The panel industry is ushering in new opportunities, can panel giant BOE continue to lead?

With the recovery of the display panel market in the third quarter, BOE has greatly improved its revenue and profit. However, due to its extremely unstable profitability in the past, the capital market is still skeptical of it, causing its stock price to fall instead of rising. With the accelerated stubbornness of the upstream industry chain and the upgrading of display technology, the panel industry is also ushering in new opportunities, and at the same time new challenges are coming. In this context, whether BOE can seize the opportunity again and lead the industry still needs time to test.

Net profit surge

After the industry's downturn, BOE, as a domestic panel giant, finally ushered in growth. In the Q3 financial report released on October 30, BOE swept away the haze of the decline in net profit in the previous quarters and achieved both revenue and profit growth.

Specifically, in the third quarter financial report, BOE achieved revenue of 40.82 billion yuan, an increase of 33.4% over the same period last year, and the net profit attributable to shareholders of listed companies was 1.34 billion yuan, an increase of 629.3%. In terms of revenue, BOE continued its steady growth in the previous quarter, and its net profit also performed brilliantly, which surged 6 times compared with the same period last year.

However, such dazzling results of BOE failed to make it proud in the stock market. After the Q3 financial report was released, the stock prices of BOE A and BOE B fell by 2.47% and 2.06% respectively. The main reason for the decline in BOE's share price is also the skepticism of its profitability in the capital market.

The profitability of BOE has always been unstable. In the financial reports from 2006 to the present, BOE’s profit margin has been erratic, ups and downs, the highest growth rate even exceeded 4500%, and the severe decline exceeded 200%. The state is extremely unstable.

This "roller coaster" type of profit rate change will inevitably make it questioned by the capital market. In this case, it is not difficult to understand the decline in BOE's stock price. For investors, profitability is an important reference for measuring whether a company is worth investing. The extremely unstable profitability of BOE is naturally difficult for investors to favor.

From a market perspective, BOE's profit margin fluctuates so greatly, which has a lot to do with the cyclical changes in the display panel market.

The hidden worry is still there

Unlike traditional industries, the display panel industry is very cyclical. This cyclicality is embodied in the sharp rise and fall of prices in the panel market due to changes in supply and demand.

For example, during the period of rising display panel prices, the increase in the number of entry companies has led to continuous growth in display panel production capacity. After display panel production capacity exceeded market demand, display panel prices continued to fall, and panel companies began to reduce production to reduce losses. This change in the relationship between supply and demand is the root cause of the fluctuations in the profits of panel manufacturers such as BOE.

In recent years, the rise of domestic panel manufacturers has gradually worsened this situation. With the rapid rise of panel companies such as BOE, Huaxing Optoelectronics, and Huike, the production capacity of the domestic display panel industry has also begun to increase substantially, and shipments have even exceeded Samsung and LG. But at the same time, the rapid increase in display panel production capacity has also caused the industry's prices to continue to decline, making it difficult for panel companies to obtain higher profits. Prior to this, the profit margin of the LCD panel industry has dropped to about 15%, and the profits that companies have gained from it have been extremely limited.

In addition, the drastic market price fluctuations in 2019 have directly caused well-known electrical appliance manufacturers such as Mitsubishi and Panasonic to withdraw from the liquid crystal display market, while panel manufacturers such as LG and Samsung have directly reduced losses through production cuts. After various panel companies reduced their production capacity, display panel prices began to pick up gradually. As a result, in the case of increased market demand in the third quarter, BOE, which seized market opportunities, finally achieved a surge in Q3 net profit.

But for BOE, its profitability due to cyclical fluctuations in the market still needs to be improved. In addition to the problem of unstable profitability, the iterative changes in the display panel market technology in recent years have also put forward more tests for BOE.

Opportunities and challenges under technology iteration

In the past two years, the rise of OLED and Mini LED display technologies in the display panel market has brought new opportunities for BOE, and also made it face more challenges.

First of all, the rapid rise of OLED display technology has accelerated the pace of OLED display technology replacing LCD liquid crystal display technology. With the widespread application of OLED display screens in smart phones, computers, wearable products and other fields, the sales of OLED electronic products are also growing rapidly. In 2019 alone, the annual review growth rate of the domestic OLED TV industry exceeded 90%, which is evident from this.

With OLED display technology becoming more and more popular, BOE is also making frequent efforts in the OLED field. However, as Samsung and LG occupy more than 90% of the global OLED market, BOE still faces considerable pressure if it wants to challenge these two.

Secondly, the Mini LED display technology, which has attracted much attention from the display panel market, also has huge market potential, and it also needs BOE to expand its layout, which makes it encounter new problems. On the one hand, the replacement and iteration of the production line is a huge expense. Among BOE’s 14 production lines, 4 are OLED production lines, and the replacement and iteration costs for the remaining 10 production lines are also a considerable expense.

On the other hand, in terms of OLED and Mini LED display technology, BOE is still far from the world's leading level, and it needs to catch up. The investment in research and development costs will have an impact on the tight capital chain, thereby reducing its profitability.

However, from another perspective, the technological iteration of the display panel market has also brought more opportunities for BOE. For example, BOE’s cooperation with Apple and Huawei has reflected its technological progress and provided assistance to its market expansion in the OLED field.

In terms of profit, the average gross profit margin of OLED display panels can reach more than 40%, which is much higher than that of LCD liquid crystal panels. This is of great help to BOE in solving the problem of unstable profitability. In addition, due to supply chain security considerations, downstream industry chain companies are more willing to cooperate extensively, which can further expand BOE's advantages in the OLED field.

On the whole, the iteration of OLED and Mini LED display technology is both an opportunity and a challenge. Whether BOE can continue to lead the new generation of display technology, it needs to be viewed from many aspects.

Can panel giants continue to lead?

In the LCD market, BOE has occupied 21.5% of the global market share, ranking first in the world. But in the OLED market, BOE still has a big gap compared with LG and Samsung.

From a technical point of view, in the current display panel market, OLED and LCD have their own advantages. Although OLED display technology performs well in terms of image quality and flexibility, it is still facing problems in mass production and performance due to its immature technology. The mature LCD display technology performs well in terms of product yield and stability.

From this point of view, it will take some time for OLED display technology to replace OLED technology. During this period of time, BOE has the best opportunity to catch up with Samsung and LG in the OLED field. On the one hand, BOE’s OLED technology has been recognized by the industry, which is more conducive to its market expansion; on the other hand, the market expansion in the OLED field can also enhance BOE’s profitability, thus effectively solving its long-term unstable profit margin. Come on.

In addition, the rise of the domestic OLED upstream industry chain in recent years has also provided assistance to BOE's technology research and development. For example, companies such as Hefei Xinyihua and Zhongshan Kaixuan have overcome the evaporation machine technology and solved equipment problems for panel companies such as BOE.

From this point of view, BOE, which leads the LCD market, has ushered in the best period for its efforts in the OLED market. With the support of the upstream industry chain and technical strength, BOE still has a great opportunity to rise again in the OLED market.

However, under the circumstances that there are challenges in funding research and development, whether it can once again lead the LCD market and create miracles in the OLED market again, it still needs to be handed over to the market to test.