The Panel Police

The Panel Police
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​As we have noted in the past, while China’s stock markets are both volatile and in some cases a bit sketchy as to what passes for financial review, there are a number of systems where investors or potential investors can directly pose questions to listed companies.  Not all companies participate in such public programs and among those who do, not all participate as actively as others.  The larger companies tend to have someone (CFO, Board Secretary, IR, etc.) who answers the questions, but there is not requirement as to response time or depth of the answer, with many answers copied from earlier, similar questions.  That said, while the answers can be telling, both from a content standpoint, and from how carefully they are worded, the questions, even before they are answered, can give some indication as to the level of comfort or discontent that investors are feeling.
China’s largest panel producer BOE (200725.CH) is a company that is responsive to its investor questions, although they can accumulate for over two weeks until a response is given.  While we have reviewed some of BOE’s Q&A in the past, we always check to see what ‘state’ the current crop of questions is in, which gives us some indication as to how investors are feeling toward the stock and the industry.  Here is a sample of the current open questions to the company (We note that these are translations from the Chinese via Google (GOOG):

• “Your company has spent huge sums of money to build a factory, are there enough orders at present?  Are there any new breakthroughs in technological development?”
• “Hello Secretary of the Board.  Will panel prices rebound and rise in the fourth quarter?”
• “It is rumored that BOE’s performance in the third quarter fell sharply, which was less than expected and there are major risks.  Is it true?”
• “Power cuts have occurred across the country.  Has the company’s current production and operation activities been affected?”
• “Research and research institutions will release TV panel price forecasts for the next month that month.  I would like to ask: 1) Does the company’s TV panels produce according to orders, or do they produce first and then strive for orders? 2) Has the company’s TV panel shipping price been finalized in the same month? 3) How much TV panel production will the company reduce from October?”
• “I hope that the company can interpret the impact of power curtailment on the display business: 1) Are the panels, modules, and complete machine factories included in the power curtailment? 2) What are the impacts of the panel raw materials, the materials of the module section, and the complete machine section? 3)  What is the impact of power curtailment on the company’s overall display panel business?  Thanks!”
• “What does the company think about the transfer of the TV screen production line to the IT screen by the panel factory production line, will it cause the TV screen to stabilize, which will lead to a substantial price reduction of the IT screen?”
• “The company’s three OLED production lines have invested more than 130 billion yuan, but it seems they are still in a state of loss.  When will they be able to make a profit?”
• “The company has been deeply involved in the panel industry for many years and has accumulated more than 70,000 useable patents, with an annual R&D investment of 10billion yuan.  But where is the company’s technical moat?  Don’t expect BOE to become a patent hooligan, at least it can use patent barriers to prevent disorderly expansion of domestic production capacity, right?  Patents are not only used to ensure that they can produce, but also to hope that BOE can also pay attention to patent protection.”

While we left out the simplistic questions like, “Will you be profitable in the 3rd quarter?”, these questions, which are in some cases more sophisticated than might be expected, seem to indicate a growing concern among investors that the industry, and therefore BOE to a degree, is in turmoil as continuing panel price declines put pressure on sales and earnings while many panel producers are still expanding capacity. 
The last question, which was a suggestion that BOE use its patents to rein in other Chinese panel producers expansion plans was quite unusual in that it was asking BOE to be the ‘watchdog’ for the Chinese panel industry, rather than the state or local governments, who are still funding expansion plans and operating budgets.  We doubt BOE would take up such a roll, but local governments, which should more closely oversee provincial and regional expansion, have a vested interest in funding capacity in that it creates jobs and tax revenue, and do not have the expertise or insight to look at the industry as a whole.  While BOE has more of that expertise and insight, they have their own vested interest in promoting the industry and would likely be looked upon as a pariah if they began forcing competitors into court just to limit their ability to compete. That leaves the panel industry in China to police itself, and that has not worked all that well in other industries.