Company Report: Skyworth Digital (00751 HK)

股

票

研 [Table_Title] Andrew Song 宋涛 Company Report: Skyworth Digital (00751 HK)

究 (852) 2509 5313 EquityResearch 公司报告：创维数码 (00751 HK) [email protected]

1 December 2017 Operating[Table_Summary Environment] Remains Challenging but Asset Value

is Attractive, Maintain “Buy”

公经营仍然充满挑战但资产价值吸引，维持“买入”

司 Report

 1HFY18 Skyworth recorded a net loss of HK$192 million, in line with Rating:[Table_Rank] Buy 报 their profit warning. Total revenue increased 5.9% YoY to HK$21,489 Maintained

告 million, of which domestic TV sales dropped 6.5% YoY and overseas TV 评级：买入 (维持)

Company sales surged 29.0% YoY. Gross margin shrank 4.2 ppts YoY to 15.8%, mainly due to a surge in panel prices and raw material costs. The Company also recorded foreign exchange loss of HK$242 million. 6[Table_Price]-18m TP 目标价 : HK$4.95 Revised from 原目标价: HK$6.20  The Company’s operating environment remains challenging. We have seen panel prices start to decrease in 2H17, which will partly alleviate the Share price 股价： HK$3.330

告

cost pressure on TV products. However, other raw material prices are still at

证 high levels. In addition, a shortage and price surge in chipsets and a product 报

Stock performance 券 mix shift from cable boxes to IPTV boxes dragged down gross margin of

究 digital set-box business in both China and overseas markets. Overall gross 股价表现

研 margin is expected to improve in 2HFY18 to a limited extent. [Table_QuotePic40.0 % of return ]

研

究 30.0

 Reiterate investment rating as “Buy” but cut target price to HK$4.95. 券 20.0 报 Despite of the Company’s weak earnings in FY18, Skyworth’s valuation is

告证 attractive considering its asset value (including properties), shares in 10.0 EquityResearch Report Skyworth Digital (000810 SZ) and shares in Coocaa. New TP represents 0.0

0.9x FY18 PBR and 0.85x FY19 PBR. (10.0)

(20.0)  创维 2018 财年上半年录得 192 百万港元亏损，符合之前盈利警告。收入同比增长 5.9% [Tab 至港币 21,489 百万元，其中国内电视销售同比下降 6.5%，海外电视销售则同比大增 (30.0)

29.0%。毛利率同比倒退 4.2 个百分点至 15.8%，主要由于面板价格和原材料价格的剧烈 (40.0) le_I Nov-16 Mar-17 Jun-17 Aug-17 Nov-17 上升。另外公司还有一笔 242 百万港元的汇兑损失。

nfo1 HSI index SKYWORTH DIGITAL

工]  经营环境仍然充满挑战。我们看到面板价格在 2017 年下半年开始回落，一定程度上会缓解电视的成本压力。然而，其他原材料价格仍处在高位。此外，芯片的短缺以及价格 [Table_PriceChange] 业 Change in Share Price 1 M 3 M 1 Y 飙升以及产品结构从有线切换成网络电视机顶盒拖累了中国以及海外数字机顶盒的毛利股价变动 1 个月 3 个月 1 年制 Abs. % 率。整体毛利率预计在 2018 财年下半年有所提升但幅度有限。 (7.2) (8.3) (31.6) 造绝对变动 % Rel. % to HS Index (10.5) (12.6) (59.7) 行  重申投资评级“买入”但降低目标价至 4.95 港元。尽管公司 2018 财年盈利较弱，但考相对恒指变动 % Avg. share price（HK$）虑到其资产价值（包括持有的物业）、创维数字(000810 SZ)的股份以及酷开电视的股份， 4.4 4.6 5.1 业平均股价（港币）

创维估值吸引。新目标价对应倍财年市净率以及倍财年市净率。 0.9 2018 0.85 2019 Source: Bloomberg, Guotai Junan International.

Manufacturing Sector

[Tab le_I Y[Table_ear End Turnover Net Profit EPS EPS PER BPS PBR DPS Yield ROE 年结Profit] 收入股东净利每股净利每股净利变动市盈率每股净资产市净率每股股息股息率净资产收益率 nfo2 03/31 (HK$ m) (HK$ m) (HK$) (△ %) (x) (HK$) (x) (HK$) (%) (%)

] 2016A 42,695 2,170 0.759 (31.4) 4.4 5.841 0.6 0.206 6.2 15.1 创 2017A 42,845 1,310 0.446 (41.2) 7.5 5.730 0.6 0.239 7.2 8.6 2018F 46,682 251 0.083 (81.4) 40.1 5.532 0.6 0.029 0.9 1.6 维 2019F 52,069 928 0.309 272.3 10.8 5.818 0.6 0.108 3.2 5.9 数 2020F 57,080 1,216 0.404 30.7 8.2 6.151 0.5 0.142 4.3 7.4 码

