BOE Technology: Panel Prices Rise Again, Is This the Revival?

BOE (000725.SZ) released its fourth-quarter financial report for 2023 (ending in December 2023) after the A-share market closed on the evening of April 1, 2024 Beijing time, with the following key points:

1. Overall Performance: Relies on price increases to drive growth. BOE achieved a revenue of 48 billion RMB this quarter, a year-on-year increase of 5.2%; the gross profit margin was 16.2% this quarter, a year-on-year increase of 10.3 percentage points. The growth in revenue and gross profit margin was mainly driven by the increase in panel prices. Considering the market price situation, it is believed that the shipment volume for this quarter only saw a slight increase. BOE's net profit attributable to shareholders this quarter was 1.53 billion RMB, showing a significant improvement compared to the previous quarter.

2. Expenses and Operating Conditions: Inventory returning to a reasonable level. Since the second half of 2021, the panel industry has entered a downward cycle, and inventory indicators have become an important guide for determining the cycle. Compared to the peak of 30 billion RMB in inventory, the company's inventory has significantly decreased this quarter, returning to a reasonable level. Although there has been a significant reduction in inventory, it is mainly due to proactive capacity reduction rather than strong demand.

Overall, BOE's financial report this time is considered satisfactory. Both revenue and profit have rebounded, continuing the expected recovery in the panel cycle. As the cycle improves, the inventory situation is gradually improving and returning to a reasonable level. Overall, it meets market expectations.

As for the 1.5 billion RMB profit contributed by the company this quarter, it mainly comes from non-recurring items. After excluding the impact, the operating profit for this quarter is around 600 million RMB, showing a gradual recovery but not as high as the net profit figure. It is believed that the increase in panel prices in the fourth quarter mainly resulted from the reduced operating rates of manufacturers. However, the price increase caused by supply-side contraction is not sustainable.

Currently, panel prices are rising again starting from the first quarter of 2024. It is believed that the overall downstream demand in 2024 will be slightly better than the previous year, panel prices are expected to continue to rise, and the company's performance will gradually improve. In the medium to long term, with the recovery of downstream demand and improvement in fundamentals, it is also expected to drive the company's stock price higher.

The following is a specific analysis of BOE by the source:

1. Overall Performance: Relies on price increases to drive growth

1.1 Revenue End

In the fourth quarter of 2023, BOE's total revenue was 48.03 billion RMB, a year-on-year increase of 5.2%, which basically meets market expectations (48.4 billion RMB) Revenue continued to rebound in the fourth quarter, but Dolphin believes that this increase in income is mainly driven by price, with no significant increase in volume. Compared to the third quarter, the average price of large panels in the fourth quarter increased by about 2% month-on-month. The company's revenue in this quarter only increased by 3.6% month-on-month, indicating a slight increase in shipments. The price increase in the fourth quarter mainly came from the price effect brought by the supply-side contraction.

1.2 Gross Profit

BOE achieved a gross profit of 7.8 billion yuan in the fourth quarter of 2023, a year-on-year increase of 189%. The gross profit margin for this quarter was 16.2%, a year-on-year increase of 10.3 percentage points. The gross profit margin rebounded this quarter, mainly driven by the price recovery, leading to a continued increase in the gross profit margin.

1.3 Panel Prices

BOE's revenue and gross profit margin continued to improve, mainly influenced by the rise in panel prices. So, how have panel prices performed?

According to Witsview's late March pricing, the prices for 65-inch/55-inch/43-inch/32-inch panels were $171/$127/$64/$36 respectively. Although panel prices stagnated at the end of last year, they have risen again in the first quarter. Prices for panels of all sizes have increased by more than 30% from the bottom.

Dolphin believes that the previous increase in panel prices was mainly driven by the supply side. Manufacturers reduced production capacity utilization rates, thereby pushing up panel prices. However, as there were no signs of a significant increase in demand, the price hikes at the end of the year began to stall and fall back.

