Cycles dominate the spiral development of the semiconductor industry. Panels, as a semiconductor industry second only to integrated circuits in terms of capital density and technical threshold, have gone through several rounds of cycles and finally formed the current industry pattern. We try to clear the fog and explore the operation rules of the Panel cycle. , and the potential investment opportunities behind it.
There are two constant laws that profoundly influence the development of the entire industry:
1. Moore’s Law of the panel: that is, the dimensionality reduction blow of the generation line, the hidden meaning is that all the stock production capacity is a burden, and will be subverted by the latecomer with higher efficiency and newer technology. This is also the essence of the continuous flow of the panel industry among countries and regions such as the United States, Japan, South Korea, Taiwan, and mainland China.
2. The country’s cost advantage: Mainland China has the world’s largest panel consumer market and a relatively complete industrial chain cluster, and with an effective social management mechanism, it has created a significant global cost competitive advantage in the Chinese panel industry. This is not a short-term cost. decline, but a deterministic downward shift in the cost curve.
Based on the above two laws, we summarize the development of the panel in the past ten years and look forward to the future, which can be simply boiled down to three cycles:
1. The last cycle (2013-2016): 8.5-generation line dimensionality reduction hit Japan’s low-level generation line, and the result was Japan’s withdrawal. The final result of JDI’s reorganization was from “three countries, four places and five tigers” to “two countries, three places and four giants”. The gradual withdrawal and contraction of Japan has effectively reduced the periodicity of some categories, but the competition pattern was still not clear enough. From 2016 to 2019, domestic manufacturers are still expanding the capacity of the 11th generation line on a large scale, laying the groundwork for the next round of clearance.
2. The current cycle (2018-2020): 11/8.5 generation line dimension reduction hit South Korea’s 7th generation line, the result is the withdrawal of South Korean production capacity. Its essence is the clearing of a large number of 8.5/11 generation lines of China’s BOE, TCL and Huike to the stock of backward production capacity in South Korea. The efficiency of 65/75-inch 11th-generation wire cutting is 94%/94%, while the efficiency of Korea’s 7th-generation 65/75-inch wire cutting is 53%/72%. The cost structure will lose part of its competitiveness, and the clearing of inefficient and backward factory capacity is determined by the pan-Moore’s law, an irreversible law of industrial economics, and will not be changed by short-term price fluctuations.
3. The next cycle (2023-2025): Looking ahead, we expect that the 8.5th generation IT line will be reduced in dimension to hit the 6th generation line in Taiwan, China, and the result may be Taiwan’s withdrawal. Based on the success of Chongqing’s B8 line, BOE has occupied 28% of the global IT screen market, ranking first in the world. At the same time, China Taiwan AUO and Innolux have not expanded production since 2013, and their production capacity is concentrated in 6/7 The generation line avoids the large-screen TV market and focuses on IT screens. We believe that although the TV large-screen LCD market will stabilize after this cycle, a duopoly pattern similar to the 70% market share of Samsung + Hynix in the memory industry has formed. , but based on the constant laws of the global semiconductor industry, the last round of industry clearing may occur in 2025.
Conclusion: It is recommended to pay attention to the fundamental changes in the medium and long-term competition pattern of the panel industry, and we expect that 2020 will be the starting point for stable profitability in the future, and continue to recommend and be optimistic about the dominance of domestic panel manufacturers in the industry.
Investment suggestion: Continue to recommend BOE A and TCL Technology, the leader in Display panels. It is recommended to pay attention to Caihong Shares, Longteng Optoelectronics, the beneficiary targets of medium and large-sized products, Shentianma A, the domestic leader in mobile phone panels, and Visionox and Hehui Optoelectronics, the high-quality targets of OLED panels.
It is recommended to pay attention to the upstream of the panel. The materials are domestically produced with high-quality targets such as Shanshan Co., Ltd., Sanlipu, and 800 million space-time.