[Table_BaseData]Shares in issue (m) 总股数 (m) 3,007.4 Major shareholder 大股东 Wei Ping Lin 38.9% Market cap. (HK$ m) 市值 (HK$ m) 10,014.6 Free float (%) 自由流通比率 (%) 60.5 3 month average vol. 3 个月平均成交股数 (‘000) 17,573.4 FY17 Net gearing (%) FY17 净负债/股东资金 (%) 16.0

Skyworth Digital (00751 Skyworth HK) Digital 52 Weeks high/low (HK$) 52 周高/低 (HK$) 5.550 / 3.290 FY17 Est. NAV (HK$) FY17 每股估值（港元） 6.0

Source: the Company, Guotai Junan International.

See the last page for disclaimer Page 1 of 8

[Table_PageHeader]Skyworth Digital (00751 HK)

Skyworth Digital (“Skyworth” or “the Company”) recorded a net loss of HK$192 million in 1HFY18, in line with the

previous profit warning. The Company’s revenue reached HK$21,489 million, up 5.9% YoY,] 1 ofr whicha M domestict h g i TVR sales_ e felll b by a T [

6.5% YoY to HK$8,764 million, while overseas TV sales rose 29.0% YoY to HK$5,820 million. By region, revenue from the

China market slightly dropped by 0.9% YoY. Meanwhile, overseas sales increased by 21.1% YoY thanks to rapid growth in 2017 overseas TV sales and digital set-top box sales.

Gross margin dropped significantly due to a sharp increase in costs in 1HFY18. Overall gross margin contracted to

15.8%, down 4.8 ppts. However, operating expenses were controlled well, of which selling and distribution expenses to revenue 1 December was down 0.8 ppts YoY to 10.9% and general and administration expenses to revenue declined 0.7 ppts YoY to 6.2%. During the period, other income and gains also fell 70.9% YoY, mainly due to less VAT refunds with less income taxation, less interest income and less unfavorable foreign exchange rates. Total operating margin dropped 6.6 ppts.

Table-1: Skyworth’s 1HFY18 Results Review HK$ million 1HFY17 1HFY18 YoY Comments Turnover 20,291 21,489 5.9% Mainly supported by overseas TV and set-top box Cost of sales (16,121) (18,103) 12.3% Sharp increase in panel prices and raw material costs Gross profit 4,170 3,386 -18.8%

] 2 r a M t h g i R _ e l b a T [

Other income and gains 917 267 -70.9% Less VAT refunds and less exchange loss S&D expenses (2,379) (2,337) -1.8%

G&A expenses (1,390) (1,327) -4.5%

Operating profit 1,318 (11) -100.8%

Profit before tax 1,142 (147) -112.9%

Income tax (194) (42) -78.4%

Shareholders' profit 836 (192) -123.0%

EPS (HK$) 0.29 (0.06) -122.1%

(00751 HK)

Gross margin 20.6% 15.8% -4.2 ppts

Operating margin 6.5% -0.1% -6.6 ppts 创维数码

Net margin 4.1% -0.9% -5.0 ppts

Source: the Company, Guotai Junan International.

Domestic TV sales experienced headwinds. In 1HFY18, the sales volume of domestic TVs decreased by 20.8% YoY, of Skyworth Digital which 4K smart TVs increased 1.2% YoY while non-4K TVs dropped 36.7% YoY. In 2017, Sharp started a price war with an aggressive discount strategy to grab market share, however, Skyworth wanted to ensure stable gross margin and therefore did not follow Sharp’s strategy, which resulted in a loss in market share. In 1HFY18, the Company raised TV prices to cope with the surge in panel prices. ASP of blended TVs increased to HK$2,505 per unit from HK$2,123 per unit, up 18.0% YoY, of which ASP of 4K TVs rose 5.7% YoY. Nevertheless, due to the sharp increase in material prices, gross margin fell to a historical low. Gross margin of 4K TVs, non-4K smart TVs and other TVs shrank by 6.0 ppts YoY, 7.1 ppts YoY and 3.6 ppts YoY. Blended TV gross margin dropped from 24.5% in 1HFY17 to 19.8% in 1HFY18. In addition, April to June is usually the off-peak season for TV sales and Skyworth put more effort into de-stocking, launching very few models this year, which lowered gross margin.

