China Securities Co., Ltd.: The profit release cycle of LCD TV panels may be coming, and the profitability of leading color TV companies is increasing steadily.

China Securities Co.,Ltd. released a research report stating that, with the background of the improvement in panel price center and the weakening of panel cycle properties, as well as multiple drivers such as the end of depreciation, acceleration of large screen adoption, and increase in MiniLED penetration, the profit release cycle of the LCD TV panel industry is expected to come, and the company judges that the profit margin level of China's top enterprises will steadily increase. The competition in the color TV market is improving, with the market share and product structure of leading brands continuously increasing and optimizing, supporting stable profitability. China Securities Co.,Ltd.'s main views include: Core viewpoints: The panel industry is transitioning from an investment phase to a harvesting phase, with the investment cycle of the industry and Chinese manufacturers aligning with the depreciation of production lines entering its final stage, allowing LCD production lines to release free cash flow and net profit. In the long run, the slowdown in supply growth and expansion of demand are inevitable trends, driving the rise in LCD panel utilization rate and decrease in supply-demand ratio. The panel price center is expected to rise, with China's top panel manufacturers occupying a dominant position in the LCD market while also seizing market share in the high-end OLED panel market, further weakening the cyclic properties of the panel industry and ushering in a clear profit release period, leading to a steady increase in the profit level of China's top mainland manufacturers. In addition, panel companies are gradually extending into new businesses such as glass substrates, with the potential to seize market share with differentiation advantages and contribute to market value increment. Why was the panel industry a "value destroyer" in the past? Since 2009, global panel Capex has exceeded 1 trillion yuan, with China's spending scale and proportion growing overall, making it the region with the highest panel Capex since 2012. BOE and TCL Corporation have both spent more than 300 billion yuan in capital expenditures on panels, leading to continuous growth in panel depreciation expenses. Both companies have accumulated cash flow losses of nearly 100 billion yuan, indicating that the panel industry has been burning money fast and lacks the ability to generate profit, as well as having low and volatile net profit margins, resulting in poor profitability sustainability. Due to the large capital expenditures and depreciation expenses in the panel industry and little cash flow and net profit, it has been referred to by the capital markets as a "value destroyer." Is the panel industry now entering its harvesting period? After more than a decade of concentrated expansion, BOE and CSOT have significantly increased their production capacity, with BOE maintaining the top position in global panel revenue for three consecutive years, and its lead increasing year by year, while CSOT's revenue growth is significant, narrowing the gap with Samsung and LG. Currently, LCD technology still dominates the display panel industry, with overall global display equipment capital expenditures decreasing and the increase in LCD panel supply slowing down; at the same time, there is an increase in demand for large screens, and the trend towards high-end is continuing, driving continuous growth in global demand area; furthermore, the improvement in the LCD panel landscape, with Chinese manufacturers gaining significant market share. Factors such as technology, supply and demand, landscape, and strategy are driving the weakening cyclic properties of the LCD panel. In the future, in terms of supply and demand, capital expenditures will further decrease, potentially leading to a reduction in panel supply, while the trend of large screens and high-end in the downstream market will continue, driving continuous innovation in average size and demand area. With expected supply growth < demand growth, the company believes that the long-term utilization rate will rise to around 90%, and the supply-demand ratio may remain below the balance line of 5.5% for the next 2-3 years or even a shorter period of time. The panel price center is expected to rise; in terms of the landscape, the share of Chinese brands in the mid-to-large size segment is increasing, reshaping the industry landscape, with Chinese panel manufacturers dominating the LCD market and gradually seizing market share in the high-end OLED panel market in the small size segment, as OLED panel loss-making companies may face transformation and restructuring, and market concentration is expected to increase. Therefore, the cyclic properties of the panel are expected to continue weakening, with the profit release period imminent. Why are global panel companies extending their business layout? The layout of panel companies in new businesses such as glass substrates is a precise extension based on core competencies, transitioning from "cyclical panel manufacturers" to "platform-based technology companies," thoroughly addressing the three major pain points of traditional businesses: strong cyclicality, low valuation, and growth ceiling. Taking glass substrates as an example, panel companies are extending along the glass processing capabilities to higher value-added semiconductor packaging scenarios, betting on the next generation of advanced packaging underlying materials. Firstly, panel companies can leverage their large-scale manufacturing organizational capabilities and cost advantages for large boards; secondly, referring to enterprises such as BOE, LGD, and Rainbow, glass substrates will change the pricing system of panel companies; thirdly, AI-driven advanced packaging market is experiencing explosive growth, with the production scale of glass substrates reaching a cost inflection point, the market size is expected to exceed 100 billion yuan by 2035, and China's leading panel enterprises are expected to seize market share with differentiation advantages. The glass substrate business is expected to achieve revenue of 20 billion yuan and profit of 4 billion yuan in 2035, contributing to an increment of market value exceeding 100 billion yuan. Risk warning: Decline in market demand, rebound in panel prices, failure to meet expectations in new business extensions, fluctuations in the RMB exchange rate.