Risk reminder: The epidemic continues, and the demand for LCD downstream markets fluctuates; overseas manufacturers are less than expected to withdraw production; domestic small and medium-sized manufacturers change their medium and long-term capacity planning.
The text is as follows
We review the three major cycles of panels: the first round is Japan’s clearing of American panels; the second round is South Korea’s clearing of Japanese factories (marked by Sharp’s bankruptcy); the third round is the present (with the withdrawal of all Korean factories as the ultimate target), mainland China dominates the world.
But there are still four problems plaguing the panel industry:
1. The Korean factory’s delay in withdrawing production leads to repeated cycles?
2. Is the high boom a demand overdraft?
3. Can the high profitability of leading manufacturers continue?
4. Will QDoled/Mini/Micro subvert LCD?
1. The cycle of delayed withdrawal of production by Korean factories and panel prices is repeated:
The overall high prosperity of the industry since 20Q3 has driven some panel factories to increase their willingness to expand their production capacity. At the same time, Korean factories have also delayed their production withdrawals. In the mid-term, TV panel prices have entered a cyclical cycle. We believe that with the obvious trend of centralization of TV panel supply, the production capacity adjustment of leading manufacturers still plays a leading role in the overall supply and demand. In the medium and long term, the possibility of a sharp adjustment in TV panel prices is still low. The overall production progress of the Korean factory is still in line with expectations, and Samsung’s delay in production withdrawal is mainly due to the requirements of downstream customers such as Samsung Electronics.
2. Whether the high boom since the second half of the year is a demand overdraft:
According to Ovi Ruiwo’s forecast data, it is expected that TV set shipments will increase by 1.0% year-on-year in 2020, and monitor and notebook product shipments will increase by 7.8% and 15.9% year-on-year, respectively. From the perspective of the year, the TV set showed a trend of “low before and high” throughout the year, but the overall shipment volume has only returned to the normal level before the epidemic. Taking into account the future, shipment revisions in areas where shipments have fallen year-on-year this year, from an annual perspective, we believe that the demand for TV products is still expected to remain stable.
Display and notebook products have greatly increased due to the overseas epidemic, but in terms of area, the area accounted for only about 16% before 2019. It is expected that due to the increase in demand this year, it will rise to about 18%, and the overall capacity area still accounts for a relatively large proportion. Low. Even if demand falls in the future, it will have little impact on the overall production area of LCD panels.
3. Can the high profitability of leading manufacturers continue?
We believe that the high profitability of leading manufacturers is expected to continue:
1) Looking ahead to 2022, the capacity expansion of the original production lines of leading manufacturers will play a leading role in market supply and demand, and the overall release progress and magnitude will be relatively controllable.
2) From a cost perspective, for LCD production lines below G8.5, the material and depreciation costs continue to decline, and the prices of LCD products remain flat. As time goes on, the operating gross profit margin of leading manufacturers’ products below 55 inches is expected to continue. promote.
3) As TCL Huaxing replenishes the supply capacity of medium-sized IT products in the future, both the two leading manufacturers can achieve full range coverage of customers and products, and will be significantly better than other manufacturers in the market due to the impact of TV price fluctuations on profitability.
4. Will QDoled/Mini/Micro subvert LCD?
Finally, from the technical route of the product, the current production cost of LG’s white light OLED is still high, mainly due to the difficulty in improving the yield of the large-scale evaporation process, and secondly, the loss of organic light-emitting materials is large. Although Samsung’s QD-OLED technology has a theoretically better display effect than white OLED, the capital expenditure of the production line is too large, and the depreciation cost is expected to be high, and the cost competitiveness is limited. Secondly, only Samsung is leading the technology, the short-term production capacity is too small, and there is uncertainty about the recognition of the technology by downstream brands.