Overseas TV sales continued to show strong sales growth. Overseas sales value soared by 29.0% YoY to HK$5,820 million in 1HFY18, with a 1.4% YoY increase in sales volume and 27.3% YoY surge in ASP. Approximately 83% of TVs sold overseas were OEM/ODM based which experienced a much lower gross margin. During the period, gross margin also dropped by 3.2 ppts YoY due to unfavorable effects of raw material prices and panel prices. The Company is expanding its own branded

sales in overseas markets, leveraging on Metz in the the European market, Toshiba in the Southeast and its own brand Report Skyworth. Due to the time difference, overseas sales volume growth in April to September was relatively slow but YoY growth in

September and October reached 34% and 46%, respectively; we expect more rapid growth in 2HFY18.

Company

See the last page for disclaimer Page 2 of 8 [Table_PageHeader]Skyworth Digital (00751 HK)

Figure-1: TV Sales Volume Breakdown Figure-2: TV Sales Value Breakdown

] 1 r a M t h g i R _ e l b a T [

Inner: 1HFY17 Outter: 1HFY18

Units mn Inner: 1HFY17 Outter: 1HFY18 HK$ mn

2017

1,880.2 4K smart TV 4K smart TV 1,858.0 5,820 4,511 6,609 1 December 3,803.2 Non-4K TV Non-4K TV 3,855.0 6,176 2,557.6 3,200 1,618.3 Overseas TV Overseas TV

2,155 Source: the Company, Guotai Junan International. Source: the Company, Guotai Junan International.

Table-2: Monthly TV sales of Skyworth

1HFY1 1HFY1

] 2 r a M t h g i R _ e l b a T [

Unit (‘000) Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 7 8

Chinese market: Flat panel TV 803 1,076 1,192 943 419 489 601 553 477 478 676 713 663 4,416 3,499 -4K 351 527 615 500 195 245 299 305 239 241 378 418 399 1,858 1,880 -Non-4K 452 549 577 444 224 244 302 248 238 237 298 295 264 2,558 1,618 Overseas market:

Flat TV 573 552 544 519 407 542 400 602 477 616 719 1,041 835 3,803 3,855

Total Volume 1,376 1,628 1,737 1,462 826 1,031 1,001 1,155 954 1,094 1,395 1,754 1,498 8,219 7,354

China YoY 3% (2%) (4%) (33%) 8% (25%) (9%) (9%) (28%) (22%) (20%) (30%) (17%) (1%) (21%) (00751 HK) Overseas YoY 64% 9% 42% 56% 83% 14% (9%) 33% (34%) (9%) (3%) 34% 46% 78% 1% Total YoY 22% 1% 6% (16%) 35% (8%) (9%) 9% (31%) (15%) (12%) (2%) 9% 25% (11%)

Source: the Company. 创维数码

Digital set-top boxes recorded fast sales growth but margin was weak. Total sales of digital set-top boxes and LCD modules reached HK$2,412 million in mainland China, up 30.3% YoY, and HK$1,422 million in overseas markets, up 31.3% YoY. However, due to the sharp rise in raw material costs and shortage in memory chipsets, gross margin of overseas business was down 4.3 ppts. Moreover, product mix in China shifted from cable to IPTV and OTT boxes with lower gross margin which Skyworth Digital further eroded gross margin of China business by 9.2 ppts YoY.

Figure-3: Revenue Breakdown Figure-4: Segment Profit Breakdown

Inner: 1HFY17 Outter: 1HFY18 Inner: 1HFY17 Outter: 1HFY18

8.0% China TV China TV 5.8% 1.8% 13.6% Overseas TV 15.3% 5.3% 300.0% Overseas TV 1.8% 1.3% -365.9% 11.2% Digital STB & LCD 45.6% 10.8% modules Digital STB & LCD 22.8% modules White appliance 68.6% White appliance 73.3% 15.1%

Others 24.4% Report 70.7% Others 70.7%

Source: the Company, Guotai Junan International. Source: the Company, Guotai Junan International.

Company

See the last page for disclaimer Page 3 of 8 [Table_PageHeader]Skyworth Digital (00751 HK)

Table-3: Gross Margin Breakdown

] 1 r a M t h g i R _ e l b a T [

1HFY17 1HFY18 YoY

TV (China) 24.5% 19.8% -4.7 ppts

TV (Overseas) 9.8% 5.9% -3.9 ppts

2017

Set-top box & LCD Modules (China) 17.6% 8.4% -9.2 ppts

Set-top box & LCD Modules (Overseas) 26.7% 22.4% -4.3 ppts

White appliances (refrigerator and washing machine) 22.6% 19.7% -2.9 ppts 1 December

China market overall 24.2% 19.3% -4.9 ppts Overseas market overall 12.4% 9.2% -3.2 ppts Source: the Company.

