汇丰银行-中国平板显示器行业报告：在可折叠领域快速追赶-2019.7-74页.pdf

Disclosures&Disclaimer:This report must be read with the disclosures and the analyst certifications inthe Disclosure appendix,and with the Disclaimer,which forms part of it.Equity Research ReportTelecoms,Media&TechnologyJuly 2019By:Frank He(S1700517120005)China DisplayInitiate coverage:Playing catch-up in a foldable worldWith all the buzz over foldable phones,behind the scenes is a battle to make the screensand,while Korea may be ahead in some aspects,we see a favourable outlook for Chinese display makersInitiate coverage of Jingce at Buy and BOE at ReduceSP OTLIGHT 1 Equities Electronic Equipment&Instruments July 2019 A shake-up is under way in the worlds smartphone market as giants like Samsung and Huawei roll out high-tech foldable phones aimed at re-energizing the handset market.But another shake up is also under way,although not quite as high profile or headline grabbing.Chinese display makers are racing to keep up with all the new technologies,and are looking to take on the leaders like Korea in producing the very latest in flat-panel displays.It should come as no surprise that the flat-panel industry is highly complex,and China has many strengths in many corners of it.But Chinese panel makers still lag behind Korea and Japanese peers in areas like foldable or large-size organic light-emitting diodes(OLED)panels which are the key ingredients now used in the very latest smartphones and 60”TVs.This technology cannot be understated it improves everything from picture quality to power consumption and we see it revolutionizing the display industry in the coming decades.The goods news though is that thanks to hundreds of millions of tech-hungry consumers at home,heavy investment in R&D,and a rich history of technology strength,we see a favorable outlook for Chinas domestic display equipment companies.In this report we look at:How fast the foldable phone industry can grow,and what are the risks.Why large ultra-high-definition TVs are also part of the picture,driving demand for panels.Why we are taking a cautious view on the LCD panel industry amid oversupply.We initiate coverage of Jingce with a Buy rating,and a target price of RMB62.80,derived from the mid-cycle valuation of 33.3x PE applied to 12-month forward EPS.We also initiate coverage of BOE with a Reduce rating,and target price of RMB3.20,by applying a mid-cycle valuation of 9.0 x EV/EBITDA to the stocks 12-month forward EBITDA.Why read this report?As foldable phones get ready to go mainstream,a fresh wave of technology innovation is under way and,while China is still racing to catch up with the leaders in Korea,Chinese display makers have their advantages,too Initiate coverage of Jingce at Buy and BOE at Reduce Equities Electronic Equipment&Instruments July 2019 2 Why read this report?1 China display revolution 3 Key HSBC stock calls 4 Related research 5 Smartphones need smart displays 6 China Display 10 Company Section 31 BOE(000725 CH)32 Jingce(300567 CH)51 Disclosure appendix 68 Disclaimer 72 Contents 3 Equities Electronic Equipment&Instruments July 2019 China display revolution Source:DSCC,IHS,Sigmaintell,HSBC Qianhai Securities China should begin to outpace Korea in 2021eWe forecast that Chinas OLED capacity share will jump from 7%in 2018 to 63%in 2023eOrganic light-emitting diode(OLED)is leading the new display revolutionUSD100bnAddressable market size of displaysFollowing a 50-year development history from cathode ray tube(CRT),plasma display panel(PDP)and liquid crystal display(LCD),OLED is the fourth wave of display technology innovation8KHigher resolution and pixels perinch(PPI)are the prevailingchoice for TVs over 65 inches5GNetwork will also facilitate 8Kcontent delivery and extend to VR,AR and eventually mobile devices100%201720182019e2020e2021e2022e2023e80%60%40%20%0%Total market share of OLED displays7%201425%2018KoreaChinaJapan63%7%Flexible andfoldable phonemarket8K TV:the next key driverfor TV panelsPhoneshipmentsFoldablepanelindustryaverageyield2025e2019e53.4m0.5m118%CAGR60%2021e25%2019e8K TV shipments5.4m0.4m2019e2022e Equities Electronic Equipment&Instruments July 2019 4 Key HSBC stock calls Jingce 300567 CH Current price:RMB50.49 Target price:RMB62.80 Upside:24%Jingce is Chinas leading display testing and inspection equipment vendor,with key customers including BOE,CETC,TCL,Visionox and BenQc.We believe Jingce is well positioned to benefit from Chinas panel makers robust investment in large-size LCD and OLED fabs in the coming years and the secular import substitution trend in Chinas display and semiconductor industry.In addition,product portfolio expansion from display module to cell and array inspection,as well as semiconductor automatic test equipment(ATE),should serve as new growth dimensions.Buy BOE 000725 CH Current price:RMB4.29 Target price:RMB3.20 Downside:25%BOE is Chinas largest flat panel display maker,with strong exposure to the LCD and flexible OLED panel market segments We are concerned