27 February 2017 Asia Pacific/Hong Kong Equity Research Electronic Components & Connectors China Display Sector Research Analysts INITIATION Kyna Wong 852 2101 6950
[email protected] Ambitions to lead displays Keon Han 82 2 3707 3740
[email protected] Figure 1: Share gain from China display makers with aggressive Jerry Su capacity expansion 886 2 2715 6361 30 (M sq. m) 35%
[email protected] 30% Sam Li 25 25% 852 2101 6775 20
[email protected] 20% 15 15% 10 10% 5 5% 0 0% 2012 2013 2014 2015 2016E 2017E 2018E WW capacity China capacity % China share Source: Company data, Credit Suisse estimates ■ We initiate coverage on the China Display sector. We expect China display sector to outgrow global peers in 2017/18 (China: 17%/9% vs global 14%/3%), given growing demand from Chinese brands, the government policy on localisation and mid-term supply ease. China's display industry is underway to improve its profitability and sustainability with better utilisation and mix. ■ Mid-term supply ease extends into 2H17. We estimate global display panel demand-supply (in terms of display area) would remain healthy (5% vs 3%) in 2017, thanks to limited new capacity and size upgrade. We see potential risk of oversupply starting from 2H18, but need more visibility on capacity ramp and size migration from China players. ■ China ambitions in display sector. (1) China display makers continue to expand capacity for scale capabilities. We expect China capacity to grow at a 25% CAGR over 2016-18E and account for 33% of worldwide capacity in terms of display area by 2018.