Skyworth Digital Buy TV Revenue Turned Around In September

Corporate News Flash, 8 October 2014
Skyworth Digital (751 HK)
Buy (Maintained)
Technology - Hardware & Equipment
Market Cap: USD1,519m
Target Price:
Price:
HKD4.70
HKD4.16
Macro
Risks
TV Revenue Turned Around In September
Growth
Value
Skyworth Digital Holdings (751 HK)
Price Close
Relative to Hang Seng Index (RHS)
4.90
128
4.70
123
4.50
118
4.30
113
4.10
108
3.90
103
3.70
98
3.50
93
3.30
140
88




0
0
.
3
0
0
What’s new?
.
0
0
 Skyworth announced its Sept-2014 TV shipments. Total TV shipments 0
rose 14% y-o-y or 20% m-o-m (Aug 2014: +18% y-o-y, 18% m-o-m).
China TV shipments rose 8% y-o-y or 20% m-o-m (Aug 2014: +8% y-oy, +26% m-o-m) while overseas TV shipments expanded 36% y-o-y or
20% m-o-m (Aug 2014: +62% y-o-y, -1% m-o-m). See figure 1.


120
100
4K cloud TV shipments surged by a whopping 97% y-o-y this month,
bringing its shipment mix to 15% of total China TV shipments. (Aug
2014: 13%). Cloud TV shipments also rose 20% y-o-y, and the mix in
Cloud TV shipment has reached 34% (Aug 2014: 33%). See figure 2.
In September, total TV revenue turned around to a positive 2% y-o-y
growth, driven by 52% y-o-y rise on overseas TV revenue while China
TV revenue is still down 4% y-o-y. See figure 3.
80
Our view:
40

Aug-14
Jun-14
Apr-14
Feb-14
Dec-13
20
Oct-13
Vol m
60
Source: Bloomberg
Avg Turnover (HKD/USD)
Cons. Upside (%)
Upside (%)
52-wk Price low/high (HKD)
Free float (%)
Share outstanding (m)
Shareholders (%)
Wong Wai Sen, Stephen
FIL Limited
LSV Asset Management
29.7m/3.83m
6.0
13.0
3.49 - 4.79
53
2,831
35.9
6.0
5.0
Share Performance (%)



1HFY15 TV shipments have reached 5.9m units (+6% y-o-y), which is
slightly ahead of our FY15 forecast of 12m units (+5% y-o-y). We also
expect Oct-Feb 2015 TV shipments to grow at a faster pace from a low
base – as shipments in Oct-Feb 2014 fell at a range of 8-22% y-o-y.
The implied 11% drop in Sep TV ASP was also less severe than the 1521% decline in the previous four months. ASPs dropped due to: i) lower
display panel costs and ii) increased portion of online sales, which
typically have 10% discount. Due to the lower ASPs, 1H15 TV sales
were down 9% y-o-y vs our +7% y-o-y estimate for FY15F (end March).
We expect TV gross margins to remain stable due to: i) the lower panel
cost, and ii) stronger sales of 4K Cloud TVs. Its blended FY15 GPM
should also see a mild upside from increased white goods contributions
(to 13% in FY15 with a 22% GPM vs 6% of FY14 sales) while the sales
mix of TVs may dip to c.70% in FY15 (FY14: 75%) with a 19% GPM.
Maintain BUY and a TP of HKD4.70, based on a 8x FY15F P/E.
Skyworth’s valuation is still undemanding, as it trades at a 7x FY15F P/E
and offers a dividend yield of 5%.
YTD
1m
3m
6m
12m
Absolute
(2.6)
(5.2)
7.5
(1.2)
8.9
Forecasts and Valuations
Mar-12
Mar-13
Mar-14
Mar-15F
Mar-16F
Relative
(2.6)
2.4
8.5
(5.4)
7.4
Total turnover (HKDm)
28,232
37,824
39,480
45,183
49,497
Reported net profit (HKDm)
1,347
1,501
1,254
3,041
1,911
Recurring net profit (HKDm)
1,380
1,539
1,336
1,654
1,901
Recurring net profit growth (%)
26.9
11.5
(13.2)
23.8
14.9
Recurring EPS (HKD)
0.52
0.56
0.48
0.59
0.68
DPS (HKD)
0.16
0.18
0.15
0.19
0.22
Recurring P/E (x)
7.94
7.39
8.75
7.07
6.15
P/B (x)
1.29
1.14
1.08
0.79
0.73
P/CF (x)
81.8
2.3
10.4
5.5
Shariah compliant
Christopher Tse +852 2103 9415
christopher.tse@rhbgroup.com
Kong Yong Ng 852 2103 5844
ng.kong.yong@rhbgroup.com
Dividend Yield (%)
na
3.7
4.4
3.6
4.7
5.4
EV/EBITDA (x)
7.30
7.62
8.29
4.59
3.92
Return on average equity (%)
17.3
16.3
12.1
23.8
12.4
Net debt to equity (%)
16.9
27.9
9.5
Our vs consensus EPS (adjusted) (%)
See important disclosures at the end of this report