Earnings Forecasts Assumptions and Revisions

Revise down TV sales forecasts in FY18-FY20. The Company faced a setback in domestic TV sales YTD in 2017 and we have not seen a recovery yet. In 2016, the TV market experienced a fierce price war brought by internet TV manufacturers, which lifted total TV sales volume. However, the high penetration of TVs and the rise in ASP due to high costs has restrained

] 2 r a M t h g i R _ e l b a T [ TV demand this year and the whole industry’s sales volume recorded a fall. We revise down domestic TV sales volume in FY18 by 16.8% to 7.75 million units. We believe that 4K TVs will double in growth but non-4K TVs will record sales decline. However, due to the ASP hike mainly contributed from new models with larger size screens and 4K screens, as well as a higher proportion of mid-end to high-end products, we raise ASP forecasts in FY18 and FY19 by 6.2% and 1.4%, respectively. On the other hand, we have confidence in overseas TV sales as the Company is establishing its overseas sales channel and has strong relationships with other brands which will benefit OEM orders. However, we note that self-owned brand sales in overseas markets showed slower-than-expected growth and we have therefore cut ASP assumptions.

Table-4: Revisions to Segment Breakdown of Skyworth New Old Change

HK$ million (00751 HK) FY18F FY19F FY20F FY18F FY19F FY20F FY18F FY19F FY20F

China TV 20,761 22,841 25,005 23,513 26,638 30,206 -11.7% -14.3% -17.2%

-Volume (‘000 units) 7,749 8,154 8,560 9,316 9,645 10,288 -16.8% -15.5% -16.8% 创维数码

-ASP (HK$) 2,679 2,801 2,921 2,524 2,762 2,936 6.2% 1.4% -0.5%

Overseas TV 11,171 13,808 16,038 11,730 14,498 17,279 -4.8% -4.8% -7.2%

-Volume (‘000 units) 8,676 10,411 11,972 8,676 10,411 12,285 0.0% 0.0% -2.5% Skyworth Digital -ASP (HK$) 1,288 1,326 1,340 1,352 1,393 1,407 -4.8% -4.8% -4.8%

Digital STB & LCD Modules 8,045 8,599 9,095 7,004 7,489 7,981 14.9% 14.8% 14.0%

White appliances 2,201 2,237 2,275 2,201 2,237 2,275 0.0% 0.0% 0.0%

Other business 4,504 4,584 4,668 4,972 5,221 5,482 -9.4% -12.2% -14.9%

Total turnover 46,682 52,069 57,080 49,420 56,083 63,223 -5.5% -7.2% -9.7% Source: Guotai Junan International.

Cut earnings forecasts in FY18-FY19 by 86.2% and 56.4%, respectively. Due to unfavorable TV sales, we revise down total

revenue by 5.5% and 7.2% to HK$46,682 million and HK$52,069 million, respectively. Gross margin dropped significantly in

1HFY18, suffering from raw material costs and a surge in panel prices. Panel prices stabilized and started to come down in Report 2H17, but raw material prices remained high and chipsets are in shortage. Thus we think that gross margin in 2HFY18 will see limited recovery supported by new 4K TV models; we expect overall gross margin to be 16.9% and 18.9% in FY18 and FY19,

respectively. In addition, we revise down other income as the Company recorded foreign exchange loss of HK$242 million. We Company believe that the Company can make a profit for the full year as the worst time has passed despite a loss of HK$192 million in 1HFY18.. We have reduced Skyworth’s shareholders’ profit in FY18 and FY19 by 86.2% and 56.4%, respectively. See the last page for disclaimer Page 4 of 8 [Table_PageHeader]Skyworth Digital (00751 HK)

Table-5: Earnings Revisions of Skyworth

New Old ] 1 r a M t h Changeg i R _ e l b a T [

HK$ million

FY18F FY19F FY20F FY18F FY19F FY20F FY18F FY19F FY20F

Total revenue 46,682 52,069 57,080 49,420 56,083 63,223 -5.5% -7.2% -9.7% 2017

Cost of sales (38,814) (42,245) (46,051) (39,068) (44,070) (49,618) -0.7% -4.1% -7.2%

Gross profit 7,868 9,824 11,029 10,352 12,012 13,605 -24.0% -18.2% -18.9%

Operating expenses (8,029) (8,982) (9,898) (8,698) (9,983) (11,317) -7.7% -10.0% -12.5%

1 December Operating profit 711 1,677 2,096 2,899 3,294 3,740 -75.5% -49.1% -44.0%

Shareholders' profit 251 928 1,216 1,820 2,127 2,439 -86.2% -56.4% -50.1%

Margins (%):

Gross 16.9% 18.9% 19.3% 20.9% 21.4% 21.5% -4.0 ppts -2.5 ppts -2.2 ppts

Operating 1.5% 3.2% 3.7% 5.9% 5.9% 5.9% -4.4 ppts -2.7 ppts -2.2 ppts

Shareholders' profit 0.5% 1.8% 2.1% 3.7% 3.8% 3.9% -3.2 ppts -2.0 ppts -1.8 ppts Source: Guotai Junan International.