In contrast, LCD technology is not only mature in TV market application, but also has obvious cost competitiveness compared with other display technologies. Secondly, around the display improvement scheme of Mini LED backlight, the upstream LED industry is mature, waiting for the improvement of process maturity to drive the cost down. In the future, in the mid-to-high-end TV display market, it will be a strong competitive product of OLED display. We believe long-term stable demand for LCD displays will continue.
The detailed analysis is as follows:
1 The cycle of Korean factories delaying production withdrawals and panel prices repeats
Driven by the improvement in demand in the second half of the year and the limited supply of Korean factories, since the price of TV panels has risen in June this year, the panel quotations in the second half of the year have continued to exceed expectations. According to the latest price forecast data in late November released by Sigmaintell, we estimate that by December 2020, the price of LCD TV panels under 55 inches will increase by an average of 70% compared with the low point in May. Created a record high for the same time, price range increase. Driven by the supply of domestic 10.5/11 generation production capacity ramps, the price increase of 65/75-inch products is not as good as that of products below 55-inch, but the corresponding price increases are also 34% and 17% respectively.
Benefiting from the strong demand in overseas markets, the downstream market of IT panels (displays, notebooks) has continued to maintain a high degree of prosperity since 20Q2. The overall product price has continued to rise since 20Q1. Entering 20Q4, the overseas market demand is still strong due to the epidemic, and the demand for mobile phones and TVs on the supply side is strong, resulting in the continued shortage of a-Si production capacity, and the shortage of core materials such as superimposed driver ICs, CPUs, and polarizers. The amount has a tendency to further expand. According to the latest November price forecast data from Sigmaintell, according to our statistics, it is estimated that as of December 2020, the quotations of major size IT panels will increase by an average of 9.7% compared to January at the beginning of the year.
The overall high prosperity of the industry since 20Q3 has driven some panel factories to increase their willingness to expand their production capacity. At the same time, Korean factories have also delayed their production withdrawals. In the mid-term, TV panel prices have entered a cyclical cycle. We believe that with the obvious trend of centralization of TV panel supply, the production capacity adjustment of leading manufacturers still plays a leading role in the overall supply and demand. In the medium and long term, the possibility of a sharp adjustment in TV panel prices is still low.
The overall production progress of the Korean factory is still in line with expectations, and Samsung’s delay in the production withdrawal is mainly due to the requirements of downstream customers such as Samsung Electronics. From the perspective of supply reduction factors, LG shows that at present, the monthly effective supply of P7 (G7.5) and P8 (G8.5) in South Korea is less than 100K (large substrates). Among them, P8 is mainly used for the production of IT panels, and the progress is in line with the production reduction expectations. P7 is mainly used for the production of TV panels. It is expected that the production capacity will be delayed until the end of 2021, and the global total production capacity will account for about 1%, with a small impact.
Samsung shows that due to the requirements of core customers such as downstream Samsung Electronics, there are two delays in the closing time of local L7 (G7) and L8 (G8.5). After the initial delay from October 2020 to December, it is currently seen that the final closing point will be postponed to no more than the end of March-April 2020. However, from the perspective of effective monthly supply, Samsung Display’s LCD production capacity continued to decline month-on-month. Downstream Samsung Electronics’ complete machine inventory is usually 10-12 million units (2-2.5 months). At present, the demand in downstream markets such as North America continues to be strong, and the inventory level has dropped to 3-4 million units (less than 1 month). Taking into account the overall tight LCD capacity supply, Samsung Electronics asked Samsung Display to extend the capacity supply as much as possible.
However, the focus of Samsung’s display industry has already shifted to OLED display, and the repeated delays in the closing of local LCDs have resulted in insufficient supply of upstream core materials. At the same time, the production capacity of large-size TV panel modules mainly depends on the Suzhou line. Considering that the production line has been sold to TCL Huaxing, the production capacity of the module segment is also restricted. Samsung Display’s overall supply in 21Q1 is also very limited, and its monthly shipments are expected to drop from the current 2 million pieces (TV small pieces) per month to about 1 million in 201Q1.
