TCL Electronics Holdings Limited (1070) Earnings Call Transcript & Summary

Distinguished guests, ladies and gentlemen, good afternoon. TCL Electronics Holdings 2024 Interim Results Announcement starts right now. Let me give you the introduction of our executives and management here. They are Ms. Du Juan, Chairman; Executive Director and CEO, Mr. Zhang Shaoyong; Executive Director and CFO, Mr. Peng Pan. Today, the announcement will be divided into 2 parts. Part 1 is for the H1 performance in 2024 and forward looking. The second part is for the Q&A session. Now let me give the floor to Executive Director and CEO, Mr. Zhang Shaoyong for the opening remarks.

It is actually an add-on section. First, I would like to extend a welcome to all the investors, analysts and the press members. Thank you for participating our 2024 interim report. To conclude H1 2024, we are now improving our capacities and also our revenue is out of our expectation. In the H1, our revenue grew by -- our market share grew by 2 percentage points. So compared to the last year, 10% of growth. Now this year, we achieved 12%. Also this year, the brand index is close to 100, around 96 or 97. In China, U.S., Europe, these core areas, we have our breakthroughs. Basically, we are one step forward to the goal to be a leader in the world. Of course, for the medium, small-sized segment and all categories segment, Internet, PV and Innovation segments, there are the positive growth. Later, CFO will give you a more detailed outlook. For the second half of this year, we are still having the confidence. We predict that the market environment will be steady in the second half of this year. But of course, there is no good or bad things in the industry. We may have a very cut through competition in some certain industry. Many years ago, many people told me that PV was a very promising industry. However, because of this cut through competition in China, it is really difficult to be the leader in this industry. So many investors told me that there is a right direction for me. And I told them that the one you do not choose is a better one or the one you choose is the better one. So there is no good or bad. All right. So we will realize our leading target as soon as possible. So next, let me give the floor to Mr. Peng Pan, Executive Director and CFO of the company. He will give us an outlook of the second half of 2024.

