TCL/Chinastar Tibits
TCL (000100.CH), the owner of display producer Chinastar (pvt), released its annual report, giving some additional insight into both how the company performed and how its display business segment fared during 2021. The 212 pages was loaded with praise for the company and its leading share in a variety of products and niches, and much about its silicon wafer and solar businesses, which represented 37.5% of sales last year, a 79.7% increase y/y, while the display business, with a 44.1% share of sales, saw a decline of 8.8% in sales y/y. While all of the positive rhetoric, such as this flowery Kumbaya moment in the financial notes…
“TCL Technology will continue to invest in fields closely related to human life (such as intelligence, health, low carbon, energy saving, etc.), to establish a leading edge in technology and products, to bring people a wonderful experience and a better life. We will uphold sustainable development, People-oriented concept to promote harmonious coexistence. Committed to environmental friendliness, employee love and social trust; committed to people and nature, (and) the harmonious development of man and society. At the same time, we will join hands with stakeholders to jointly build an open and win-win industrial ecology, and adhere to a benign competition and coordinated development, adhere to open cooperation, symbiosis and win-win.”
…were also followed by some less optimistic hints about the display business…
“In the long run, the growth rate of production capacity in the large-size display field will slow down and the competitive landscape will continue to be optimized. Given the severe situation, TCL CSOT will continue to improve its efficiency and efficiency indicators and go through the industrial development cycle.”
To TCL’s credit, the company was able to show an increase in operating income of 13.6% for the year, with operating costs up 31.8%, due to the strength in the silicon business against the loss in display, although the net loss was $390m US. While there was certainly an emphasis on the company’s wafer and solar businesses, they gave some updates on the status of the many display projects that TCL/Chinastar has underway, with much of the emphasis on LCD rather than OLED capacity, despite the multiple OLED projects that the company is developing. There was mention that the company would be starting mass production of a VR product in September, but seemed to intimate that it would be based on LCD rather than the more popular micro-OLED technology.
They did mention that the T4 G6 OLED fab is still in the ‘early cost stage’, which we take to mean unprofitable, while no information on how far along the development of Chinastar’s T8 Gen 8 OLED fab had progresses, which is expected to be on-line in 2024. They did note that the T5 Gen 6 OLED fab had progressed from construction to equipment move-in, with the delivery of the first lithography system, which would indicate that the first line should be in mass production around mid-year 2023, a step toward increasing the company’s small panel OLED capacity.
All in, TCL was able to offset the weakness in the display business with its exposure to the continued demands of the silicon business, a luxury few other display producers have (other than Samsung (005930.KS)). We expect 2022 to be similar, albeit with a bit less growth in the wafer business, but most important will be the eventual status of TCL/Chinastar’s expansion projects, including capacity expansion at T3 and the progress on T5, both of which will add to the industry’s over-capacity issues. While TCL is the leader in ultra-large LCD market (capacity), we expect they are currently working under lower utilization rates at those fabs, which will have an impact on their ability to generate cash from the display business. With that in mind, the 35.1% decrease in cash from operations and the 74.6% decrease in overall cash & equivalents could slow those expansion projects, at least for the remainder of this year, which we see as a positive, although it is inevitable that they will eventually be completed.
“TCL Technology will continue to invest in fields closely related to human life (such as intelligence, health, low carbon, energy saving, etc.), to establish a leading edge in technology and products, to bring people a wonderful experience and a better life. We will uphold sustainable development, People-oriented concept to promote harmonious coexistence. Committed to environmental friendliness, employee love and social trust; committed to people and nature, (and) the harmonious development of man and society. At the same time, we will join hands with stakeholders to jointly build an open and win-win industrial ecology, and adhere to a benign competition and coordinated development, adhere to open cooperation, symbiosis and win-win.”
…were also followed by some less optimistic hints about the display business…
“In the long run, the growth rate of production capacity in the large-size display field will slow down and the competitive landscape will continue to be optimized. Given the severe situation, TCL CSOT will continue to improve its efficiency and efficiency indicators and go through the industrial development cycle.”
To TCL’s credit, the company was able to show an increase in operating income of 13.6% for the year, with operating costs up 31.8%, due to the strength in the silicon business against the loss in display, although the net loss was $390m US. While there was certainly an emphasis on the company’s wafer and solar businesses, they gave some updates on the status of the many display projects that TCL/Chinastar has underway, with much of the emphasis on LCD rather than OLED capacity, despite the multiple OLED projects that the company is developing. There was mention that the company would be starting mass production of a VR product in September, but seemed to intimate that it would be based on LCD rather than the more popular micro-OLED technology.
They did mention that the T4 G6 OLED fab is still in the ‘early cost stage’, which we take to mean unprofitable, while no information on how far along the development of Chinastar’s T8 Gen 8 OLED fab had progresses, which is expected to be on-line in 2024. They did note that the T5 Gen 6 OLED fab had progressed from construction to equipment move-in, with the delivery of the first lithography system, which would indicate that the first line should be in mass production around mid-year 2023, a step toward increasing the company’s small panel OLED capacity.
All in, TCL was able to offset the weakness in the display business with its exposure to the continued demands of the silicon business, a luxury few other display producers have (other than Samsung (005930.KS)). We expect 2022 to be similar, albeit with a bit less growth in the wafer business, but most important will be the eventual status of TCL/Chinastar’s expansion projects, including capacity expansion at T3 and the progress on T5, both of which will add to the industry’s over-capacity issues. While TCL is the leader in ultra-large LCD market (capacity), we expect they are currently working under lower utilization rates at those fabs, which will have an impact on their ability to generate cash from the display business. With that in mind, the 35.1% decrease in cash from operations and the 74.6% decrease in overall cash & equivalents could slow those expansion projects, at least for the remainder of this year, which we see as a positive, although it is inevitable that they will eventually be completed.
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