CHOT (pvt), aka Xianyang CaiHong Optoelectronics, is a part of China’s state-owned electronics company, China Electric, aka CEC (state), that is a funding and control source for many companies on the Mainland. CHOT has a Gen 8.6 LCD fab operating in Xianyang, which has been in operation since mid-2018. The fab, which has a stated capacity of 160,000 sheets/month, is focused on TV panels 50” and larger and has been generating between $170m and $180m (US) per month in panel sales through late last year. While we don’t have exact figures yet, it seems the company will be reporting a loss for the 2nd half however, not because the fab is losing money, but because it is taking a write-off against assets in its glass business, which is developing a source of display glass as part of China’s Electronics’ program to reduce dependence on foreign sourcing.
The glass facility, which we have mentioned in the past, is to be six production lines that will be producing Gen 8+ glass substrates, and has begun trial production on its first line which it is in the process of getting verified by Chinese panel producers. If the product is verified, the glass project is expected to begin production on a 2nd line during the 1Q this year. As display glass producer Corning (GLW) has stated in the past, the glass business is a highly capital intensive one and has far more critical parameters that typical building grade glass, and developing a local display glass source has proven far more difficult than we expect China Electric had predicted. In fact, CHOT took a $119m US write-off in the 1st half of last year and is taking another write-off against 2H ’20 of between $30m and $45m as part of the glass project’s assets.
While we expect CHOT itself (excluding amortization) was profitable for at least the last quarter of 2020, the glass project will likely continue to weigh down their contribution to CEC. A rosier picture has been painted by Chinese brokers who focus on the concept that the write-offs are decreasing and the large 1H write-off was the result of older Gen 5.5 glass assets (impaired), while the 2H write-off is ‘just an impairment test of the Gen 8.5 assets’. Further they still expect the combined CHOT entity to show a loss in 2021, which should start with a strong 1Q, at least for the panel production side. Investors have said to us that people have been producing glass for thousands of years so it should not be that difficult to produce glass for displays. It is.
The glass facility, which we have mentioned in the past, is to be six production lines that will be producing Gen 8+ glass substrates, and has begun trial production on its first line which it is in the process of getting verified by Chinese panel producers. If the product is verified, the glass project is expected to begin production on a 2nd line during the 1Q this year. As display glass producer Corning (GLW) has stated in the past, the glass business is a highly capital intensive one and has far more critical parameters that typical building grade glass, and developing a local display glass source has proven far more difficult than we expect China Electric had predicted. In fact, CHOT took a $119m US write-off in the 1st half of last year and is taking another write-off against 2H ’20 of between $30m and $45m as part of the glass project’s assets.
While we expect CHOT itself (excluding amortization) was profitable for at least the last quarter of 2020, the glass project will likely continue to weigh down their contribution to CEC. A rosier picture has been painted by Chinese brokers who focus on the concept that the write-offs are decreasing and the large 1H write-off was the result of older Gen 5.5 glass assets (impaired), while the 2H write-off is ‘just an impairment test of the Gen 8.5 assets’. Further they still expect the combined CHOT entity to show a loss in 2021, which should start with a strong 1Q, at least for the panel production side. Investors have said to us that people have been producing glass for thousands of years so it should not be that difficult to produce glass for displays. It is.
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