Reiterate investment rating as “Buy” but revise down TP to HK$4.95. Despite a sharp earnings drop in FY18, the

] 2 r a M t h g i R _ e l b a T [

Company’s stock price is attractive compared to its asset value. The Company’s holding properties in Shenzhen, 56.5% share in Skyworth Digital (000810 SZ) and Coocaa, which has also been invested in by iQIYI and Tencent, is strong and supports the Company’s valuation. Therefore, we reiterate the Company’s rating as “Buy”. The new TP represents 0.9x FY18 PBR and 0.85x FY19 PBR, and 16.0x FY19 PER

Figure-5: Historical Forward PE Band of the Company Figure-6: Historical Forward PB Band of the Company

Closing price (HK$) 3x 5x 7x 9x 11x Closing price (HK$) 0.5x 0.75x 1.0x 1.25x 1.5x

14 10

12 8

10 (00751 HK)

8 6

6 4 创维数码 4 2 2

0 0

Skyworth Digital Source: Bloomberg, Guotai Junan International. Source: Bloomberg, Guotai Junan International.

Inner: 1HFY17 Outter: 1HFY18

8.0% China TV 5.8% 1.8% 13.6% Overseas TV 5.3% 1.8% 11.2% Digital STB & LCD 10.8% modules 68.6% White appliance

73.3% Others

Report

Company

See the last page for disclaimer Page 5 of 8 [Table_PageHeader]Skyworth Digital (00751 HK)

Table-6: Peers Comparison Market

PE (fiscal year) PB] (fiscal1 year)r a M t h g i R _ e l b a T [ Company ROE(%) D/Y(%) Cap Stock Code Currency Last price 16A 17F 18F 19F 16A 17F 18F 19F 18F 18F HKD mil HK - Listed household appliances company

Haier Electronics 1169 HK HKD 21.30 18.2 15.2 13.0 11.5 3.0 2.4 2.1 1.9 17.2 1.8 59,662 2017

Skyworth Digital 751 HK HKD 3.33 7.8 24.0 6.5 5.5 0.7 0.6 0.6 0.5 9.1 4.8 10,014

Hisense Kelon 921 HK HKD 8.89 9.5 6.0 6.1 5.1 2.2 1.6 1.4 n.a. 23.8 6.4 19,237

Tcl Multimedia 1070 HK HKD 4.16 35.3 14.4 12.0 8.9 1.1 1.0 0.9 0.9 8.3 1.3 7,260

Simple Average 17.7 14.9 9.4 7.8 1.8 1.4 1.3 1.1 14.6 3.6

Weighted Average 16.6 14.3 10.9 9.4 2.5 2.0 1.7 1.6 16.9 3.0 1 December

PRC - Listed household appliances company

Midea 000333 CH CNY 51.10 22.3 19.5 15.9 13.6 5.4 4.7 3.9 3.3 26.9 2.7 393,594

Gree Electric Appliances 000651 CH CNY 42.45 16.6 12.7 11.1 9.8 4.7 4.0 3.4 2.9 32.5 5.8 301,696

Qingdao Haier 600690 CH CNY 17.57 21.3 15.8 13.6 11.6 4.1 3.5 2.8 2.3 21.5 2.2 126,567

Tcl Corp 000100 CH CNY 4.20 32.0 18.9 15.6 13.3 2.3 2.0 1.8 1.6 9.8 2.3 60,604

Sichuan Changhong 600839 CH CNY 3.67 30.5 40.8 36.7 n.a. 1.3 1.3 1.3 n.a. 3.6 0.8 20,015

Hisense Electric 600060 CH CNY 15.12 11.3 14.6 11.1 9.7 1.5 1.4 1.3 1.2 10.9 2.6 23,373

Hangzhou Robam Appliances 002508 CH CNY 44.51 34.6 26.0 20.1 15.7 10.2 7.5 5.8 4.5 32.4 1.5 49,905

Hang Zhou Great Star 002444 CH CNY 14.64 25.2 21.8 18.5 16.8 2.8 2.4 2.2 2.0 11.7 1.3 18,597

Shenzhen Mtc 002429 CH CNY 3.87 42.1 35.2 29.1 23.7 2.3 2.2 2.1 2.0 7.4 1.6 20,698

Joyoung 002242 CH CNY 18.16 20.0 18.8 16.5 14.4 4.0 3.6 3.3 3.0 21.1 3.9 16,467

Wuxi Little Swan 000418 CH CNY 56.98 30.6 24.5 20.0 16.7 6.0 5.1 4.3 3.6 21.8 1.9 37,277

