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Q3 profit tripled, TCL Electronics stepped out of the second growth curve

Recently, TCL Electronics disclosed its financial report for the third quarter of 2020, with both revenue and net profit increasing significantly.

This is a satisfactory financial report.

Specifically, TCL Electronics’ revenue in the third quarter was 14.683 billion Hong Kong dollars, a year-on-year increase of 76.6%, and the net profit attributable to the parent was 2.096 billion Hong Kong dollars, a year-on-year increase of 1355.6%. Among them, the main business has achieved significant growth. The global TV sales increased by 49.7% year-on-year and 24.7% month-on-month to 7.24 million units. The global market share increased by 2.7 percentage points year-on-year to 11.3%, ranking the top three in the world. ; Revenue of HK$11.92 billion. Internet business revenue increased by 62.1% year-on-year to HK$260 million, with a profit contribution rate of about 30%.

Since the beginning of this year, the epidemic has enveloped, but TCL Electronics has been able to achieve double growth in revenue and net profit against the trend, and its Internet business has blossomed at home and abroad, which can be described as a thriving. Therefore, a few days after the release of the third quarter financial report, TCL Electronics was given positive ratings such as “buy” by securities investment banks such as CITIC Securities, Essence International, Guotai Junan, and CICC. Previously, CITIC Securities conducted a segment valuation of its rapidly growing Internet business and gave a target valuation of 32x PE, corresponding to a target price of HK$11.6.

There is also a lot of mystery behind outperforming the industry.

Contrary to the trend, the increase has driven the intelligent upgrading of the industry

In the third quarter of 2020, TCL Electronics’ revenue structure was slightly different from the past. In order to promote the “AI x IoT” strategy, the mobile phone and consumer electronics businesses were consolidated in September, so the entire business structure and strategic thinking became more and more clear. : With smart Display as the core, build TCL brand smart hardware (TV + mobile phone) and Internet business, and build three business systems of smart home, smart mobile and smart business Display.

If further analysis, there are three bright spots.

First, the TCL brand TV business grew strongly and its market share continued to increase.

The TV business is the pillar business of TCL Electronics, with a cumulative sales volume of 17.32 million units in the first three quarters, a year-on-year increase of 14.4%. It ranks among the top five in terms of sales and market share in 15 countries around the world.

For a long time, TCL Electronics has insisted on the expansion of its own overseas brands and competed with international TV giants for overseas markets. Now this expansion has achieved substantial results and is a good start.

Secondly, the Internet business represented by “Thunderbird” is on the rise.

TCL Electronics’ Internet business is divided into two parts: China and overseas. In the third quarter, the domestic “Thunderbird” revenue reached 180 million Hong Kong dollars, an increase of 80.9% over the same period last year. Among them, the membership business income, value-added business income and advertising business income increased by 82.3% and 300% year-on-year respectively. and 9.2%. Overseas cooperation with Internet giants also reached 81.44 million Hong Kong dollars, a year-on-year increase of 32.3%.

Combined with the past few quarters, the growth rate of TCL’s Internet business has far exceeded that of the TV business, showing a strong growth inertia, currently accounting for about 30% of the company’s total profit.

Then, it is the promotion of large-screen TVs and intelligent upgrades.

In the third quarter, the average sales size of TCL brand TVs increased by 0.5 inches year-on-year to 45.5 inches, the sales volume of 65-inch and larger super-screen TVs increased by 62.3% year-on-year, and 4K TVs increased by 4.5% year-on-year. 1 percentage point to 54.8%, and the sales of smart TVs also increased by 10.3 percentage points to 91.4%.

This shows that TCL Electronics’ large-screen and intelligent strategy is steadily advancing, opening the gap with its competitors on a global scale, which is conducive to the subsequent strategic advancement of “AI x IoT”.

Combining the above three highlights, it can also be seen that TCL Electronics has further strengthened its position as an industry leader, driving the overall upgrade of the entire industry, not only in black electricity.

Under the new competition logic, the Internet business has become the second growth engine

From the perspective of Mantis Finance, the most thought-provoking and interesting part of the third quarterly report should be the Internet business.

Why do you say that?

At present, the global sales of TCL brand TVs are basically the same as that of LGE, and they have further narrowed the gap with Samsung, which ranks first.

According to the 2020 Q3 Global TV Shipment Report released by TrendForce, a third-party research organization, TCL Electronics has the fastest growth among the world’s top five TV brands, with a growth rate of 49.7% far exceeding LGE’s 6.7%. If this growth rate continues, the intersection node is in front of you, and it is very possible to sit and look at it.

Q3 profit tripled, TCL Electronics stepped out of the second growth curve

However, TV is not an emerging industry after all. It has been fully competitive in the past few decades. It may not be difficult to go from 0 to 1, but the difficulty from 99 to 100 is not small. It is difficult to open the competition under the ordinary path. gap.

At this time, an external stimulus is needed.

For example, Xiaomi in TOP 5 is a typical spoiler. It was originally a young smartphone manufacturer, but through software and cost-effectiveness, it entered the TV industry abruptly.

