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Hisense Electric:UBS Evidence Lab:Smart TV operations lift value

发布时间:2016-06-30    研究机构:瑞银证券

Hisense to continue playing an important role in smart TV era on high loyalty.

Hisense had a market share of 16.2% in 4M16 based on domestic sales (according toChinaIOL) and a smart TV market share of 15% in 2015 (AVC), remaining relativelyhigh. A divergence in the performance of traditional TV brands came after theweighting of smart TVs went up. The top three players, Hisense, Skyworth and TCL,maintained high market shares, LeTV gained market share and others fell behind. AUBS Evidence Lab survey found a high willingness to buy Hisense among consumers,with a high level of loyalty (45%). We believe Hisense will remain one of the majorsmart TV brands on its good technology and consumer experience.

Hisense's gross margin expanded after adapting to a new environment.

Internet brands began to make significant inroads into the smart TV sector in mid-2013. Most of them adopted a low-pricing strategy, having a big impact on the TVpricing system, with panel prices falling. However, traditional TV brands have adaptedto the new competitive environment after 2-3 years and their profitability has begun tostabilize. Hisense's gross margin expanded 2.7/1.9ppt YoY in Q415/Q116 and netmargin on sales rebounded to 7.5% in Q116, the highest level in three years.

Smart TVs to bring in value as consumers spend more time watching TV.

UBS Evidence Lab data suggests consumers spend an average of 123 minutes each daywatching TV and most (70%) spend more time doing so, changing the trend of stayingaway from TVs seen in previous years. This could bring opportunities for smart TVoperations, such as start-up ads, video ads, on-demand revenue sharing, games andeducation. As of end-2015, Hisense had 18m smart TV users, ranking No. 1 in China,and 8.4m monthly active users. We estimate Hisense's revenue from smart TVoperations will double this year to at least Rmb100m, further enhancing overallprofitability.

Valuation: Raising earnings estimates and PT; maintain Buy.

We are raising our 2016/17/18E EPS to Rmb1.30/1.48/1.68 from Rmb1.25/1.40/1.55and our DCF-based PT to Rmb23.5 (WACC 8.4%) from Rmb22.5. We maintain our Buyrating.

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