] 2 r a M t h g i R _ e l b a T [ Whirlpool China 600983 CH CNY 7.61 15.5 27.2 18.6 7.8 1.3 1.4 1.4 n.a. 0.2 0.7 6,891

Hisense Kelon Electrical 000921 CH CNY 14.20 17.8 11.1 12.2 10.0 4.0 3.2 2.7 2.4 23.1 3.1 19,237

Simple Average 24.6 22.1 18.4 13.6 3.8 3.2 2.8 2.6 17.1 2.3 Weighted Average 22.2 18.1 15.1 12.6 4.8 4.1 3.4 2.9 25.2 3.3

Japan - Listed household appliances company

Sony 6758 JP JPY 5,322.00 44.6 91.6 17.5 16.6 2.7 2.7 2.4 2.1 14.3 0.5 469,420

Panasonic 6752 JP JPY 1,690.00 23.7 26.3 21.8 16.7 2.7 2.5 2.3 2.1 11.0 1.6 289,141

Casio Computer 6952 JP JPY 1,620.00 13.5 22.3 16.6 14.9 2.1 2.0 1.9 1.8 11.8 2.5 29,266

Nikon 7731 JP JPY 2,194.00 29.0 219.2 25.4 18.1 1.6 1.6 1.5 1.5 6.2 1.3 61,343

Rinnai 5947 JP JPY 10,000.00 22.9 23.3 21.8 20.6 2.0 1.9 1.8 1.7 8.4 0.9 36,000

Sharp 6753 JP JPY 3,575.00 n.a. n.a. 35.6 34.1 (2.3) 23.2 6.1 5.2 18.1 0.0 124,250

Fujitsu General 6755 JP JPY 2,359.00 14.1 24.6 15.6 14.2 2.9 2.7 2.3 2.0 15.6 1.0 17,979

Alpine Electronics 6816 JP JPY 2,640.00 17.0 23.5 85.3 28.9 1.3 1.3 1.3 1.2 1.7 1.1 12,849

(00751 HK) Pioneer 6773 JP JPY 216.00 108.5 n.a. 27.3 17.0 0.9 1.0 0.9 0.9 3.6 0.3 5,775

Simple Average 34.2 61.5 29.7 20.1 1.6 4.3 2.3 2.1 10.1 1.0

Weighted Average 34.6 72.4 22.3 19.0 2.0 4.9 2.7 2.4 12.9 0.9 创维数码

Other Regions - Listed household appliances company

Whirlpool WHR US USD 167.48 14.4 12.2 10.6 9.4 2.6 2.6 2.5 2.4 23.1 2.7 93,974

Electrolux Ab-Ser ELUXB SS SEK 278.00 17.8 15.4 14.4 13.5 4.5 3.9 3.4 3.0 25.3 3.1 80,275

Lg Electronics 066570 KS KRW 91,400.00 216.6 9.0 9.2 8.4 1.3 1.2 1.0 0.9 12.1 0.5 108,030

Seb Sa SK FP EUR 158.80 30.5 20.3 17.8 16.0 4.8 4.1 3.5 3.0 20.7 1.6 73,645

De'Longhi DLG IM EUR 24.91 22.2 20.5 18.9 17.4 3.7 3.5 3.1 2.8 17.4 2.4 34,425 Skyworth Digital

Arcelik ARCLK TI TRY 19.36 10.1 12.1 10.2 8.9 2.2 2.0 1.7 1.5 18.5 3.4 25,749

Helen Of Troy HELE US USD 90.35 25.2 17.7 13.4 13.0 2.7 2.4 2.1 1.9 17.1 n.a. 19,235

Metall Zug METN SW CHF 3,337.00 17.5 19.8 18.4 17.0 1.7 1.6 1.5 1.4 8.7 2.2 11,991

Irobot IRBT US USD 68.14 45.1 28.1 22.6 19.9 4.8 4.1 3.6 3.1 14.0 n.a. 14,830

Simple Average 44.4 17.2 15.0 13.7 3.1 2.8 2.5 2.2 17.4 2.3 Weighted Average 66.7 14.8 13.4 12.2 3.1 2.8 2.5 2.2 18.9 2.0 Source: Bloomberg, Guotai Junan International.

