TCL Huaxing Wuhan 5.5-generation printing OLED experimental line is expected to achieve small-batch

On May 21, Wang Ran, Gong Qingyu, and Liu Yanjun of the TCL Technology Board of Directors hosted surveys from eight Chinese and foreign investment institutions, including China Merchants Securities, China Securities, UBS, Franklin Templeton SinoAm Securities, Fubon Trust, Hony Capital, President Securities, and Taishin Trust Securities Investment.

At the meeting, TCL Technology introduced the company's operating conditions for the whole year of 2023 and Q1 in 2024 to various institutions and investors, and answered questions such as the supply and demand of large size panels and price trends, and the company's capital expenditure plans that were concerned by investors.

The following is the activity summary:

1. Introduction to the annual operating situation in 2023

In 2023, TCL Technology achieved operating income of 174.367 billion yuan, a year-on-year increase of 4.69%, net profit of 4.781 billion yuan, a year-on-year increase of 167.37%, net profit attributable to shareholders of listed companies of 2.215 billion yuan, a year-on-year increase of 747.60%, and net operating cash flow of 25.315 billion yuan.

2. Introduction to the business situation in Q1 in 2024

In the first quarter of 2024, TCL Technology achieved operating income of 39.908 billion yuan, a year-on-year increase of 1.18%, net profit attributable to shareholders of listed companies of 240 million yuan, a year-on-year increase of 789 million yuan, and net operating cash flow of 6.597 billion yuan.

Looking forward to the future, with the continuous optimization of the supply-side pattern and the steady growth of demand area, it shows that the industry's prosperity is expected to continue to improve, and the operating return of the company's semiconductor display business will further improve; the photovoltaic industry is currently at the bottom of the cycle, and downstream demand is still In high-speed growth, the long-term trend of the industry remains unchanged. The company's new energy photovoltaic business will strengthen its operating resilience and smoothly traverse the industry cycle with relative competitiveness. The company will adhere to the spirit of fighting hard, daring to fight and winning, firmly grasp the opportunities of upgrading the technological manufacturing industry and transforming the global energy structure, continue to implement the implementation of improving the quality and efficiency of operations, forging long boards to make up for shortcomings, innovation-driven development, and accelerating global layout. The business strategy to achieve sustainable and high-quality development and move towards global leadership.

3. Investor Questions and Answers

1. Long-term supply and demand outlook for large size panels?

Answer: First of all, from the demand side, global TV sales have stabilized at a low level in the past two years. The trend of large size has driven the growth of global average size, and the demand area for TV panels has maintained steady growth. According to third-party data, the average global TV size reached 50.7 inches in the first quarter of 2024, an increase of 2.4 inches year-on-year in the same period last year. Large size is a long-term trend in the industry and will promote long-term stable growth in demand area.

Secondly, from the perspective of the supply side, the industry has no new investment in size production capacity, and overseas inefficient production capacity is still withdrawing, and the supply-side pattern is continuing to be optimized. As the industry structure improves, on-demand production has gradually become the industry consensus, and the industry has entered a new stage of orderly development.

Therefore, as the demand area maintains steady growth and the supply-side pattern continues to be optimized, the supply-demand relationship of large size panels is expected to steadily improve, and the prices of large size products will also maintain a positive trend.

2. The industry's power rate level, and the price trend outlook for large size panels this year?

Answer: The demand area for large size panels maintains a long-term growth trend, but when observed on a quarterly and monthly basis, seasonal fluctuations in demand will be shown. Overall, the second and third quarters are the peak seasons for the industry's demand. With on-demand production on the supply side, it is expected that the industry's crop rate will show a trend of increasing in the peak season and decreasing in the off-season. Panel prices will rise in the peak season and slightly fluctuate in the off-season.

In the first quarter of this year, due to the impact of the Spring Festival holiday and annual repairs, the industry's crop growth rate was relatively low. Demand for stocking has driven the crop growth rate to rebound significantly and prices have increased. Currently, the stocking season in the first half of the year is coming to an end, and it is expected that the industry's crop growth rate will fall back somewhat by the end of the second quarter. With the arrival of the peak season for stocking in the second half of the year, the rate and prices still have upward momentum.