Since the company's main panel capacity is used for TVs, laptops, and other large displays, demand is greatly influenced by the end market. According to the industry chain and market conditions, the TV and laptop markets are expected to show a moderate recovery in 2024. With the demand side improving, panel prices are expected to continue to rise, and the company's revenue and gross profit margin will also continue to improve.

2. Expenses and Operating Conditions: Inventory Returns to a Reasonable Level

2.1 Operating Indicators

For cyclical industries, focusing on a company's inventory and operating indicators is more important.

① Inventory Situation: 24.12 billion yuan this quarter, a 9.2% decrease from the previous quarter. The inventory-to-revenue ratio for this quarter remains at 0.5. Compared to the peak of 30 billion in inventory, the company's inventory has significantly decreasedHowever, the current inventory turnover ratio has returned to a normal level. Although the company's supply-demand relationship has improved, there is still no strong demand driving force.

②Accounts Receivable Situation: This quarter's amount is 33.74 billion yuan, an increase of 1.7% compared to the previous quarter. The ratio of accounts receivable to revenue is 0.7, relatively stable.

2.2 Expense Ratio Situation

In the fourth quarter of 2023, BOE's total expenses amounted to 5.816 billion yuan, a year-on-year decrease of 17.2%. The expense ratio was 12.1%, with both sales and financial expenses declining this quarter.

1) Sales Expenses: This quarter's amount is 0.893 billion yuan, a year-on-year decrease of 43.4%, with a sales expense ratio of 1.9%. As inventory is digested and prices rise, the company's sales expenses have decreased;

2) Administrative Expenses: This quarter's amount is 1.682 billion yuan, a year-on-year increase of 5.5%, with an administrative expense ratio of 3.5%, maintaining a relatively stable level overall;

3) Research and Development Expenses: This quarter's amount is 3.173 billion yuan, a year-on-year increase of 17.5%, with a research and development expense ratio of 6.6%. The company's research and development expenses, the largest part of the four expenses, continue to maintain a relatively steady investment;

4) Financial Expenses: This quarter's amount is 0.068 billion yuan, a year-on-year decrease of 94.1%, with a financial expense ratio of 0.1%.

2.3 Net Profit

BOE achieved a net profit attributable to shareholders of 1.53 billion yuan in the fourth quarter of 2023, with a significant rebound in profitability.

Due to the impact of non-operating factors on net profit attributable to shareholders, there is some deviation from the company's core business operations. If we consider the pure operational aspect (excluding non-operating impacts), BOE's profit this quarter has steadily rebounded to around 0.6 billion yuan, mainly benefiting from the rise in panel prices.

In the fourth quarter of 2023, the company's net profit margin continued to rise to 3.7%. With the increase in panel prices, the company's profitability has begun to improve, but the current product prices can only maintain the company's just profitable state.

Dolphin Research on BOE Historical Articles:

Financial Report Season

October 31, 2023 Financial Report Review "BOE: Price Increase is Not Real Recovery, Demand is the Real Reason"Financial Report Review on August 28, 2023: "BOE: Real Price Increase, False Recovery" (Link)

Financial Report Review on April 28, 2023: "BOE: Expectations of Recovery Already Fulfilled, Can the Peak Season Stage a Comeback?" (Link)

Financial Report Review on April 6, 2023: "BOE: Surviving the Survival Game, Now It's All About Reading the 'Facial Expression' of Demand" (Link)

Financial Report Review on October 31, 2022: "BOE: Three Signals of Bottoming Out and Recovery" (Link)

Financial Report Review on August 31, 2022: "BOE: Buying into the Cycle Reversal, Not the Performance" (Link)

In-Depth Analysis

Company Deep Dive on July 26, 2022: "Unveiling BOE from Every Angle: Why Short-Term Pitfalls Do Not Affect Long-Term Value?" (Link)

Industry Deep Dive on July 5, 2022: "From Double 'Bulls' to Double 'Bears': Have BOE and TCL's Cycle Challenges Come to an End?" (Link)

Top Analysis on July 21, 2021: "Panel Cycle Peaks, No Bottom to Pick" (Link)

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