Thank you very much, dear investors, press members and analysts. Thank you for participating 2024 interim results announcement of TCL Electronics Holdings. So let me give you a presentation of our performance in the first half of 2024. First, market environment. First, TV industry. Globally, the TV market remains stable. In 2024, first half, the shipment of TV was 94.47 million, up by 1.9%. However, this is an imbalanced growth in the Europe and U.S. market owed by the sports events, there is a positive growth. However, in China, Asia Pacific, EMEA and Japan, the weak is relative -- the demand is relatively weak. The shipment down by 1% to 6.1%. Against the saturated market, we also see the rising of medium and high-end categories. For example, Mini LED TV in 2023 exceeds 3 million for its global shipment in 2024, it is expected to be over 6.2 million units. So in 2021 to 2025, the CAGR was over 50%, again, making sure that we are on the right track. From the industry side, the panel capacity is now being more concentrated in China. The TV global concentration is now improved up to 54.6% in the first half of 2024. The TCL global shipment has its market share of over 13.3% in the first half of 2024 from 5.6% in 2015. The Chinese TV brand is getting the advantage in this market. The second is refrigerator and laundry and also the refrigerator. It is expected that in 2028, the home appliances market is more stable. Central AC and heat pump has the greater room for growth compared to the black appliances. The black appliances has the large market, but also very stable. The next is mobile phone. And in 2024, first half of this year, we have seen the recovery of this market. The shipment is around 8.4%. The last one is the niche and innovative market. 2024 first half, the PV installation in China is over 102 gigawatts and distributed TV grew by 29% to -- with an addition of 53 gigawatts. In 2024, the newly installation will be over 200 gigawatts, up by 10%. So now I would like to give you an introduction of the 2024 AR/VR, whose shipment will be over 9.7 million units, grew by 44%. The next part is the first half of our year. We grew by 30.3% to the HKD 45.4 billion. The GP grew by 19.2% to HKD 7.7 billion. Net profit attributable to parent company grew by 147.3% to HKD 650 million. The Innovative business segment rapidly grew. 2024, the first half year, the year-on-year growth was 60.6% up to HKD 13.9 billion with a GP of 0.3 percentage points. In terms of the TCL TV, in 2024, the global shipment in the first half of this year is growing by 9.2%, up to 12.52 million units. In the Q2, the year-on-year growth was 12.9%, and in 2024, the first half of this year, TCL has the shipment growth and revenue growth 10.4% and 12.2%, respectively. And for the operation efficiency, we are getting better. The first half of 2024, the expense ratio was down by 2 percentage to the 13.7% and dividend ratio is around 50%, since 2017 remained a high dividend policy. The next is the divisions. Due to the large display, we are taking the leading place in the world. We also improved our quality. In 2024, the display revenue was up to HKD 30 billion with a year-on-year growth of 21.3%. The large-scale display has a revenue of HKD 25 billion. The medium and small display, HKD 3.7 billion. The smart commercial display, HKD 460 million. For the Internet business, we have a high profitability. 2024 H1 revenue grew by 8.9% to HKD 121 million. The GP grew by 8.8%. For the Innovative segment, 2024, the H1 grew by 60.6% to HKD 13.9 billion, and the PV is also growing strongly with the revenue growing to HKD 5.27 billion, and the GP was up by 2.7 percentage points. The all category sales revenue grew by 27.7%. Smart connection and smart home has revenue up to HKD 930 million. For the core business, the TCL TV is continuing leading the world. H1 TCL TV has 13.3% of market share in terms of its global shipments, up by 0.9%. 2024 TCL TV shipment was over 12.52 million, up by 9.2% is better than the industry average. The TCL TV has optimized the product mix with high-end products continuing to taking up the market. Talking about marketing, we look at localization. So for sports, eSports and also exhibitions, et cetera. So we actually support all those different industries for the expansions of our product portfolios. And talking about R&D, we are trying our very best to improve our R&D capabilities. So we will continue for our technology innovations and also users' experience. And we're actually focusing in Mini LEDs technology advantages and also with the ARs and XRs innovations. So at the same time, talking about the pictures engines as well as voice and immersive experience, we will actually improve all of those. And for AI scenarios, we will based on AIGC and to create interactions with the large screen experience and also to improve the GenAIs. And also, we will continue to focus in the next generation of ICT to guarantee the intellectual property protections. And for ECG (sic) [ ESG ], we have been focusing in ECGs (sic) [ ESGs ] as well as the green operations all the time and also try to focus -- provide our feedback to the societies. And with the environmental protections, we will continue with our green operations and create low-carbon emissions technology infrastructures. And within this year, we actually have a new initiation -- initiative and also talking about TV, we have TCL Care. We actually received an IDEA, American's industrial design award, and we can actually provide good carings to the vulnerable groups of people. And also, we actually have TCL for Her long-term projects in the globe. And by 2023, the 31st of September, we actually have more than 40% of female workers, employees in the companies. And talking about governance, we will continue to open up new works with -- to have Internet protections as well as privacy protections. And with ESG, especially for the markets actually recognized ESGs from TCL. So we actually ranked A for sixth consecutive years since 2018, and we're also been called as a really good 20% in terms of 91 companies that compare with ESG with us, and let's talk about the next session. The next session is talk about the segment performance. Firstly is display business. So we have high-end large-sized displays. And at the beginning of the first year of this year, we actually increased by 5.4% for the total segment and Falcon shipments, 66.4% that is an increase. And by the year 2024, the TV exports, the TV output rate actually increased by 5.4%. And -- but in China, the overall rate has reduced by 6.1%. And also, we influenced by the increase of cost for the screens, and that is about 19.8%. So talking about Mini LED accounts for 8.6% and then Quantum dot increased to 12.1%. 