about the pricing outlook for large TV panels due to oversupply risk in the years ahead,as well as the share loss of a-Si panel capacity against LTPS and OLED going forward.We expect BOE to gain share in flexible and foldable panels for smartphones while the profitability remains uncertain due to potential aggressive pricing strategy.Reduce Priced at close of 25 July 2019 Source:HSBC Qianhai Securities estimates 5 Equities Electronic Equipment&Instruments July 2019 Related research Recommended reading.Asia Display:Bracing for another downturn 9 July 2019 Semi/OLED equipment:Reviving OLED orders momentum 15 February 2019 Korea tech:Weak fundamentals well known,and interest rising 21 January 2019 OLED:Temporary hiccup rather than secular weakness 7 March 2018 Foldable Display:A turning point 4 January 2016 Equities Electronic Equipment&Instruments July 2019 6 As foldable phones go mainstream,display suppliers are coming along for the ride Foldable smartphones made their debut this year with Koreas Samsung and Chinas Huawei launching their cutting-edge handsets and drawing huge interest from consumers and investors alike.These devices unfold into a single screen far larger than a regular smartphone and more like a tablet and the hope is theyll rejuvenate a stagnant handset market.But behind all the glitz of these high-tech launches lies another battle playing out.China is racing to catch up with Korean and Japanese peers in supplying the latest display screens for not just this new range of foldable phones hitting the market,but also a host of other devices like ultra-high-definition TVs.The technology thats making these devices possible is OLED(aka,organic light-emitting diodes)thats better than previous technology on just about almost every level from picture quality to power consumption to form factor,and that we see revolutionizing the display industry in the coming decades.We estimate the display industrys addressable market size to be around USD100bn in 2019 with OLED already taking considerable market share.We see that momentum continuing with OLED likely to capture 53%of market share in smartphone panel shipments in 2023 versus 26%in 2018,according to Sigmaintell.In the coming three years,we believe flexible and foldable OLED,as well as 8K resolution display,will become the key growth areas for the display industry.Unlocking the foldable phone industry For foldable phones,we believe demand will seriously pick up from 2020,when several technical challenges such as their durability are solved,and various new designs for critical components come on line,including protective covers and hinges.Assuming those improvements play out,we forecast foldable phone shipments increasing from 0.5m in 2019 to 53.4m in 2025e,implying a 118%CAGR,with the penetration rate increasing Smartphones need smart displays Samsung and Huawei have launched foldable smartphones.Apple is reportedly looking at foldable iPads.And TVs are taking high-definition to another level.What do they all have in common?High-tech panel displays that are used to tap,swipe and watch content on.China has dominated the previous generation of displays but is now racing to catch up with Korea,and to some extent Japan and Europe too,in building the very latest displays.However with hundreds of millions of tech-hungry consumers at home,heavy investment in R&D,and a rich history of technology strength,we see a favorable outlook for Chinas domestic display equipment companies.OLED already accounts for over 25%of the total display market in 2018,versus 7%in 2014.7 Equities Electronic Equipment&Instruments July 2019 from a tiny 0.1%in 2019e to more than 3%in 2025.Moreover,special manufacturing processes are needed in foldable OLED compared with regular OLED.DSCC expects one of the major measures that the industry uses for foldable panels average yield to increase from 25%in 2019 to 60%in 2021,helping drive OLED panel costs down.For TVs,its all about the 8K TVs arent just getting bigger;theyre also getting clearer.Today,the 8K TV is the prevailing choice for consumers buying a TV over 65 inches,given its higher resolution and high pixel per inch.Added to that is the upcoming 5G network rollout which we believe will boost supply of special-enhanced content designed especially for the 8K,and also to other potential mobile devices going forward.We see 8K TV shipments increasing from 0.4m in 2019 to 5.4m units in 2022,implying a penetration rate of 2.3%,according to IHS.We believe LCD will be the preferred format for 8K TV in the coming three years due to its cost advantage as OLED cost will not be significantly lowered after ink-jet printing(IJP)is widely adopted beyond 2020.Cautious view on LCD panel supply demand outlook Looking at overall LCD panel area demand we estimate TV,PC,and smartphone accounting for around 70%,15%,and 7%in 2018,revealing that TV displays broadly determine LCD industry demand.We expect low single-digit growth for the area size of LCD TV panels in 