BOE: Side B of A shares

Great game.

This article is based on public information and is only used for information exchange and does not constitute any investment advice.

In my opinion, nothing can tell the history of Wall Street more clearly than the book “The Great Game”.

In addition to describing the shadow of the capital market, the most successful part of this book is actually buried in the history of Wall Street, the power of capital has helped the United States’ technological progress and economic growth.

In the past 350 years, the American industry has successfully completed the process of industrialization with the help of Wall Street capital, and has always firmly controlled the first wave of new technology waves :

The canal concept, railway concept, and later the Internet, which were once hyped in the US capital market, are the same as the new energy and chip chasing game tactics in the A-share market today. You can use the “BE1AT rule” (see the picture below) to enclose it. .

BOE: Side B of A shares

This kind of resonance of industry and capital, which has lasted for a hundred years in the US market, has finally given A-share investors a real empathy in the early 2020s.

The track of thick snow and long slopes, the continuous explosion of performance, the buy recommendation brought by the wealth effect, and the trillion-level market liquidity have successfully cultivated companies such as Ningde Times and Longji Stock that can achieve performance and become wealth. Upstart.

Driven by the wealth effect, infinite vision for the future, a large amount of capital has poured into the track with wealth effect and deterministic growth, and heavy bets have been placed among the few leaders whose performance has exploded. The resulting wealth effect and continuous expansion of funds The volume has successfully attracted more people to bet.

In this way, hot money capital began to flow continuously to the physical field with the fastest technological iteration, and the combination of technology and capital created one industrial miracle after another. On one of the typical, Ningde and Lungi qualifications still a little light, because before they have a Jingdong party (SZ: 000725)

01  Rugged Road

In contrast to the 20-year-old stock price performance, it is BOE’s financing ability. Since its listing, BOE has taken nearly 100 billion yuan of funds from the capital market over the past 20 years through IPO fundraising and fixed-increasing financing. It can be regarded as the best financing machine for A-shares.

BOE: Side B of A shares

The reason for the need for massive financing is inseparable from the characteristics of the panel industry in which BOE is located.

First of all, the capital expenditure required to build a production line in the panel industry is staggeringly high. However, the technology of panel products is constantly iterating. Just a few years after investing in a tens of billions of production lines, a new wave of production line updates is coming. The cash flow generated by panels is completely insufficient to cover this demand, and financing is naturally natural.

Secondly, the driving logic of the panel market growth is very weird:

With the substantial expansion of production capacity and the decline in panel prices, consumers are driven to choose more cost-effective large-size panels, thereby driving the release of large-size panels. Therefore, in order to drive the release of remote production capacity, it is necessary to continue to fight price wars at the near end.

It is conceivable that under the prisoner’s dilemma, this kind of price war is very brutal, and the long-term price of the panel has fallen to a terrible level.

BOE: Side B of A shares

Fixed costs remain the same, and panel prices have fallen for a long time, which has made BOE’s profitability long-term glaring. By the end of 2019, BOE’s single-quarter panel gross profit was as low as single digits, and its net profit margin even burst into losses.

BOE: Side B of A shares

02  cycle reversal

However, this is the essence of the bargaining cycle.

In 2019, when BOE barely maintained its profitability, other panel manufacturers continued to lose money. With the deepening of losses, on May 8 this year, South Korea’s Samsung announced the official closure and sale of South Korea’s Asan panel production line, LCD panel production capacity and profits are further concentrated in the hands of Chinese panel manufacturers such as China BOE and TCL.

Not only that, according to analysts’ forecasts, China’s large-size LCD capacity share will reach 71% in 2025, and it is the share of South Korea’s Samsung and LG panel kings that will be eaten up.

The accident is over, and the rest is the story: in 2020, when the epidemic broke out, under the influence of the global home order, the sales of TVs, mobile phones, and tablets all rebounded rarely, and demand grew red; and after the cycle blizzard, the only one survived The supply is the players that BOE and TCL have finally survived.

God assists from other supply levels further aggravated the tension of panel supply.

The first is chips. The shortage of 8-inch wafer capacity has led to the shortage of large-size driver ICs and price increases, and panels have begun to be out of stock; secondly, the unexpected power outage of NEG, a global glass substrate supplier, has exacerbated the shortage of glass substrates; these two raw materials The proportion of cost is not high, so it has little impact on cost driving, and the supply of BOE, which has the right to speak in supply, will be guaranteed first.

Don’t waste every crisis the phrase is used by BOE: After the cycle reversal is completed, BOE naturally further expands its share and stabilizes its position as the industry’s number one.

In the low level of the past few years, BOE has continued to expand its production capacity and thoroughly cleaned up South Korean competitors; at high levels, its production capacity has continued to be released, and cash flow has almost burst.

In 2020, BOE’s dividends and repurchases will total 5.476 billion; the single-quarter profit in Q1 of 2021 is 5.2 billion, and Q2 is expected to reach a record high of 7.3-7.5 billion. And the days to come will look even better: the price of notebook panels has increased by 12%-18% month-on-month, and the price of TV panels is even closer to the 2017 high.

Even now, there are still a few cards in BOE’s hand that have not been played: BOE has acquired two CLP Panda mass production lines, and the continuous release of the production capacity of OLED production lines is the next definite increase in BOE’s profits.

03  Equilibrium Game

In the survey of BOE, BOE executives believe that the great game of the panel cycle has come to an end:

From the supply level, the new production of several leading companies, including TCL, will only increase by 10% by 2026, which cannot meet the industry’s annual demand growth of 3-5%;

In addition, due to the low profitability of panel driver ICs, the chip gap will not be filled until at least 2022. In India, outside of China, the challenge of panel production is even greater; through the acquisition of CLP Panda, BOE has put an end to this game with concentrated production capacity.

From the demand level, the demand for laptops and TVs due to home office has just begun. Demand soared, supply remained unchanged, and the supply-demand balance curve began to move up rapidly.

In the narrative of BOE: This change may be eternal.

Historically, when the price rises, after 2-3 years of decline has digested this batch of production capacity, it will enter a new round of production expansion cycle.

But this time is completely different. With the high concentration of the LCD industry, the top three have a 60% market share, which means that the game around the “king of panels” in the past 20 years is close to equilibrium, and the high concentration of the industry can avoid small fluctuations. , BOE’s industry profit center is expected to be eternally improved.

In the eyes of investors, if BOE’s profit can stand above 20 billion, the logic of sustainability will be enough to support BOE’s 200 billion market value or even higher.

However, for companies like BOE, the great game never ends, and the game of growth is still ahead: in the just announced 20 billion fixed increase, BOE raised funds to further invest in the silicon-based OLED project and the BOE sixth-generation production line project. , And repay part of the loan.

In the BOE’s eyes, sit tight in the Diaoyutai never been its style, endless cross this technological growth is capital and technology Bo Yi in the final. In the fields of folding screens, OLEDs, Internet of Things and sensors, and medical and health care, BOE has embarked on a new pioneering journey.

the above. For investors, in the past 20 years, BOE’s stock price has fluctuated cyclically, bringing joy and worry to the wealth game of countless investors; however, it is precisely by using the wealth effect of the capital market that BOE has completed a financing of 90 billion yuan. , Using the cycle to increase positions against the trend, and finally created a “king of panels” for China’s real economy.

Yes, this is the A-share, the A-share that makes people love and hate intertwined, from the BOE to the Ningde era, unknowingly, it has flowed out of its rightful side.

Posted by:CoinYuppie,Reprinted with attribution to:
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