Stock Connect CHINA SECURITIES (INT’L) RESEARCH Equity[table_main] Research · Company 公司深度模板 Display Devices [table_stkcode]BOE Technology Heading for growth spurt from first Gen6 (000725 CH) flexible AMOLED line BOE unveiled China’s first, world’s second Gen6 flexible AMOLED display production line. BOE Technology, a leading display manufacturer, Rating[table_invest] 000725 Buy has pulled the trigger on its Chengdu-based Gen6 flexible active-matrix Issuing analyst: organic light-emitting diode (AMOLED) line–built in the space of less Steven Liu, CFA, PhD, (CE No.: AMO971) than five months, well ahead of schedule. At a delivery ceremony, the [email protected] +852 3465 5652 company handed the first batch of its Gen6 flexible AMOLED panels to top Chinese handset makers such as Huawei, Oppo, Vivo, Xiaomi, ZTE and nubia. The new launch would significantly boost BOE’s standing in the flexible OLED field. Rising flexible OLED display demands spur and sustain future growth. Date： 27 November 2017 Some of the world’s prominent smartphone players are jockeying to play the ace of flexible OLED for their “next big thing”, as witnessed by Apple’s patented iPhone design featuring a bifold or trifold screen thought to hit the market sometime, and Samsung’s debuting this year of a futuristic Share prices performance OLED panel able to be stretched, scrolled and folded. This, coupled with [table_industrytrend]95% growing flexible OLED demands emanating from other segments like 75% wearables, VR devices, tablets and notebooks, would benefit an industry 55% leader like BOE, which is now in a better position for a potential deluge 35% of bendable and foldable display orders mostly from well-famed mobile 15% devices and wearables producers. -5% 17/1/14 17/2/14 17/3/14 17/4/14 17/5/14 17/6/14 17/7/14 17/8/14 17/9/14 16/11/14 16/12/14 BOE’s profitability set to shoot up as flexible OLED line yield improves. 京东方Ａ 上证指数 A single 48,000-unit flexible OLED line is expected to close in on the Source: CSC Research breakeven point on a 50% yield, which, when ramps up to 80%, would lead to an annual profit of about RMB14bn–outstripping BOE’s LCD arm’s 2017 profit–and a ROE of nearly 30%, well above roughly 10% for the company as a whole for the current full year. Hence, BOE looks set to significantly shore up its profitability through yield and capacity increase at its flexible OLED business, in our view. Earnings[table_predict] forecast Metric 2016A 2017F 2018F 2019F EPS 0.054 0.248 0.323 0.510 BVPS 2.24 2.44 2.74 3.17 PE 113.31 24.70 18.95 12.02 PEG 1.02 0.22 0.17 0.11 PB 2.74 2.51 2.24 1.93 EV/EBITDA 16.49 11.39 9.46 7.41 ROE 2.39% 10.08% 11.82% 16.08% Source: CSC Research Please read the disclaimer on the last page. [table_page]BOE Technology Listed company in-depth Contents 1. BOE unveiled China’s first, world’s second Gen6 flexible AMOLED display production line ................................. 1 2. BOE’s profitability set to surge as flexible OLED line yield improves ..................................................................... 2 3. Rising demands for flexible OLED displays spur and sustain future growth .......................................................... 7 Earnings forecast...................................................................................................................................................... 13 Financial forecast ..................................................................................................................................................... 14 ................................................................................................................................................................................. 14 Please read the disclaimer on the last page. [table_page]BOE Technology Listed company in-depth 1. BOE unveiled China’s first, world’s second Gen6 flexible AMOLED display production line BOE Technology Group Co., Ltd., a leading display maker, announced on Oct. 26 it had kick-started mass production from its first Gen6 flexible AMOLED display production line, which is based in Chengdu. At its launch event, the company delivered the first batch of its Gen6 flexible AMOLED panels to high-profile customers such as Huawei, Oppo, Vivo, Xiaomi, ZTE and nubia. Figure 1: BOE’s Gen6 flexible AMOLED display Figure 2: BOE’s Gen6 flexible AMOLED display delivery ceremony delivery ceremony Source: open information; Research Dept, CSCI Source: open information; Research Dept, CSCI BOE’s two Gen6 flexible AMOLED display production lines (another based in Mianyang, Sichuan, scheduled for 2019) are designed for an upcoming spate of flexible OLED