Visionox Missing the Point?
Visionox (002387.CH), China’s 2nd largest small panel OLED producer (units) released cumulative results for the 9 months ending September 30, with the focus on the increasing production volumes at its Gen 5.5 fab in Kunshan (up 85% y/y) and its Gen 6 OLED fab in Gu’an (up135% y/y), generating operating income between 2.7b yuan ($~$420m US) and 2.8b yuan, of which ~96% is from OLED production, an increase of between 93% and 104% over last year. The company goes on to cite how it has launched a new generation of under-screen cameras and displays using a 165 Hz refresh rate and has been supplying displays to a number of flagship Chinese smartphones and wearables, including those from Honor, ZTE (), Motorola (MSI) and Fitbit ().
Where things start to unravel is when they get down to net profit, which is expected to see a loss between 330m yuan (~$51.2m US) and 430m yuan (~$66.8m US), a substantial increase over last year’s 9 month loss of 119m yuan (~$18.5m US)., some of which is explained by the fact that the company is no longer providing ‘patent technology licensing, consulting and management services’ to its parent, which generated 578.9m yuan last year (~$90m US) and would not recur this year and that 550.1m yuan (~$85.5m) in subsidies received last year would be reduced, along with the inclusion of depreciation expenses for the Gu’an fab, which began production this year.
Visionox has been increasing shipments, almost meeting last year’s full unit volume in the first three quarters, but as each new fab opens to production, subsidies will decrease, depreciation will increase and filling fabs will become the primary goal, rather than increasing capacity share. Visionox has stated that the current yield for flexible OLED is ~80%, but added that is for mature products, which means the ‘real’ yield is lower. While we are skeptical that the company’s overall yield is ~80%, we do note that if that were to be the case, and that still generated a substantial operating loss, it gives us pause as to what might happen if the industry were to see a slowdown in small panel OLED production, even for a relatively short period of time. Share is a good thing but profits are better.
Where things start to unravel is when they get down to net profit, which is expected to see a loss between 330m yuan (~$51.2m US) and 430m yuan (~$66.8m US), a substantial increase over last year’s 9 month loss of 119m yuan (~$18.5m US)., some of which is explained by the fact that the company is no longer providing ‘patent technology licensing, consulting and management services’ to its parent, which generated 578.9m yuan last year (~$90m US) and would not recur this year and that 550.1m yuan (~$85.5m) in subsidies received last year would be reduced, along with the inclusion of depreciation expenses for the Gu’an fab, which began production this year.
Visionox has been increasing shipments, almost meeting last year’s full unit volume in the first three quarters, but as each new fab opens to production, subsidies will decrease, depreciation will increase and filling fabs will become the primary goal, rather than increasing capacity share. Visionox has stated that the current yield for flexible OLED is ~80%, but added that is for mature products, which means the ‘real’ yield is lower. While we are skeptical that the company’s overall yield is ~80%, we do note that if that were to be the case, and that still generated a substantial operating loss, it gives us pause as to what might happen if the industry were to see a slowdown in small panel OLED production, even for a relatively short period of time. Share is a good thing but profits are better.
Visionox Headquarters - Source: Visionox
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