From a structural point of view, the main 65-inch and 75-inch products will benefit from a more concentrated supply pattern and stronger demand, resulting in better price performance. In the long run, the demand area for large size panels will grow steadily, there will be no new production line on the supply side and the pattern will continue to be optimized. The average annual crop rate and profitability of the industry are expected to show a positive trend year by year.

3. IT panel price outlook, the progress of the company's IT business?

Answer: Since the size of the display panel is close to that of the TV panel, the production capacity will be affected by the production capacity of the TV panel. As the production capacity of the high-generation line increases, the production capacity of the display panel will also become tight. At the same time, shipments of downstream monitors showed a recovery and growth, so display panel prices have shown a slight upward trend recently.

The current price of notebook panels is relatively stable, with a small structural price increase. In the long run, on the demand side, the AI wave is expected to catalyze the growth of demand for notebook and electronic terminals; on the supply side, the superior production capacity of high-generation lines of domestic manufacturers is expected to continue to replace overseas inefficient production capacity, and the supply-side structure will be further improved. The company maintains a positive attitude towards the long-term trend of notebook panels.

The IT business is one of the engines of TCL China Star's growth. With the smooth climb of the t9 production line in Guangzhou, the company's IT business has developed rapidly, and the display shipment ranking has increased to the top three in the world. Among them, e-sports displays have ranked first in the world in the market share, and notebooks and vehicle-mounted products have been introduced into brand customers as planned and gradually increased in volume.

4. Outlook for OLED product demand, progress and production capacity of the company's OLED business?

Answer: The penetration of flexible OLED panels in the mobile phone field continues to grow. At the same time, high-end technology products represented by LTPO pose challenges to supply-side production line capabilities, further driving the balance between supply and demand of OLED panels.

Since the fourth quarter of last year, the company's flexible OLED products have been in short supply. In the first quarter of 2024, flexible OLED mobile phone panel shipments increased to third in the world. The company's t4 flexible OLED production capacity is designed to be 45K/month. Affected by the development of new products and the introduction of new technologies and new processes, the actual production capacity will be somewhat damaged. In order to better meet customer needs, the company has carried out partial transformation of the production line to achieve capacity utilization. Maximize and increase the proportion of high-end production capacity such as LTPO.

The company firmly implements differentiation and high-end strategies, continuously increases the proportion of high-end products, and the operating efficiency of the OLED business has been significantly improved. This year, the company will further improve product structure and cost optimization to accelerate the improvement of the performance of the OLED business.

5. Show future trends in business depreciation and capital expenditures?

Answer: Most of the company's current 8th generation production lines have been depreciated. However, as new production capacity such as t9 climbs and consolidates, based on the current production line situation, depreciation in 2025 is expected to increase slightly compared with 2024 and reach its peak in 2025. Starting from 2026, it shows that business depreciation will show a downward trend, and as the depreciation of the 11th generation line and OLED production line gradually expires, depreciation will further decrease.

From the perspective of the ratio of depreciation to revenue, as new value-added lines such as t9 drive the company's revenue rapid growth, in the long run, it shows that the proportion of depreciation to revenue of the business shows a downward trend.

The company shows that the production capacity layout of the business is becoming increasingly improved, and subsequent capital expenditures are mainly concentrated on the construction of phase2 of the t9 production line and the production capacity construction of part of the t3 expansion, which are planned capital expenditures; the company currently has no investment plan for the new production line, and the overall capital expenditure will show a downward trend in the future.

6. Progress in the company's printing OLED production line?

Answer: The company plans to build a 5.5-generation printing OLED experimental line in Wuhan. It is currently moving in, installing and debugging the production line equipment. It is expected to achieve small-batch mass production within 2024. The company's printing OLED technology development and production line investment and construction progress are in line with expectations. We will prudently promote the industrialization process of printing OLED based on this experimental line. The company currently has no plans for further capital expenditures and new production lines.

7. Does the company have an investment plan for the 8th generation OLED production line?

Answer: The company currently has no investment plan for the 8th generation OLED production line. Since 2014, TCL Huaxing has been actively conducting R & D exploration in the direction of printing OLED technology. With the joint efforts of industry chain partners such as materials and equipment, the industrial readiness of printing and printing has been improved in recent years. As a result, the company has also promoted the investment and construction of the 5.5-generation experimental line. However, the current demand for downstream OLED medium size products, the maturity of the printing industry chain and the company's technological progress have not yet reached the conditions for mass production, and the company will proceed with a cautious attitude.