Every enterprise that has undergone the transformation of the times has a strategy update, and each time it enters a new stage, it does not mean that the original model is abandoned, but coexists and explores.

Xiaomi has opened up a new situation by injecting innovation into its original business, and the same is true of TCL Electronics’ Internet business.

In this way, TCL Electronics has added Internet business on top of its original main business (TCL brand TV) to enrich content and enhance consumer experience, thereby bringing more added value to TV sets, injecting new competitiveness, and driving Revenue and profit increased significantly.

In China, manufacturers such as Hisense, Skyworth, and Xiaomi are also aware of this problem and have created their own OTT Internet service platforms, such as Coocaa, Juhaohao, etc.

Thunderbird Technology was established in 2017. In 2019, it attracted much attention from capital and was also included in the list of “quasi-unicorns” by 36氪. Net profit nearly tripled year-on-year to HK$56 million, with a net profit margin of 30.9%. In terms of strategic synergy and interests, it has a deeper connection with the TV business.

Q3 profit tripled, TCL Electronics stepped out of the second growth curve

At present, Thunderbird continues to strengthen its cooperation with Tencent, ByteDance, Kuaishou, Nanfang New Media, Sina and other companies to open up content such as National K-song and Douyin, and is also exploring new possibilities in vertical applications. For example, cooperate with China Telecom to create “Tianyi Cloud Games” to seize the game market.

As of September 30, the number of existing members of Thunderbird increased by 42.2% year-on-year, and the number of monthly active users reached 17.4 million, a year-on-year increase of 21.3%. In the first three quarters of 2020, the average daily boot time of users was 5.84 hours. A year-on-year increase of 9.6%, average revenue per user (ARPU) was HK$33.8, a year-on-year increase of 36.5%.

According to Guotai Junan’s forecast, the compound growth rate of Falcon’s net profit in the next five years is expected to reach 40%. CITIC Securities also believes that the revenue brought by Falcon will exceed HK$2 billion in 2023.

That is to say, TCL TV wants to climb high, Thunderbird has already helped the ladder.

Overseas, TCL Electronics has similar intentions. It continues to strengthen cooperation with content providers such as Google, Roku and Netflix, and actively promotes TCL Channel in 12 countries including Italy, Spain, Ukraine and Australia. Further build a content moat.

Reshape the growth logic, adjust counter-cyclically and get out of the second growth curve

In this way, the smart display terminal (brand TV + mobile phone) can be used as the basis of TCL Electronics’ smart display core strategy, and the Internet business can be regarded as the “traction force” for the future.

When the innovative Internet business is combined with the original TV business, a full-scenario smart display ecosystem can be built centered on the three scenarios of smart home, mobile service and smart business display. TCL Electronics is no longer a traditional TV manufacturer.

We can also understand TCL Electronics as a new technology company with a development pattern of “hardware + software + content aggregation”, and is gradually forming a dual growth engine of “smart large screen + Internet service”.

In order to accelerate the formation of this twin engine, TCL Electronics is actively investing in research and development in 2020.

According to the financial report, in the third quarter of 2020, TCL Electronics’ R&D expenses reached HK$390 million, a year-on-year increase of 61.2%. Research and development of technologies such as 8K, Mini LED, quantum dots, AI x IoT and Android TV systems.

This is essentially a countercyclical adjustment.

Its core essence is to work hard. When the growth rate of competitors slows down, they invest in research and development. They do not pay attention to the gains and losses of the next city and place, but to accumulate strength for the future when the industry goes out of the trough.

Often, after each industry cycle, the pattern is reshaped.

We see today such as Samsung, LG, Hynix, Toshiba, Hewlett-Packard, TSMC and many other Electronic technology giants in South Korea, Japan, and Taiwan, which benefited from this strategy back then.

Today, the world’s three major TV giants have one thing in common, that is, the stability of the upstream industry chain.

Mainly reflected in the panel business.

Samsung and LGE are supported by the group’s panel business, and TCL’s TV business is also supported by its brother company TCL Technology. The foundation for the industry’s first throne has already been established, and it is not inferior to any brand.

Now, with the help of the Internet business, the competitiveness of TCL TVs has been further strengthened, and the future is full of infinite possibilities.

Wei Qing, CTO of Microsoft China, put forward the concept of “leap between generations”. He believes that in the history of business, almost no company can achieve leadership in two consecutive eras. The second era is actually a subversion of the first era. . Microsoft is a generational leap, missed the mobile era, but won the cloud era.

Then for TCL Electronics, it is a little different.

In the era of hardware competition, TCL Electronics has become a leading company in the industry by relying on the accumulation of technology and channels. Now, facing the future era of 5G+AI×IoT, it embraces the competitive trend of “hardware+software+content” and accelerates its development in dual engines. Under the counter-cyclical adjustment, the company has been upgraded on the basis of “intergenerational leap”, achieved “continuous leap”, and stepped out of the second growth curve, and this growth curve will be TCL Electronics’ competition for the global smart screen Share first, an important part of improving the company’s valuation.

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