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Company

See the last page for disclaimer Page 6 of 8 [Table_PageHeader]Skyworth Digital (00751 HK)

Financial Statements and Ratios

[Table_IncomeStatement] [Table_BalanceSheet] ] 1 r a M t h g i R _ e l b a T [

Income Statement Balance Sheet

Year end 31 Mar (HK$ m) 2016A 2017A 2018F 2019F 2020F Year end 31 Mar (HK$ m) 2016A 2017A 2018F 2019F 2020F

Total Revenue 42,695 42,845 46,682 52,069 57,080 Property, plant and equipment 5,818 5,727 6,149 6,490 6,752

(33,332) (34,278) (38,814) (42,245) (46,051)

Cost of sales Good will 506 521 521 521 521 2017

Gross Profit 9,363 8,567 7,868 9,824 11,029 Prepaid leases 718 818 809 801 792

Interests in associates & JVs 60 122 132 142 154

Other income & gains 1,356 1,735 872 835 964 Available for sale investment 1,254 1,268 1,268 1,268 1,268

Selling & distribution expenses (4,756) (5,091) (5,182) (5,754) (6,359) Held-to-maturity investments 702 0 0 0 0 1 December

Administrative expenses (2,581) (2,864) (2,848) (3,228) (3,539) Others 1,026 3,264 1,185 1,228 1,262

Operating Profit 3,382 2,347 711 1,677 2,096 Total Non-current Assets 10,084 11,720 10,064 10,450 10,748

Finance costs (239) (359) (362) (365) (375) Cash & Cash Equivalents 5,023 4,815 5,057 2,857 3,982

Share of profits from associates and joint Inventories 5,494 6,666 6,690 7,120 7,181 7 (4) 8 9 10 venture Bills receivable 14,692 13,903 12,579 15,482 15,280

Profit Before Tax 3,150 1,984 357 1,321 1,731 Loan receivables 1,089 2,635 0 0 0

Income Tax (623) (455) (64) (238) (312) Others 5,678 3,320 10,459 12,324 14,185

profit After Tax 2,527 1,529 293 1,083 1,419 Total Current Assets 31,976 31,339 34,785 37,783 40,629

Non-controlling Interest (357) (219) (42) (155) (203)

Shareholders' Profit / Loss 2,170 1,310 251 928 1,216 Total Assets 42,060 43,059 44,848 48,232 51,376

] 2 r a M t h g i R _ e l b a T [ Basic EPS 0.759 0.446 0.083 0.309 0.404

Diluted EPS 0.759 0.446 0.083 0.309 0.404 Account payables 10,419 10,921 12,518 12,738 12,040

Bills payable 5,195 5,409 6,200 6,309 5,963 Tax liabilities 312 125 23 83 109

[Table_CashFlowStatement] Cash Flow Statement Bank borrowings 4,950 4,979 3,735 3,628 4,395

Year end 31 Mar (HK$ m) 2016A 2017A 2018F 2019F 2020F Others 425 607 459 464 459

PBT 3,150 1,984 357 1,321 1,731 Total Current Liabilities 21,301 22,041 22,934 23,222 22,967

DD&A 642 676 775 853 929

Finance costs 239 359 362 365 375 Long-term debts 3,155 3,013 2,000 2,000 2,000

Change in working capital and others (2,031) (1,461) 3,218 (2,829) (619) Others 760 889 2,000 2,000 2,000

Cash generated from operations 1,731 1,210 4,428 (520) 2,141 Total Non-current Liabilities 4,059 4,205 5,278 7,514 9,911

Income tax paid (544) (761) (557) (4) (212) (00751 HK) Cash from Operating Activities 1,187 449 3,871 (524) 1,929 Total Liabilities 25,360 26,246 28,212 30,736 32,878

Proceeds on disposal of PPE 142 32 0 0 0 Total Shareholders' Equity 15,092 15,479 15,271 16,014 16,864 创维数码 Purchase of PPE (1,655) (1,511) (1,200) (1,200) (1,200) Minority Interest 1,608 1,334 1,365 1,482 1,634

Investments (2,658) 2,801 327 0 0 Total Equity 16,700 16,813 16,636 17,496 18,498

Others (65) (1,468) 0 0 0

Cash from Investing Activities (4,236) (146) (873) (1,200) (1,200) [Table_FinancialRatio]

Financial Ratios Skyworth Digital Financing activities 2016A 2017A 2018F 2019F 2020F Loans changes 5,585 185 (2,157) (108) 551 Growth%:

Share placing 70 80 0 0 0 Revenue 6.4 0.4 9.0 11.5 9.6

Dividend paid (390) (380) 335 (273) (234) Operating profit 16.7 (8.5) (8.2) 24.9 12.3

Others (388) (277) (455) (95) 79 Net profit (30.6) (39.6) (80.8) 269.9 31.0

Cash from Financing Activities 4,877 (392) (2,277) (476) 397

Margins:

Net Changes in Cash 1,828 (89) 721 (2,200) 1,125 Gross margin 21.9 20.0 16.9 18.9 19.3

Cash at Beg of Year 2,950 4,621 4,336 5,057 2,857 Operating margin 8.6 6.6 2.0 3.3 3.9

Effect of FX rate changes (157) (196) 0 0 0 Net margin 5.1 3.1 0.5 1.8 2.1

Cash at End of Year 5,023 4,815 5,057 2,857 3,982

ROE (%) 15.1 8.6 1.6 5.9 7.4 ROA (%) 5.8 3.1 0.6 2.0 2.4

Payout ratio (%) 23.3 45.8 30.0 30.0 30.0

Inventory days 53.85 64.74 62.80 59.66 56.68

A/C receivable days 124.79 121.80 103.53 98.35 98.35

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A/C payable days 107.17 113.62 110.21 109.11 98.20

Cash conversion cycle 71.47 72.93 56.12 48.91 56.84

Company Source: the Company, Guotai Junan International.

