Tianma Lights Up
Chinese OLED panel producer Tianma (000050.CH) has indicated that it has started production runs at irs T18 fab in Xiamen. While this is likely test run production, it is ahead of our ramp schedule and while it will be a number of months before the fab will be at full (phase 1) capabilities, it will likely take considerably longer for Tianma to fill this fab’s capacity. The fab itself consists of two 15,000 sheet/month flexible OLED production lines and additional room for a third line, for a total of (phase 1 and 2) of 48,000 sheets/month and has an estimated cost between $6.8b and $7.6b when completed. Tianma runs a Gen 5.5 OLED fab in Shanghai that is primarily producing rigid OLED displays, another Gen 6 OLED line in Wuhan that was built for a full capacity of 37,000 sheets/month, but is not fully built out, and a Gen 4.5 pilot line used for R&D.
Last year Tianma began the year shipping ~1m OLED display on a quarterly basis, increasing that to between 2.2m and 2.8m as the year progressed, which gave them a share under 2% of the small panel OLED market, so the Xiamen fab will add to that share as it ramps production , however based on Tianma’s capacity last year, which based on a 6” display base, would have been ~154m units, so based on our estimates of ~9m units shipped last year, the company’s OLED fabs are considerably underutilized or have extremely low yield rates. This makes it more necessary for Tianma to build out customer relationships or improve yield rates in order for the new fab capacity noted above not to depress profitability further, which leads us to expect a later start for the second phase of the Xiamen fab.
Tianma also runs a number of LCD fabs which provide much of its sales volume, although the newest Tianma LCD fab went on line in late 2017, and while all of its LCD assets are likely fully depreciated, they are heading into their 5th year of production and are likely in need of upgrades in order to compete with some of the newer LCD fabs in China. This makes building expensive small panel OLED fabs that are producing at low utilization rates even more risky as capital has to be allocated to upgrade the LCD side in order to provide steady income, while the spending for OLED produces losses. That said, in China the display industry is funded by the Chinese government at the provincial or city level primarily, and while those capital flows have shifted a bit toward semiconductor capacity, we expect Tianma will continue to be support with subsidies and financing from government entities until the Xiamen fab is completed, and while early individual stockholders might be happy with the results (initial price – 4/1/1995 - $1.82), current stockholders would be less so as over the last 2 years the stock has fallen from a peak of $17.90 in February 2020 to its current price of $12.07, not quite at its low (January 27,2022 - $11.83) but close to it.
Last year Tianma began the year shipping ~1m OLED display on a quarterly basis, increasing that to between 2.2m and 2.8m as the year progressed, which gave them a share under 2% of the small panel OLED market, so the Xiamen fab will add to that share as it ramps production , however based on Tianma’s capacity last year, which based on a 6” display base, would have been ~154m units, so based on our estimates of ~9m units shipped last year, the company’s OLED fabs are considerably underutilized or have extremely low yield rates. This makes it more necessary for Tianma to build out customer relationships or improve yield rates in order for the new fab capacity noted above not to depress profitability further, which leads us to expect a later start for the second phase of the Xiamen fab.
Tianma also runs a number of LCD fabs which provide much of its sales volume, although the newest Tianma LCD fab went on line in late 2017, and while all of its LCD assets are likely fully depreciated, they are heading into their 5th year of production and are likely in need of upgrades in order to compete with some of the newer LCD fabs in China. This makes building expensive small panel OLED fabs that are producing at low utilization rates even more risky as capital has to be allocated to upgrade the LCD side in order to provide steady income, while the spending for OLED produces losses. That said, in China the display industry is funded by the Chinese government at the provincial or city level primarily, and while those capital flows have shifted a bit toward semiconductor capacity, we expect Tianma will continue to be support with subsidies and financing from government entities until the Xiamen fab is completed, and while early individual stockholders might be happy with the results (initial price – 4/1/1995 - $1.82), current stockholders would be less so as over the last 2 years the stock has fallen from a peak of $17.90 in February 2020 to its current price of $12.07, not quite at its low (January 27,2022 - $11.83) but close to it.
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