display orders mostly from well-famed mobile devices and wearables producers. Figure 3: A device made using BOE’s Gen6 flexible AMOLED Figure 4: Flexible OLED screen adopting the Tape Carrier Package display (TCP) format Source: open information; Research Dept, CSCI Source: open information; Research Dept, CSCI The new launch would significantly reinforce BOE’s leadership position in the flexible AMOLED field, and boost its ability to meet growing demands for small- to medium-sized high performance displays used in mobile devices, in our view. Please read the disclaimer on the last page. 1 [table_page]BOE Technology Listed company in-depth 2. BOE’s profitability set to surge as flexible OLED line yield improves BOE’s first flexible OLED line was built in the space of less than five months, with its yield ramp-up time much shorter than that of Samsung in its early stage. This, we believe, can be credited to the company’s technological accumulation in OLED as well as its adoption of first-class equipment and materials. BOE boasts to have engaged in OLED R&D for eight years (five years on flexible) and obtained 55,000 patents (16,000 concerning OLED). Figure 5: Rigid/Flexible OLED display production process diagram *柔性OLED额外所 需的工艺步骤 (a) (b) (c) 准备ITO玻璃基板 PI膜涂覆 PI膜固化 (d) LTPS-TFT制备 (g) (f) 面板切割 薄膜密封 (h) (e) 激光剥离 发光层制备 Source: IHS; Research Dept, CSCI A highlight in BOE’s flexible OLED line is its use of Canon Tokki’s vacuum evaporation equipment, which is widely utilized by the likes of Samsung, LG and Sharp for small- and medium-sized OLED display production. Figure 6: Vacuum evaporation for OLED display production 第一步蒸镀(公共层) 第二步蒸镀(发光层) 密封环节 自动真空物流系统 Source: Canon Tokki; Research Dept, CSCI Please read the disclaimer on the last page. 2 [table_page]BOE Technology Listed company in-depth Table 1: Canon Tokki’s vacuum evaporation equipment widely adopted by major small- and medium-sized OLED display manufacturers, including BOE 国家 设备厂商 订单情况 SFA 信利（4.5代试验线）、昆山国显（5.5代）、柔宇科技（6代线） 韩国 SNU Precision 京东方（5.5代试验线）、昆山国显（5.5代）、天马（研发产线） Sunic System LG（6代线）、华星光电（研发产线） Canon Tokki 三星（6代线）、LG（6代线）、京东方（6代线）、夏普（6代线） 日本 ULVAC 天马（6代线）、JDI（6代试验线） Source: DIGITIMES; Research Dept, CSCI Based on a market price of USD120 for a 5.5-inch flexible quarter high definition (QHD) display, it takes a 50% yield for a 48,000-unit flexible OLED line of BOE to close in on the breakeven point (an estimated annual net profit of RMB490mn) assuming a unit cost of USD80, and an 80% yield to generate an annual revenue/profit of around RMB75bn/13.85bn and an ROE of nearly 30% (well above its current full-year level of about 10% for the company as a whole) assuming a unit cost of USD65, and it is estimated that at its full capacity, a single such production line will create a profitability surpassing the company’s LCD division’s full-year profitability in 2017. Hence, improved yield and capacity at BOE’s flexible OLED business will dramatically drive up its overall profitability and provide an impetus for medium- and long- term business growth, in our view. Table 2: Profitability analysis for BOE’s flexible OLED displays 单基板 生产良率 Flex OLED(5.5“) 单价/美金 汇率 年产能/K 年折旧/亿元 产能利用率 切割数量 120 6.6 216 576 56.5 95% 年出货量 年营收 单品成本 年产品成本 年营业 年毛利润 年净利润 毛利率 三费费用率 营业利润 所得税率 净利率 /亿片 /亿元 /美金 /亿元 成本 /亿元 /亿元 50% 0.5910 468.1 80 312.0 368.5 99.5 21.26% 20% 5.9 17% 4.9 1.0% 年出货量 年营收 单品成本 年产品成本 年营业 年毛利润 年净利润 毛利率 三费费用率 营业利润 所得税率 净利率 /亿片 /亿元 /美金 /亿元 成本 /亿元 /亿元 80% 0.9456 748.9 65 405.6 462.1 286.7 38.29% 16% 166.9 17% 138.5 18.5% Source: industry information; Research Dept, CSCI Below is a quantitative analysis on the net profit (margin) of BOE’s flexible OLED display production line at different yields and selling prices, which is based on a unit cost of USD70 and a financial and SG&A expense rate of 16%. Table 3: Profit forecast for BOE’s flexible OLED display Table 4: Profit margin forecast for BOE’s flexible OLED display production line production line 价格 价格 80 90 100 105 110 115 120 80 90 100 105 110 115 120 良率 良率 50% -56 -28.8 -1.6 12 25.6 39.2 52.8 50% -17.9% -8.2% -0.4% 2.9% 6.0% 8.7% 11.3% 55% -56.9 -27 3 17.9 32.9 47.8 62.8 55% -16.6% -7.0% 0.7% 4.0% 7.0% 9.7% 12.2% 60% -57.8 -25.1 7.5 23.8 40.1 56.4 72.8 60% -15.4% -6.0% 1.6% 4.8% 7.8% 10.5% 13.0% 65% -58.7 -23.3 12 29.7 47.4 65.1 82.7 65% -14.5% -5.1% 2.4% 5.6% 8.5% 11.2% 13.6% 70% -59.6 -21.5 16.6 35.6 54.6 73.7 92.7 70% -13.6% -4.4% 3.0% 6.2% 9.1% 11.7% 14.1% 75% -60.5 -19.7 21.1 41.5 61.9 82.3 102.7 75% -12.9% -3.7% 3.6% 6.8% 9.6% 12.2% 14.6% 80% -61.4 -17.9 25.6 47.4 69.1 90.9 112.6 80% -12.3% -3.2% 4.1% 7.2% 10.1% 12.7% 15.0% Source: Research Dept, CSCI Please read the disclaimer on the last page.