2019-25e,with the proliferation of 55”and above TV sizes to drive the average screen TV size going forward.On the supply side,there are four new Gen 10.5/11 LCD fabs(fabrication plants)commencing mass production in China in 2019-20 with an aggregate capacity of 390,000 sheets per month.This represents over 20%increase of current large panel capacity,and all of them are assigned to manufacture TV panels,creating ongoing pressure on large-size TVs pricing outlook.For smartphone LCD panels,they are facing competition from OLED panels,so we expect they will continue losing market share in the coming years.Within the LCD panel category,amorphous silicon(a-Si LCD)panel oversupply is likely to persist as LCD is likely to face growing pressure from low temperature poly-silicon(LTPS)LCD.On the positive side,potential capacity shut downs or conversions to OLED panel fabs that could ease the oversupply.Plenty of room for Chinas display equipment The LCD and OLED display manufacturing process can be divided into three phases,namely,array,cell,and module(see later in this report for details of what each phase does).For a typical flat panel display fab investment,equipment spending accounts for 60%of total capex,with array,cell and module generally accounting for approximately 70%,25%and 5%of the total equipment investment.Japanese,Korea and European vendors are still dominating the array and cell manufacturing equipment.Chinese equipment vendors(such as Jingce)now mostly have good exposure to module testing and inspection,which represented only around 1%of the total display equipment spending of USD18bn in 2018.This suggests ample room for Chinese equipment vendors to gain share and realise import substitution in the years ahead.Per company data and DSCC estimates,Chinas share of total display equipment spending is on the increase,rising from 50%in 2017 to 91%in 2018 and an estimated 92%in 2019e,followed by 81%and 75%in 2020e and 2021e.We see a favourable outlook for domestic display equipment companies.Initiate coverage of Jingce and BOE Jingce(300567 CH,Buy):Jingce is Chinas leading display testing and inspection equipment vendor,with key customers including BOE,CETC and TCL.We believe Jingce is well positioned to benefit from Chinas panel makers robust investment in large-size LCD and OLED fabs in the coming years and the secular import substitution trend in Chinas display and semiconductor industry.Moreover,product portfolio expansion from display module to cell and array inspection,as well as semiconductor automatic test equipment(ATE),serve as potential growth drivers.Equities Electronic Equipment&Instruments July 2019 8 ATE represents around 8%of semiconductor equipment investment,with an implied addressable market size of RMB35bn worldwide and RMB7.2b in China in 2018.We forecast that Jingce will register a 37%revenue CAGR in 2018-21e,driven mainly by a 65%CAGR in OLED inspection systems,a 49%CAGR in flat-panel automation equipment,and a 27%CAGR in automatic optical inspection(AOI)equipment.By applying a mid-cycle PE of 33.3x to 12-month forward EPS,we derive our target price of RMB62.80 for Jingce.We expect the near-term share price catalyst to be design wins in display and semiconductor customers.Risks:slowdown in display fab investment,competition,and slower execution in semiconductor business.BOE(000725 CH,Reduce):BOE is Chinas largest flat panel display maker,with strong exposure to the LCD and flexible OLED panel market segments,and with comprehensive product coverage in smartphone,notebook,monitor,TV,IoT,auto,etc.It is now ranked No.1 in terms of LCD TV,monitor,and smartphone panel shipments.We believe BOE will continue to gain market share in the LCD panel segment in the coming years,especially in the large-size TV segment,thanks to the capacity ramp-up and rollout of Gen 10.5 fabs in Hefei and Wuhan.In addition,with one flexible OLED panel fab under operation and three either under construction or in the planning stage,we expect BOE is set to gain share in flexible and foldable panel in smartphones,with the potential to be qualified by new customers in 2019,overtaking Huawei.On the other hand,we are concerned about the pricing outlook for large TV panels due to oversupply risk in the years ahead,as well as the share loss of a-Si panel capacity against LTPS and OLED going forward.We are also concerned about profitability at the companys OLED fab given the potential aggressive pricing strategy to gain orders.We use an EV/EBITDA approach to value BOE.We project BOE will register an 18%EBITDA CAGR over 2018-21e versus its historical average of 21%.We thus apply a mid-cycle valuation of 9.0 x EV/EBITDA to 12-month forward EBITDA.Accordingly,we derive our 12-month target price at RMB3.20.Upside risks to our view include higher-than-expected panel prices,design wins in flexible OLED panels,and a steeper-than-projected rise in demand for smartphone panels.Where we are different from consensus The delay in rolling out the first