After the production capacity of the Korean factory has been reduced, the possibility of restoring production capacity is extremely low. On the one hand, the number of labor has been reduced, and on the other hand, increasing production capacity not only requires a long ramp time, and secondly, the new supply is not conducive to the maintenance of prices and the profitability of other production lines. Therefore, the overall production capacity closure of Korean factories is still a deterministic trend.
In addition, from the perspective of domestic manufacturers, small and medium-sized manufacturers such as Huike and Rainbow have also shown a certain willingness to expand production in the medium term, driven by the prosperity of the industry. It mainly includes the expansion of Xianyang G8.6 to 170K, Huike Chuzhou G8.6 to 180K, and Mianyang G8.6 to 150K. At the same time, Foxconn Sharp Guangzhou G10.5 also plans to fill the production line to 90K.
But at present, since 2020, due to the continuous impact of overseas epidemics, the progress of equipment installation in Japan and South Korea, as well as the exchanges of engineers and personnel have been affected to varying degrees. Including the shortage of glass substrates for the 10.5 generation line, it also affects the progress of Foxconn Sharp’s Guangzhou production line. There are also uncertainties in the completion schedule of Guyuan’s new production capacity plans. It is expected that the new mass production lines of TCL Huaxing T7 and Huike Changsha G8.6 in 2021 will also be extended to 2022.
In addition, BOE G10.5 also plans to expand production, TCL Huaxing plans to build a new IT product production line. However, for big factories such as BOE and TCL Huaxing, the capacity expansion is mainly based on the order requirements of downstream customers. The overall capacity demand is highly visible, and the progress is relatively controllable, and it has a strong influence on the overall market supply, demand and price.
In conclusion, although small and medium-sized TV panel factories have certain expansion plans in the original production lines, they are subject to the reserved space of the original workshops of the production lines, and the upper limit of production capacity is also relatively obvious. Secondly, the impact of the epidemic on the progress of the supply chain, it is expected that the possibility of short-term concentrated release of production capacity is also very low.
In addition, small and medium-sized TV panel manufacturers, because they do not have the new capacity of G10.5 (capital, supply chain support), with the trend of large-scale TV panels, the overall product competitiveness will gradually decline, which will significantly benefit the G10.5 production line. BOE, TCL Huaxing and other leading manufacturers. The production capacity progress of leading manufacturers has a more significant impact on market supply, demand and prices. We believe that the cyclical fluctuations in the industry will decrease significantly, and TV panel prices are expected to remain high and relatively stable.
According to Ovi Ruiwo’s forecast data, the overall supply and demand of TV panels will continue to be tight in the first half of 2021. This is mainly due to the limited overall new production capacity in the first half of 2021, but the Korean factory still has plans to continue reducing production. It is expected that supply and demand in 20Q1 will be slightly higher than the market balance line, and in 20Q2, driven by downstream demand, supply and demand will be slightly lower than the market balance line.
2 Is the high boom since the second half of the year a demand overdraft?
Since the second half of 2020, driven by the demand from overseas markets such as Europe and the United States, the shipments of TV and IT products have increased significantly year-on-year and month-on-month. The market is concerned about the short-term demand overdraft of downstream products. According to Ovi Ruiwo’s forecast data, it is expected that TV set shipments will increase by 1.0% year-on-year in 2020, and monitor and notebook product shipments will increase by 7.8% and 15.9% year-on-year, respectively. From the perspective of the year, the TV set showed a trend of “low before and high” throughout the year, but the overall shipment volume has only returned to the normal level before the epidemic. Taking into account the future, shipment revisions in areas where shipments have fallen year-on-year this year, from an annual perspective, we believe that the demand for TV products is still expected to remain stable.