75-inch TV accounts increased by 3.5%. And within the market, TCL's TV is 113 billion units. And talking about the international market, we actually have a double improvement. So for the beginning of the year, overseas TCL increased by 10.4% and the industry shipments increased by 3.8% and talking about the overall revenue increased by 24.2%. And talking about the high-end and large-screen strategies, Mini LED TV shipments increased by 124.7%, proportion increased by 3.8%. And talking about the regions increased by 4% and in Europe increased by more than 4% and also United States, it remains relatively the same. And talking about the international markets, we actually ranked the fifth in 30 key countries. And talking about small and medium-sized screens, it is a total -- with a total revenue of USD 3.76 billion and then gross profit margin 16.7%. And the overall gross profit markets increased by 0.4 pp. And with the smart screen and especially smart commercial screens, we actually provide our customers with different scenarios displays and the overall revenues is HKD 460 million with 11.3% of increase. And then talking about the Internet markets, like the innovations Internet business with a revenues of increased by 8.9% and then gross profit is consistently higher than 50%. And the third business is the Innovation business. Let's talk about the PV, the photovoltaic. Well, we continue to focus in the light capital factors and saying that we do have multiple different kinds of designs and PV actually increased by 212.7%. That is HKD 5.27 billion. And then the gross profit margins increased by 10.3%. And by the end of June, we actually have a 70,000 units that is in the agriculture areas and with distribution channels, 1,020 -- 200 of them. And talking about TCL's air conditions, washing machines as well as the refrigerators, we actually have increased by 27.7%, reached HKD 7.75 billion and then with the gross profit margins increased by 16.3%. And we do have smart homes and smart connections such as smart locks as well as sensors as well as routers and security cameras with a revenues of HKD 931 million. And with AR/XR glasses with RayNeo, which is the Falcon X2 light. We have the binocular's full color micro LED waveguide AR glasses with a weight of only 60 gram. So we actually have a really good sales volumes for that. And let's talk about the outlook for TCL. And for -- in the future, we will continue to focus in the guide with the core business guided by the brands as well as to have a vibrant and technology-driven force and talking about the main business. The core business will be still focused in large-sized displays as well as Rayneo, the Falcon and talk about small and medium-sized enterprise displays. We also have regional focus. And talking about Internet business, we will enhance users' experience and expand to overseas and also the stable growth. And talking about innovative business with photovoltaics business, we will look for business expansions and also channels breakthroughs. We will accelerate the development. And also for AR/XR glasses, we have a proactive positioning to seize the smart terminal market. So we will continue to consolidate the overall growth within the core business as well as new business for the rest of 2024. And for the second half of this year, we will focus in the expansion -- the scale expansions, strong operation, dynamic organizations and globalizations. So regionally speaking, we will focus in the expansions for overseas markets and also strong operations. We will continue with our cost control, improve inventories and receivable turnover and decrease the materials cost and especially for the onetime cost, we will try to minimize that. And also the overall turnover rates, we try to improve on that. We will continue to focus in the global shipments as well as the distribution capabilities and also improve on our digitalization processes and then the user-friendly and user experience. So talking about the products and supply chain, we will have the local products expand to the world and to China, Europe Brazil, Mexico, Vietnam and Poland, we do have our factories and to have more than 30 million units. And talking about the talent, we do have global talents to enhance the localizations. And also at the end, we will have the local -- branding localizations to improve our overall influence in the world and in the world -- and in the future, we will focus in the maintaining of our clients and distribution channels. And in the -- to continue with our achievements from the beginning of the year, we actually achieved the world-leading positions. But however, in other different product portfolios, we will continue to improve our sales volumes as well as our distributions, and that is the TCL's interim results announcement. Thank you.

Right. Ladies and gentlemen, let's give a round of applause to our CEO (sic) [ CFO ], Mr. Pan, and we will have -- and our friends on site can actually have a very good understanding of TCL's performance. And next, we will have our Chairperson, Madam Du Juan, to have a conclusion and summaries.

Right. I would like to thank you very much for your participation and also our friends online like at the very end of this week. And I do have 4 sentence I would like to mention to you. Like firstly, is that for the interim results, what will be our perspective. We will -- if we compare with ourselves, yes, we have improvements. But if we compare with the market, no, we still need to make our efforts to improve. And talking about the market conditions, well, we are not focusing in the difficulties in the market. We're trying to improve ourselves. And just as Mr. Peng Pan mentioned, for our strategies, we have not changed. We will focus in globalizations and then high -- new high-end markets. So for the recent couple of years, we -- for global distribution capacity as well as the sales capacities, we actually improved a lot. So we have a good prospects in the future. And for the next year or 2, what are we going to do? Firstly, we will increase our gross profit margins. That is our very important focus. Thank you very much.