor materials, and stated that there will be no new strategic tracks for expansion.

By meeting the high-speed development needs of the new energy industry, TCL Zhonghuan achieved rapid growth in 2022 and became TCL Technology's largest source of revenue that year, surpassing semiconductor displays. However, this highlight did not last long, as semiconductor displays became TCL Technology's performance growth engine again last year.

According to TCL Technology's annual report, in 2023, its semiconductor display business achieved operating income of 83.655 billion yuan, a year-on-year increase of 27.26%, with a net profit of -0.07 billion yuan, a year-on-year decrease in losses of 7.618 billion yuan.

In contrast, TCL Zhonghuan saw a year-on-year decrease in operating income by 11.74% to 59.146 billion yuan last year. Due to factors such as product price declines, losses from investments in associated companies, and impairment provisions, the net profit for the full year decreased by 44.88% to 3.899 billion yuan, but still remained a major source of profit for TCL Technology.

The turning point for the semiconductor display business occurred in the second half of the year, with this business segment turning losses into profits in the third quarter of last year and continuing to achieve good profits in the fourth quarter. In the second half of 2023, a total profit of 3.441 billion yuan was realized, and the profitability gradually stabilized and rebounded.

TCL Technology pointed out that the improvement in the performance of the semiconductor display business was due to the improvement in mainstream product prices as supply and demand relations improved. TCL Technology also actively optimized its business strategy and improved its business structure.

The advantage in the large-size panel sector became the main reason for TCL Technology's significant turnaround in the semiconductor display business According to TCL Technology's annual report, in 2023, TCL Technology firmly held the second place in the global TV panel market share, with the first place globally for 55-inch and 75-inch products, and the second place globally for 65-inch products. The proportion of shipments for 55-inch and above size products increased to 79%, and for 65-inch and above products, it also reached 51%.

Against the backdrop of overall low demand for global display terminals, the trend towards larger TV panels has driven steady growth in area demand, leading to price increases. Public data shows that since March last year, large-size panels have started a wave of "seven consecutive price increases", with TV panel prices generally rising by over 20%, and some even exceeding 50%.

TCL Technology's advantage in the large-size sector has been highlighted in this market trend.

Furthermore, TCL Technology continues to strengthen its presence in the medium and small-size panel sector. The financial report shows that last year, TCL China Star's T9 production line for medium-sized IT and automotive businesses reached full capacity, ranking third globally in overall shipments of displays, with the global first place in the gaming monitor market share. Its business revenue share increased to 21%, becoming a major growth engine for the future.

In the small-size sector, TCL China Star positions itself in the mid-to-high-end market with a combination of LTPS and flexible OLED production lines. In the fourth quarter of last year, TCL China Star's shipments of flexible OLED smartphone panels rose to fourth place globally, with a doubling of revenue from flexible OLED business for the whole year.

For TCL Technology, in a situation where the TV panel industry is entering a mature competition phase, including areas such as gaming, laptops, automotive, and foldable screens, the medium and small-size panel sector all represent potential business growth points that must be seized.

As for new energy photovoltaics, TCL China Star's performance has been weak due to internal and external factors.

TCL Technology stated that under the "dual carbon" strategy, the demand in the new energy photovoltaic industry continues to grow. However, due to industry supply-demand imbalances, product prices have fallen. In addition, losses from investments related to the affiliated company Maxeon, long-term equity investments, and changes in fair value have led to asset impairment losses.

The new energy photovoltaic business still faces growth pressure in the short term. TCL Technology believes that the photovoltaic industry will remain at the bottom of the market cycle in the short to medium term, with severe supply-demand imbalances. Technological transformation of products and the survival of the fittest in terms of capacity will drive the elimination of outdated capacity.

Furthermore, during the performance briefing, TCL China Star's management pointed out that as players in the photovoltaic industry become more rational, the industry will not stay at the bottom for too long, but industry consolidation and performance improvement will still take some time.

In such a challenging period, TCL China Star has also formulated a series of response strategies to focus on enhancing its own competitiveness.

Although the second growth curve is currently at a low point, the semiconductor display, as the foundation of TCL Technology, is reaching a turning point. Group Wisdom Consulting points out that the display industry is emerging from the bottom in the short term and moving towards growth. It predicts that by 2024, global panel manufacturers' sales revenue will increase by about 11% year-on-year, reaching around $103.3 billion In the new cycle of the panel industry, whether TCL Technology can achieve new breakthroughs remains a focus of external attention.

The new journey has already begun