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Skyworth Digital (751 HK) Summary

Core Content

Skyworth Digital (751 HK) is a technology company primarily focused on hardware and equipment. The company has a market cap of USD1,510 million and is currently trading at HKD4.14. The investment recommendation remains Buy (Maintained) with a target price of HKD5.90, which is slightly adjusted from the previous target of HKD6.03. This target price is based on an 8x FY15F P/E multiple, while the current P/E ratio is 6x, offering an attractive 6% dividend yield.

Main Points

• TV Shipment Decline: Skyworth's total TV shipments for January 2014 fell by 15% year-over-year (y-o-y) and 7% month-over-month (m-o-m), continuing a downtrend that started in December 2013. The decline is attributed to a high base effect from Jan 2013, the phasing out of 3D TVs, and reduced working days due to the Chinese New Year (CNY) holidays.

• China vs. Overseas Shipments:

  • China TV shipments dropped by 20% y-o-y and 9% m-o-m.
  • Overseas TV shipments grew by 3% y-o-y but edged down by 0.4% m-o-m.

• Earnings Forecast Adjustments:

  • Total TV revenue forecasts for FY14F and FY15F were reduced by 12% and 15%, respectively.
  • However, the impact on recurring earnings was minimal, with a 2% reduction, due to improved gross profit margin (GPM) and operating profit margin (OPM) forecasts.

• Profit and Loss (P&L) Trends:

  • Recurring net profit is expected to grow from HKD1,658m in FY14F to HKD2,072m in FY15F and HKD2,382m in FY16F.
  • The recurring net profit margin is projected to increase slightly from 4.1% to 4.5% in FY15F and 4.6% in FY16F.

Key Financial Metrics

Strategic Outlook

• Maintain Buy Recommendation: Despite the revenue cut, the company is still viewed as a good investment due to its low P/E ratio and high dividend yield.
• Price Catalysts: The potential announcement of a new energy subsidy scheme is seen as a possible catalyst for price movement.
• GPM and OPM Improvements: The improved gross and operating profit margins are expected to offset some of the revenue decline.

Peer Comparison

Shipment and Revenue Trends

• TV Segment:

  • Total TV shipments for FY3/14F are expected to be 11.43 million units, down by -0.8% y-o-y from FY3/13.
  • China TV shipments are projected to be 9.20 million units, down by -14.8% y-o-y.
  • Overseas TV shipments are expected to be 2.72 million units, up by 3.2% y-o-y.

• Revenue Segment:

  • TV revenue for FY3/14F is forecasted at HKD29,831m, down by -15.8% y-o-y.
  • PRC TV revenue is projected at HKD26,360m, down by -15.0% y-o-y.
  • Overseas TV revenue is expected to be HKD3,471m, down by -21.5% y-o-y.

Conclusion

Skyworth Digital is experiencing a decline in TV shipments, mainly due to a high base effect from the previous year and the phasing out of 3D TVs. However, the company's improved margins and attractive valuation metrics continue to support its Buy rating. The potential for a new energy subsidy scheme may provide additional upside. The current P/E ratio and dividend yield make it an appealing investment compared to its peers.