Tianma To Build Display Module Plant
Tianma (000050.CH) has indicated that it will be undertaking a new construction project in Wuhu City, Anhui Province. The new facility will be a module assembly plant that is expected to cost $1.2b US in total, with an initial funding of $720m, of which 52.08% will come from Tianma ($375m) and 47.9% will come from partners including the Wuhu Industrial Investment Fund (city –Owned), and the Wuhu Jiuchuang Investment Fund (pvt). The focus is expected to be smartphone and IT modules up to ~40” and is expected to improve Tianma’s overall profitability when completed. No completion date was specified although we would expect between 12 and 14 months once site work has begun.
Tianma is a relatively small player in the LCD space, holding a roughly 1% share of total LCD capacity and a 0.6% share of LCD display industry revenue, but has a larger presence in the OLED space when current share is ~3.9% in the small panel OLED space, but is expected to increase to almost 7% by the end of 2024, if capacity expansion plans remain on schedule. The company is currently building a $5.16b LCD Gen 8.5 fab in Xiamen, which would be responsible for the capacity share increase. While the module plant does not add LCD production capacity, it is an indication that management believes that the LCD display business has decades of continuing growth, a less than sure bet in our view.
As we have noted above, while we expect LCD technology to continue to the most prevalent display technology for the next few years, Chinese panel producers seem bent on expanding what is already a majority share of that business, even if it means creating an over-capacity situation for periods of time. What makes the LCD space more vulnerable is not competition from other regional suppliers, such as Taiwan and Korea, as expansion plans for Taiwan are small, and Korea is proceeding in the other direction, closing large panel LCD fabs, but competition amongst Chinese LCD producers themselves.
The desire (or necessity) to produce positive results after years of government funding push Chinese panel producers to maintain high production levels, even when the market is soft, exacerbating downward pressure on panel prices, and maintain an overly optimistic view of the industry’s cyclical nature. Some have been expanding OLED capacity, where demand continues to grow but those without the experience and expertise to produce OLED displays remain convinced that LCD technology will see increasing demand almost ad infinitum. Capacity competition was the watchword of LCD panel producers years ago, when Chinese producers were small or even non-existent, but extended periods of over-capacity reinforced the fact that ‘If you build it, they will come’ does not always work forever. Government funding certainly has a place when a region is trying to build an industry, but it can bring on its own problems, which are usually not seen until years later, long after those who funded the operation have moved on, leaving future local and provincial officials, company managements, and in many cases individual investors holding the bag.
Tianma is a relatively small player in the LCD space, holding a roughly 1% share of total LCD capacity and a 0.6% share of LCD display industry revenue, but has a larger presence in the OLED space when current share is ~3.9% in the small panel OLED space, but is expected to increase to almost 7% by the end of 2024, if capacity expansion plans remain on schedule. The company is currently building a $5.16b LCD Gen 8.5 fab in Xiamen, which would be responsible for the capacity share increase. While the module plant does not add LCD production capacity, it is an indication that management believes that the LCD display business has decades of continuing growth, a less than sure bet in our view.
As we have noted above, while we expect LCD technology to continue to the most prevalent display technology for the next few years, Chinese panel producers seem bent on expanding what is already a majority share of that business, even if it means creating an over-capacity situation for periods of time. What makes the LCD space more vulnerable is not competition from other regional suppliers, such as Taiwan and Korea, as expansion plans for Taiwan are small, and Korea is proceeding in the other direction, closing large panel LCD fabs, but competition amongst Chinese LCD producers themselves.
The desire (or necessity) to produce positive results after years of government funding push Chinese panel producers to maintain high production levels, even when the market is soft, exacerbating downward pressure on panel prices, and maintain an overly optimistic view of the industry’s cyclical nature. Some have been expanding OLED capacity, where demand continues to grow but those without the experience and expertise to produce OLED displays remain convinced that LCD technology will see increasing demand almost ad infinitum. Capacity competition was the watchword of LCD panel producers years ago, when Chinese producers were small or even non-existent, but extended periods of over-capacity reinforced the fact that ‘If you build it, they will come’ does not always work forever. Government funding certainly has a place when a region is trying to build an industry, but it can bring on its own problems, which are usually not seen until years later, long after those who funded the operation have moved on, leaving future local and provincial officials, company managements, and in many cases individual investors holding the bag.
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