2

.
2
0
.
2
Source: Company data, RHB
net cash net cash
2.0
Powered by EFATM Platform
12.4
1
Skyworth Digital (751 HK)
8 October 2014
Figure 1: Skyworth’s monthly TV shipments
FY Mar-15
Total
('000 units)
y-o-y
Shipment
Apr-14
897
-14%
FY Mar-14
Total
China
677
Total
Total
y-o-y
y-o-y ('000 units)
y-o-y
Overseas
Shipment
-15%
220
-13%
Apr-13
1044
34%
Total
China
793
Total
y-o-y
Overseas
20%
252
108%
y-o-y
May-14
759
-26%
510
-38%
249
27%
May-13
1022
68%
825
72%
197
51%
Jun-14
856
41%
639
90%
217
-20%
Jun-13
607
11%
336
-17%
271
90%
Jul-14
956
21%
664
18%
292
28%
Jul-13
790
7%
563
4%
228
15%
Aug-14
1126
18%
838
8%
288
62%
Aug-13
957
-3%
779
4%
178
-26%
Sep-14
1346
14%
1001
8%
344
36%
Sep-13
1178
-14%
926
-14%
253
-13%
Oct-14
Oct-13
821
-15%
648
-14%
172
-18%
Nov-14
Nov-13
1120
-9%
889
2%
231
-35%
Dec-14
Dec-13
1317
-8%
1013
-13%
305
11%
Jan-15
Jan-14
1229
-15%
926
-20%
303
3%
Feb-15
Feb-14
420
-22%
288
-12%
132
-37%
Mar-15
Mar-14
845
8%
618
17%
227
-9%
Source: Company data
Figure 2: Shipment table
Sep-14
148
Sep-13
75
y-o-y
96.5%
Aug-14
112
m-o-m
32.1%
Apr 14 Sep 14
575
Apr 13 Sep 13
188
Cloud TV
339
281
20.4%
274
23.6%
1541
1102
39.8%
Other LED LCD TV
515
570
-9.7%
452
13.9%
2213
2934
-24.6%
1001
926
8.1%
838
19.5%
4328
4224
2.5%
9000
8601
4.6%
1091
47.3%
(volume in '000 units)
China TV
4K Cloud TV
Total
FY15 forecast and FY14 actual
Overseas TV
LED LCD TV
y-o-y
205.2%
344
215
60.5%
287
19.8%
1608
CCFL / Plasma
0
33
-100.0%
0.4
n.a.
2
97
-97.6%
CRT TV
0
5
-100.0%
0
n.a.
0
190
-100.0%
344
253
36.4%
288
19.6%
1610
1378
16.9%
2967
2748
7.9%
5939
5602
6.0%
11967
11350
5.4%
Total
FY15 forecast and FY14 actual
Total TV
1346
1179
14.1%
1126
19.5%
FY15 forecast and FY14 actual
Source: Company data, RHB
Figure 3: Skyworth’s TV revenue trend
Sep-14
Sep-13
Aug-14
y-o-y
y-o-y
y-o-y
Apr 14 - Sep
14
y-o-y
FY15F (RHB)
FY14
y-o-y
y-o-y
PRC TV
-4%
-13%
-10%
-13%
5%
-3%
Overseas TV
52%
2%
40%
15%
17%
4%
Total TV
2%
-12%
-5%
-9%
7%
-2%
Source: Company data, RHB
Figure 4: Skyworth’s annual TV shipments
Shipment volume (m)
FY3/12
FY3/13
FY3/14
FY3/15F
FY3/16F
China
7.0
8.7
8.6
9.0
9.8
Overseas
2.2
2.7
2.7
3.0
3.3
Total
9.2
11.4
11.3
12.0
13.1
y-o-y growth
China
9.7%
23.9%
-1.2%
4.6%
8.9%
Overseas
39.5%
22.2%
1.0%
7.9%
11.9%
Total
15.7%
23.5%
-0.7%
5.4%
9.6%
Source: Company data, RHB
See important disclosures at the end of this report
2
Skyworth Digital (751 HK)
8 October 2014
Recommendation Chart
Price Close
4.70
5.90
6.24
6.03
7.05
7.05
Recommendations & Target Price
5.65
10.00
na
11.00
9.00
8.00
7.00
6.00
5.00
4.00
3.00
Buy
2.00
Oct-09
Neutral
Jan-11
Sell
Trading Buy
Apr-12
Take Prof it
Not Rated
Jul-13
Source: RHB, Bloomberg
Date
Recommendation
2014-08-07
Buy
Target Price Price
4.70
3.92
2014-07-09
Buy
4.70
3.87
2014-06-25
Buy
4.70
3.67
2014-05-28
Buy
4.70
3.67
2014-02-11
Buy
5.90
4.07
2014-01-08
Buy
6.03
4.03
2013-12-09
Buy
6.03
4.36
2013-11-27
Buy
6.03
4.55
2013-11-04
Buy
6.24
3.89
2013-08-09
Buy
7.05
4.42
Source : RHB, Bloomberg
See important disclosures at the end of this report
3
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