BOE: "Hidden Thunder" Lurking, Hard to Escape the Curse

BOE A (000725.SZ) released its second-quarter financial report for 2024 (ending in June 2024) after the A-share market closed on the evening of August 27, 2024, with the following key points:

1. Overall Performance: Price Increase Driving Revenue Recovery. BOE achieved a revenue of 47.5 billion RMB in the second quarter of 2024, a year-on-year increase of 12.5%; the gross profit margin in the second quarter was 17.5%, a year-on-year increase of 6.5 percentage points. The growth in revenue and gross profit margin was mainly driven by the increase in panel prices. Combining with the situation of panel market prices, it is believed that the company's current performance is mainly driven by prices, with no significant increase in shipments.

2. Business Segment Situation: Display Devices are the Main Growth Source. Display devices are BOE's largest source of revenue, accounting for over 80%. In the first half of 2024, the revenue from display devices increased by 14.87% year-on-year, which is the main source of the company's growth. With the boost from the increase in panel prices, the gross profit margin of the display device business in the first half of the year also rose to 13.9%, driving the overall gross profit margin of the company.

3. Expenses and Operating Conditions: Net Profit Margin Improved, but Inventory Increased Again. The company's net profit attributable to shareholders this quarter was 1.3 billion RMB, a year-on-year increase of 166%, and the net profit margin also increased to 2.7%. Although the performance is improving, the company's inventory has increased again this quarter, which will bring pressure to the company's operations.

Overall View from Analysts: BOE's Financial Report this time is not very positive.

Looking at the data alone, the company's operations seem to be improving. Both revenue and gross profit margin have increased this quarter, and the final profit also meets the performance forecast (net profit attributable to shareholders in the first half of the year is expected to be between 21-23 billion RMB).

Analyzing BOE's financial report separately, the company's largest revenue comes from the display device business (nearly 80%). As the main products are screen panels, the change in panel prices directly affects the company's performance. With the rise in panel prices, the company's performance has significantly improved, as seen in this quarter's growth.

Since the financial report mainly reflects the past operating conditions, the company's future performance will still be influenced by the trend of panel prices. With little change in the supply side, panel prices are mainly affected by market demand.

Looking at the current market demand from various perspectives:

1) End Market: The downstream market for panels is still mainly dominated by televisions. Market data shows that in the first half of 2024, the shipment volume of TV brands was 90.717 million units, with only a 0.8% year-on-year increase. From the performance in various markets, there is no clear sign of a significant increase in demand in the second half of the year.

2) Industry Chain: Considering panel prices and the company's financial report, the panel shipment volume of the company in this quarter has not shown a significant increase. The previous increase in panel prices was mainly due to the impact of manufacturers reducing production capacity and the industry chain restockingHowever, due to the lack of sustained downstream demand, panel prices have once again started to decline since July.

3) Inventory: From this financial report, BOE's inventory for this quarter has once again increased, which is in line with the situation in the terminal market and the industry chain. The increase in inventory will also bring pressure to the company's operations.

Overall, Dolphin believes that although the data in this financial report seems to be improving, there are hidden risks. From a dynamic perspective, there is no improvement in industry demand, and $BOE(000725.SZ) inventory has once again increased. Panel prices have been declining since July, and the company's performance in the second half of the year will be under pressure again, unable to escape the cycle curse.

Below is Dolphin's specific analysis of BOE:

I. Overall Performance: Price Increase Driving Performance Recovery

1.1 Revenue End

In the second quarter of 2024, BOE's total revenue reached 47.5 billion yuan, a year-on-year increase of 12.5%, slightly lower than market expectations (48.7 billion yuan). The company's quarterly revenue has exceeded 45 billion for four consecutive quarters, driven by continuous price increases, indicating that the company has bottomed out.

Although the company's revenue in this quarter increased by 12.5% year-on-year, the prices of large panels of all sizes in the second quarter compared to the same period last year have increased by more than 15%. This indicates that the company's shipment performance in this quarter is not ideal.

1.2 Gross Profit End

In the second quarter of 2024, BOE achieved a gross profit of 8.29 billion yuan, a year-on-year increase of 78.5%. The gross profit margin for this quarter was 17.5%, a 6.5 percentage point increase year-on-year. The company's gross profit margin continued to rise this quarter, mainly driven by the increase in panel prices.

With the improvement in gross profit margin, the company's profit margin has returned to above the breakeven line.

1.3 Panel Prices

BOE's performance growth this quarter is mainly due to the increase in panel prices. So, how have panel prices performed?

According to Witsview's late August prices, the prices for 65-inch/55-inch/43-inch/32-inch panels were $173/$127/$64/$35 respectively. The prices of various panels have increased compared to the same period last year.

However, it is undeniable that panel prices have once again shown an overall decline since July. In fact, clues can be seen from the second-quarter financial report. Although prices were temporarily high in the second quarter, there were no signs of a significant increase in shipments.

As the largest demand for panels comes from the TV market, TV sales directly affect the shipment of panels. However, even with events such as the Olympics this year, global TV brand shipments in the first half of 2024 only increased by 0.8%. Especially in the context of real estate factors and changes in the usage habits of young people, sales in the Chinese market have not met expectations.

Overall, Dolphin believes that the previous rebound in panel prices was mainly driven by manufacturers actively raising prices and stimulating the industry chain stocking. However, due to the lack of significant growth in downstream market demand, this round of price increases is not sustainable.

