Shenzhen Enrich Electronics Co.,Ltd

 

In the past few decades, the panel industry itself has been familiar with the asset-heavy, long-cycle, high-cost characteristics of investors, so the industry's cyclical attributes have been more attention. But its high gross profit, high-tech, high-growth side, is relatively little perceived.

 

In fact, the current operating environment of the panel industry is similar to that of the coal and steel industries before and after the supply-side reform.

 

At the beginning of the supply-side reform of the coal industry, including China Shenhua, Shaanxi Coal and other industry head enterprises, almost all are facing revenue growth, profitability and other aspects of the problem. For example, China Shenhua, which is now in the capital market, has faced the dilemma of two consecutive years of negative growth in operating income, single-digit growth for a year, and huge losses for years.

 

Similarly, there is also steel. 2016 supply-side reform opened, through mergers and reorganization and elimination of backward production capacity, the industry concentration continues to improve, the birth of Baowu Steel, Hebei Iron and Steel, such as the industry giant. With the continuous elimination of low-end production capacity in the industry, the operating data of industry enterprises and the performance of capital market share prices have seen a strong rebound.

 

Panel industry once heavy cycle attributes, once similar to coal, steel and other traditional industries - the market is good when the industry profiteering, the market is poor when we lose together. A glory, a loss, a loss.

 

But now in China's panel industry, the largest accumulation of production capacity, the widest range of applications in the field of LCD, supply and demand between the scales are quietly tilted: Samsung, LG, JDI and Taiwan AUO has withdrawn from the LCD production line or explicitly stated that the closure of the LCD production line, and the profitability of the stronger large-size LCD, BOE, TCL enterprises focused on investing in the construction of high-generation line after the concentration of the industry, the industry concentration is very high.

 

Players are reduced, the ability of enterprises to bargain will be enhanced, the past cycle rotation situation is weakening the motivation. The depth of the "supply-side reform" has been rewriting the panel enterprise investment logic. If investors continue to use the heavy cycle of investment logic to look at this industry, I am afraid that the final will be educated by the reality.

 

01

 

Breaking into the "new world" door

 

A bright line, a dark line.

 

"China's panel industry every day to chase advanced, every day is not advanced." More than a decade ago, China's LCD panel companies often fall into the negative, BOE and other headline companies because of long-term high-intensity investment into the loss, the outside world to be criticized is a common occurrence.

 

At that time, foreign enterprises rely on technology patents and brand advantages, Chinese enterprises to carry out strategic suppression and systematic blockade. A round of card position in the war, Chinese enterprises once only in the giant behind the hard to catch up. But after nearly 20 years of evolution, China has occupied the absolute C position on this stage, in technology, scale, management and other dimensions in the world's leading level.

 

Thanks to the strong growth of Chinese companies such as BOE and TCL Huaxing, China ended the 17-year dominance of South Korean companies in this key area in 2021 and has continued to lead ever since.

 

From Japan's dominance, to Japan's and South Korea's rivalry, to Taiwan's rise, to China's triumph, Chinese firms have won the world's No. 1 spot in 20 years in a field that is the lifeblood of the nation's information industry. There is a bright line and a dark line in this matter.

 

The bright line is that Chinese companies have won the competition with Japanese, Korean and Taiwanese companies. The dark line is that the process of defeating Japan and South Korea is itself a "supply-side reform". Many investors see the success of Chinese panel companies, but ignore the fact that after the success, the industry's cyclical attributes will gradually weaken, so as to enter a new cycle of sustained and stable profitability.

 

In other words, investors usually only focus on the bright line of industrial transfer, but ignored the dark line of industrial evolution logic. The result is that the capital market recognizes the strength of the current leading companies, but investors generally still look at the panel industry with the traditional heavy cycle, that it is still difficult to escape the cycle of hijacking, for the industry pattern of concentration triggered by the weakening of the cycle of selective neglect.