Display and notebook products have greatly increased due to the overseas epidemic, but in terms of area, the area accounted for only about 16% before 2019. It is expected that due to the increase in demand this year, it will rise to about 18%, and the overall capacity area still accounts for a relatively large proportion. Low. Even if demand falls in the future, it will have little impact on the overall production area of LCD panels. IT products emphasize customization and module integration capabilities, and historically, price fluctuations are significantly lower than TV products.
Specifically, according to Ovi Ruiwo data, the total TV shipments in 20Q1 and 20Q2 decreased by 8.7% and 3.7% year-on-year, respectively, and the shipments in 20Q3 increased by 13.2% year-on-year. It will increase by 0.7% year-on-year.
It is estimated that in 2020, only Asia-Pacific (growth rate -5.5%), China (growth rate -10.8%), and Latin America (growth rate -2.6%) will experience negative growth in TV shipments. Western Europe (growth rate of 6.5%), Eastern Europe (growth rate of 4.9%), Japan (growth rate of 5.0%), Middle East and Africa (growth rate of 3.2%) have all turned positive for the whole year , of which North America (growth rate of 16.4%) saw a significant year-on-year increase in shipments, and is expected to surpass mainland China and become the region with the most shipments in the world for the first time.
At present, the overseas epidemic situation has not shown an obvious turning point for improvement, and the purchase demand for TV sets in areas with severe epidemics is still relatively strong. Looking forward to next year, even though shipments in North America and Europe, which have relatively high growth in the second half of this year, gradually return to normal levels before the epidemic, considering that shipments in regions with negative shipment growth this year are expected to gradually increase and return to positive next year, we expect complete TV sets next year. Shipments are still relatively stable, and Ovi Ruiwo forecasts a year-on-year growth of 0.4% in 2021.
Judging from the quarterly shipments of TV panels, due to the impact of the epidemic on capacity supply and the reduction of production by Korean factories, TV panel shipments in the four quarters of 2020 are all in a year-on-year decline. Among them, the year-on-year decline in 20Q3 was the lowest, reaching 1.2%. Considering the substantial increase in shipments of complete machines in 20Q3, it is expected that the market inventory will be digested greatly in 20Q3. For the whole year, it is expected that TV panel shipments will reach 271 million in 2020, down 5.9% year-on-year.
Judging from the quarterly shipment area of TV panels, the year-on-year growth rate of quarterly shipment area has turned positive since 20Q2. Among them, the year-on-year growth rate in 20Q3 was the highest, reaching 9.3%. For the whole year, it is expected that the TV panel shipment area will reach 169 million square meters in 2020, a year-on-year increase of 3.1%. That is to say, the annual growth rate of the shipment area is 9pct ahead of the shipment volume, and the large-scale shipments of leading manufacturers drive the growth of the overall shipment area. It is expected that the driving effect of leading manufacturers will continue in 2021. With the increase in production capacity consumption area, the overall price is also expected to remain high and stable.
3 Can the high profitability of leading manufacturers continue?
With the sharp recovery of TV panel prices in 20Q3, the overall operating profit margins of the world’s major TV panel manufacturers continued to improve. LG Display is the first quarterly profit to turn positive after experiencing six consecutive quarters of operating losses. Due to the reduction of LCD production capacity and the continuous supply of small-sized OLED products, Samsung Display took the lead in improving the panel operating profit margin from 20Q2.
Domestic panel manufacturers, BOE and TCL Huaxing, have turned positive in 20Q2 operating profits, and overseas panel manufacturers are generally affected by the decline in TV product prices and have suffered losses to varying degrees. In 20Q3, all major panel makers in the world entered a state of operating profit. Considering the lower product cost of domestic manufacturers, it is expected that the operating profit margin of domestic panel manufacturers in 20Q4 is expected to lead the industry.
Judging from the price of 32-inch LCD panels and the trend of BOE’s comprehensive gross profit margin, as the overall price of the industry warms up, BOE’s comprehensive gross profit margin also continues to increase. We believe that the high profitability of leading manufacturers is expected to continue.
