First Shanghai Group: Maintains "Buy" Rating for TCL Electronics and Raises its Target Price to HK$6.05

Recently, TCL Electronics received positive ratings and recognitions from First Shanghai Group. As the report mentioned, First Shanghai believes that with stable growth in PRC market, strong growth momentum in overseas markets and breakthrough in Internet business, TCL Electronics achieved outstanding performance in 2019 interim and expected to have better result in 2019FY.

TCL Electronics recorded turnover of HK$22.72 billion, up by 8.0% YoY. Total TV sales volume in the global market reached 15.53 million sets in 1H19, representing a significant increase of 17.9% YoY. Profits attributable to owners of the parent was HK$1.36 billion, soared by 138.1% YoY. Profit attributable to owners of the parent after deducting one-time non-operating gain was HK$550 million, up by 32.9%. Both the Company's TV sales volume and profit achieved solid results in 1H19.

The sales volume of the Company in 1H19 ranked No. 2 in the global TV market, representing the Company's advantage of globalization became more stable. At the same time, its profitability also rose steadily. In the first half of the year, the Company's gross profit margin increased by 1 percentage point YoY to 15.1% and hit a 2-year high by increasing to 17.1% in 2Q19, showing the strong growth in both profitability and sales scales in overseas market.

The premium product strategy is effective in the PRC market. Sales volume of TCL brand TV in the PRC market reached 3.24 million sets, up by 6.9% YoY, which outperformed the market. The profitability remained stable, and the gross profit margin of TCL brand TV increased by 0.8 percentage point to 24.3% YoY, which also hit a 2-year high by increasing to 25.3% in 2Q19.

The user scale of the Company's Internet business continues to expand, and its operation capability and monetization ability continue to increase. The revenue from Internet business was HK$350 million in 1H19, a notable increase of 125.5% YoY. Moreover, the Company has become the first company in the industry achieving breakthroughs in overseas Internet business as it generated new revenue stream of HK$96 million through deepening cooperation with Roku and Google.

First Shanghai Group upgrades the Company's adjusted basic earnings per share for the year of 2019 to 2021 to HK$0.50/0.54/0.63 respectively, it also raises the target price to HK$6.05 from HK$5.50 for the next 12 months and reiterates "Buy" rating on TCL Electronics.