 

To know, in the first half of 2023, BOE, TCL Huaxing, HKC (Wyeco) three Chinese companies occupy the industry TOP3, market share of nearly 70%, control of the industry's absolute right to speak.

 

External point of view, if not for the epidemic brought about by the outbreak of consumer demand at home, as well as the quantitative easing stimulus led by the United States, Samsung and other Japan, South Korea and Taiwan enterprises to withdraw from the footsteps of the original will be faster, the pattern of the three Chinese companies will come earlier. 2021 industry rebounded sharply masked the defects of the latter's production capacity and the problem of the tide receded to 2022, Japan, South Korea and Taiwan enterprises began to accelerate the withdrawal.

 

The internal view of the industry, the large-size TV panel capacity of major companies basically stopped expanding. On the demand side, demand in the large-size market continues to recover. Three-way superimposed, the industry's cyclical fluctuations have begun to converge.

 

This means that the panel industry, will soon enter a new profitability cycle. This is no longer a large number of competitors to stir up trouble, but also no longer so roll of the "new world".

 

02

 

Piercing the cycle of reincarnation

 

Today's panel industry has been very unfriendly to new players.

 

Since the beginning of this century from CRT into LCD, the mainstream display technology has appeared one round after another round of "arms upgrade", the new production line through a larger glass substrate to enjoy the advantages of a more efficient economic cutting, while the iteration of the precision of the lighting equipment also makes the end product has the competitive advantage of energy consumption, color, which greatly promotes the industry progress and consumer experience. This has greatly contributed to the progress of the industry and consumer experience.

 

However, the industrial upgrading from G1 to G10 generation line has always been centered on the main technology of LCD. From the birth of the technology to stable mass production, the industry has experienced enough time and attempts; from the market and user selection, comprehensive specifications experience and cost of the manufacturing capacity needed has also been scaled and solidified. Mainstream display technology has entered the period of micro iteration.

 

And, with the production of high-generation line, the industry's investment amount is also becoming more huge, often more than 45 billion dollars in the scale of the spectators. Currently G11 corresponds to the glass substrate area of nearly 10 square meters, thickness of 0.5mm, which is the upstream suppliers of transportation or supporting the construction of factories have put forward stringent requirements, "expansion of higher-generation line" in the industry has also become a trend that few people talk about.

 

And then from the existing panel players on the income statement, depreciation costs are had to consider the "big head", and with the new production line investment landing, depreciation will increase. But when the industry enters the maturity period, the first player's stock of depreciation will expire early, under the premise of technology micro iteration, the later more cost advantage. Therefore, for the later, the economic account between investment and return is not cost-effective. For example, BOE only the first quarter of 2023 depreciation amounted to about 8 billion yuan, for any company that wants to enter the field is a very scrupulous number.

 

Whether it is the subjective side of the return on investment, or the objective side of the industry development law considerations, new players to enter the panel industry has been very difficult.

 

Moreover, some of the former rivals, has now become a new competitive relationship. The most typical is in 2020, TCL Huaxing acquired Samsung's only panel plant in China, 60% of the equity as well as module plant. Now TCL Huaxing, BOE is also an important supplier of Samsung TV and high-end cell phones.

 

Between the industry "fight and kill" relationship, began to become a multi-level cooperative relationship.

 

At the same time, changes in the industry pattern led to the entire supporting supply chain to the mainland as a whole migration, such as modules, polarizers, glass, etc., not only to achieve self-control, but also show the overall strength of the supply chain. At present, the Chinese mainland display special materials localization amount and self-sufficiency rate has reached nearly 60%, to polarizer, for example, in 2023, Chinese manufacturers polarizer production capacity scale has exceeded 50% of the world, display driver chip, liquid crystal, glass substrate and other related production capacity also continued to mainland concentration. The localization rate of the upstream supply chain has increased, making the competitive advantage of mainland panel manufacturers further consolidated.