II. Business Segment Situation: Display Devices are the Main Source

2.1 Revenue Segments

Due to BOE's frequent adjustments to the reporting segment criteria in recent years, specific business trends can only be observed. In the current company report, the two main businesses are still the display device business and the IoT innovation business.

1) Display Device Business: Revenue in the first half of the year was 78.013 billion yuan, a year-on-year increase of 14.87%. The display device business is the company's traditional main business, mainly including display screen products such as TVs, mobile phones, and laptops. The revenue growth in the first half of the year was mainly driven by the increase in panel prices;

2) IoT Innovation Business: Revenue in the first half of the year was 17.156 billion yuan, a year-on-year increase of 10.57%. It is more of a B2B business, mainly providing overall solutions in IoT subfields such as smart parks, smart finance, and smart transportation. This business is less affected by the panel industry cycle;

3) Other Businesses: BOE's other businesses also include sensors and solutions, MLED, smart medical equipment, etc., but these businesses currently account for a small proportion and have little impact on the company's performance.

2.2 Gross Margin Segments

Since the display device business accounts for over 80%, the trend of the company's gross margin basically depends on the display device business.

1) Display Device Business: Gross margin in the first half of the year was 13.9%, a year-on-year increase of 7.9 percentage points. The increase in the gross margin of the display device business was mainly due to the rise in panel prices, which is greatly influenced by the industry cycle;

2) IoT Innovation Business: Gross margin in the first half of the year was 11%, a year-on-year increase of 2.4 percentage points. The increase in the gross margin of the IoT innovation business was mainly driven by the recovery in downstream demand. The business's gross margin remains stable around 10%, with less impact from the panel cycle

III. Expenses and Operating Conditions: Net Profit Margin Rebounds, but Inventory Rises Again

3.1 Operating Indicators

During the industry downturn, paying attention to the company's inventory and operating indicators is more important.

① Inventory Situation: This quarter was 26.029 billion yuan, a year-on-year increase of 1.6%. The inventory/income ratio for this quarter has risen to 0.55. Considering market demand and second-quarter shipments, the company's shipment volume slowed down, and inventory levels rose again.

② Accounts Receivable Situation: This quarter was 32.752 billion yuan, a year-on-year increase of 18.6%. The accounts receivable/income ratio is 0.69, at a relatively reasonable level.

3.2 Expense Rate Situation

In the second quarter of 2024, BOE's total expenses amounted to 5.457 billion yuan, an 11.4% year-on-year increase. The increase in expenses mainly came from increased research and development investment. The expense ratio was 11.5%, and due to revenue growth, the company's overall expense ratio has slightly decreased.

1) Sales Expenses: This quarter was 0.895 billion yuan, a 10.1% year-on-year decrease, with a sales expense ratio of 1.9%. The company's sales expenses are somewhat related to revenue changes;

2) Administrative Expenses: This quarter was 1.377 billion yuan, a 5.3% year-on-year increase, with an administrative expense ratio of 2.9%. The company's administrative expenses are relatively fixed and are not greatly affected by revenue;

3) Research and Development Expenses: This quarter was 3.08 billion yuan, an 18.1% year-on-year increase, with a research and development expense ratio of 6.5%. Research and development expenses account for the largest proportion of the four expenses, and the company continues to focus on investing in research and development;

4) Financial Expenses: This quarter was 0.105 billion yuan, with a financial expense ratio of 0.2%. The company's financial expenses account for a relatively small proportion and have minimal impact.

3.3 Net Profit

In the second quarter of 2024, BOE achieved a net profit attributable to shareholders of 1.3 billion yuan, a 166.4% year-on-year increase. The continued rise in panel prices was the main driver of the company's performance improvement this quarter.

In the second quarter of 2024, the company's net profit margin rose again to 2.7%. The increase in panel prices drove the improvement of the gross profit margin of display devices and other businesses, thereby pushing the company's net profit margin back above the breakeven line.

Dolphin Investment Research's historical articles on BOE Technology:

Earnings Season

April 1, 2024 Company Exchange Meeting "BOE Technology: Good Growth and Profitability of Panels in the Next 3 Years (23Q4 Exchange Meeting)"

April 1, 2024 Earnings Review "BOE Technology: Panels Price Increase Again, Is It Really Coming Back This Time?"

October 31, 2023 Earnings Review "BOE Technology: Price Increase is Not a Real Recovery, Demand is the Key"

August 28, 2023 Earnings Review "BOE Technology: Real Price Increase, False Recovery"

April 28, 2023 Earnings Review "BOE Technology: Expectations of Recovery Already Met, Can the Peak Season Stage a Comeback?"

April 6, 2023 Earnings Review "BOE Technology: Surviving the Survival Game, Now It's All About Reading the 'Demand' Signals"

October 31, 2022 Earnings Review "BOE Technology: Three Signals of Bottoming Out and Recovery"

August 31, 2022 Earnings Review "BOE Technology: Buying Not Performance, But Cycle Reversal"

In-depth Analysis

July 26, 2022 Company In-depth Analysis "A 360-Degree Breakdown of BOE Technology: Why Short-Term Risks Do Not Affect Long-Term Value"

July 5, 2022 Industry In-depth Analysis "From Double 'Bulls' to Double 'Bears': Have BOE Technology and TCL's Cycle Challenges Come to an End?"

July 21, 2021 Top Judgment "Panel Cycle Peaks, No Bottom to Buy"Risk Disclosure and Disclaimer for this article: Dolphin Research Disclaimer and General Disclosure