1) The overall panel price is expected to remain high. At present, supply and demand in the first half of 2021 will continue to be tight, and the possibility of price adjustment is low. In 21Q3, supply and demand are expected to have some pressure in the short term, but considering that the influence of leading manufacturers’ active shipment structure adjustment on supply, demand and price continues to increase, we expect the price adjustment to be limited.
Looking ahead to 2022, on the one hand, the size of TV panel shipments will still increase, but the supply of new production capacity will gradually decline. On the other hand, with the passage of time, the capacity expansion of the original production lines of leading manufacturers plays a leading role in the market supply and demand, and the overall release progress and magnitude are relatively controllable. In addition, the capacity expansion of leading manufacturers is mainly based on the stable order demand of downstream customers, and the visibility is high. We believe that the possibility of causing large price fluctuations is very low.
2) From the perspective of cost, for LCD production lines below G8.5, the material cost is relatively high, and the manufacturing cost is relatively low. The localization of material supply will continue to drive down the cost side, and the depreciation cost of the leading manufacturer G8.5 will also gradually decrease. Even if the prices of LCD products remain flat, with the passage of time, the operating gross profit margin of leading manufacturers’ products below 55 inches is expected to continue to increase, and compared with new domestic small and medium-sized TV panel manufacturers, the products are still more expensive and more expensive. Competitive advantages.
3) From the perspective of product and customer structure, BOE has the most obvious advantages at present, with the highest flexibility in switching TV and IT production capacity, and is relatively less affected by TV price fluctuations. As TCL Huaxing replenishes the supply capacity of medium-sized IT products in the future, the two leading manufacturers can achieve full range coverage of customers and products, and will be significantly better than other manufacturers in the market due to the impact of TV price fluctuations on profitability.
Finally, from the technical route of the product, the current production cost of LG’s white light OLED is still high, mainly due to the difficulty in improving the yield of the large-scale evaporation process, and secondly, the loss of organic light-emitting materials is large. Although Samsung’s QD-OLED technology has a theoretically better display effect than white OLED, the capital expenditure of the production line is too large, and the depreciation cost is expected to be high, and the cost competitiveness is limited. Secondly, only Samsung is leading the technology, the short-term production capacity is too small, and there is uncertainty about the recognition of the technology by downstream brands.
In contrast, LCD technology is not only mature in TV market application, but also has obvious cost competitiveness compared with other display technologies. Secondly, around the display improvement scheme of Mini LED backlight, the upstream LED industry is mature, waiting for the improvement of process maturity to drive the cost down. In the future, in the mid-to-high-end TV display market, it will be a strong competitive product of OLED display. We believe long-term stable demand for LCD displays will continue.
Continue to focus on recommending the display panel leaders BOE A and TCL Technology, and suggest paying attention to Rainbow Shares, Longteng Optoelectronics, the beneficiary targets of medium and large-sized products, Shentianma A, the domestic leader in mobile phone panels, and Visionox and Hehui Optoelectronics, the high-quality targets of OLED panels. It is recommended to pay attention to the upstream of the panel. The materials are domestically produced with high-quality targets such as Shanshan Co., Ltd., Sanlipu, and 800 million space-time.
Investment Rating and Valuation:
Continue to recommend display panel leaders BOE A and TCL Technology, and suggest paying attention to Caihong Shares, Longteng Optoelectronics, the beneficiary targets for medium and large-sized products, Shentianma A, the domestic leader in mobile phone panels, and Visionox and Hehui Optoelectronics, which are high-quality OLED panels.
It is recommended to pay attention to the upstream of the panel. The materials are domestically produced with high-quality targets such as Shanshan Co., Ltd., Sanlipu, and 800 million space-time.
Risk reminder: The epidemic continues, and the demand for LCD downstream markets fluctuates; overseas manufacturers are less than expected to withdraw production; domestic small and medium-sized manufacturers change their medium and long-term capacity planning.
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