See the last page for disclaimer Page 7 of 8 [Table_PageHeader]Skyworth Digital (00751 HK)

Company[Table_CompanyRatingDefinition] Rating Definition

The Benchmark: Hong Kong Hang Seng Index ] 1 r a M t h g i R _ e l b a T [

Time Horizon: 6 to 18 months

Rating Definition 2017

Buy 买入 Relative Performance>15%; or the fundamental outlook of the company or sector is favorable. Accumulate 收集 Relative Performance is 5% to 15%; or the fundamental outlook of the company or sector is favorable.

Neutral 中性 Relative Performance is -5% to 5%; 1 December or the fundamental outlook of the company or sector is neutral. Reduce 减持 Relative Performance is -5% to -15%; or the fundamental outlook of the company or sector is unfavorable.

Sell 卖出 Relative Performance <-15%; or the fundamental outlook of the company or sector is unfavorable.

Sector[Table_ RatingIndustry DefinitionRatingDefinition] The Benchmark: Hong Kong Hang Seng Index Time Horizon: 6 to 18 months Rating Definition Outperform 跑赢大市 Relative Performance>5%;

] 2 r a M t h g i R _ e l b a T [ or the fundamental outlook of the sector is favorable. Neutral 中性 Relative Performance is -5% to 5%; or the fundamental outlook of the sector is neutral. Underperform 跑输大市 Relative Performance<-5%; Or the fundamental outlook of the sector is unfavorable.

[DISCLOSURETable_DISCLOSUREOFINTERESTS OF INTERESTS ] (1) The Analysts and their associates do not serve as an officer of the issuer mentioned in this Research Report. (2) The Analysts and their associates do not have any financial interests in relation to the issuer mentioned in this Research Report. (3) Except for GUOTAI JUNAN INTERNATIONAL (01788 HK),BINHAI INVESTMENT (02886 HK),MR CSI300 ETF (03127 HK),CAM SCSMALLCAP (03157 HK),LINK HOLDINGS (08237 HK),MR CSI300 ETF-R (CNY) (83127 HK),GFI MSCI A I-R (CNY) (83156 HK),Guotai Junan and its group companies do not hold equal to or more than 1% of the market capitalization of the issuer mentioned in

this Research Report. (00751 HK)

(4) Guotai Junan and its group companies have not had investment banking relationships with the issuer mentioned in this Research Report within the preceding 12 months. (5) Guotai Junan and its group companies are not making a market in the securities in respect of the issuer mentioned in this Research

Report. 创维数码 (6) Guotai Junan and its group companies have not employed an individual serving as an officer of the issuer mentioned in this Research Report. There is no officer of the issuer mentioned in this Research Report associated with Guotai Junan and its group companies.

Skyworth Digital DISCLAIMER

This Research Report does not constitute an invitation or offer to acquire, purchase or subscribe for securities by Guotai Junan Securities (Hong Kong) Limited ("Guotai Junan"). Guotai Junan and its group companies may do business that relates to companies covered in research reports, including investment banking, investment services, etc. (for example, the placing agent, lead manager, sponsor, underwriter or invest proprietarily).

Any opinions expressed in this report may differ or be contrary to opinions or investment strategies expressed orally or in written form by sales persons, dealers and other professional executives of Guotai Junan group of companies. Any opinions expressed in this report may differ or be contrary to opinions or investment decisions made by the asset management and investment banking groups of Guotai Junan.

Though best effort has been made to ensure the accuracy of the information and data contained in this Research Report, Guotai Junan does not guarantee the accuracy and completeness of the information and data herein. This Research Report may contain some forward-looking estimates and forecasts derived from the assumptions of the future political and economic conditions with inherently unpredictable and mutable situation, so uncertainty may contain. Investors should understand and comprehend the investment objectives and its related risks, and where necessary consult their own financial advisers prior to any investment decision.

This Research Report is not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in

any jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation or which would subject

Guotai Junan and its group companies to any registration or licensing requirement within such jurisdiction.

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Website: www.gtja.com.hk

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See the last page for disclaimer Page 8 of 8