Author: Wang Zichen
The leading color TV brand in China Skyworth Digital suffered the biggest loss since its listing. The announcement showed that the company’s net profit for the 2017/18 fiscal year fell sharply by more than 60% year-on-year.
Skyworth's management attributed the decline in net profit to panel and chip prices, as well as the appreciation of the renminbi. Since mid-2016, the LCD panel price boom lasted for nearly 12 months, with an average increase of about 30%. Panel modules (including The chip) usually accounts for more than 60% of the production cost of color TV sets. The RMB against the US dollar rose by more than 6% for a full year in 2017.
The data makes management's explanation seem reasonable. However, there is still a fallacy. The reason is that Skyworth’s biggest competitor, Hisense Electric (600060.SH), is also suffering from the pressure of rising costs, but this company 2017 Annual operating profit increased by 44% year-on-year, and net profit attributable to shareholders of listed companies increased by more than 5% year-on-year. Another competitor, TCL Group (000100.SZ), recorded a strong growth of 66%.
Behind the data, it reflects the bitter fact that the company's products are unable to raise prices and thus cannot transfer costs to consumers. In addition, from a strategic development perspective, Skyworth turned to OEM's light asset model and turn around to build content service providers. Ecosystem, the future is also very challenging.
Aggressive strategy
Since the middle of 2016, global panel prices have continued to rise, causing color TV companies to generally feel the heavy cost pressures.
In order to prevent the price of the panel from rising further, Skyworth actively stocks its products for the purpose of diluting the cost. Starting from March 2016, Skyworth's inventory began to increase significantly. Financial data show that as of March 31, 2017, Skyworth’s book inventory Two years ago, it rose by nearly 2.5 billion yuan to 5.9 billion yuan. As of September 30, 2017, book inventory remained at a high level of 5.8 billion yuan. These increased stocks are mainly panel-based raw materials. For example, in FY17 data, 12 billion inventories were added in the current year, of which 8 billion were raw materials.
Most of these raw materials are bought at the time of high panel prices. Once the panel price goes down, it is unfavorable for Skyworth. The price reduction sales will lead to losses, and it is difficult to obtain market without price reduction.
The majority of TVs that occupy the inventory are color TV products. As of March 31, 2017, Skyworth’s book value was as high as 3.9 billion yuan. About two years ago, this figure was only 2.7 billion yuan, and it increased by 12 billion yuan in two years.
On the one hand, there is a large backlog of finished products, and on the other hand, high-cost inventory needs to be resolved. The high-cost raw materials will inevitably affect the follow-up product pricing and profitability, and may aggravate late-stage finished product extrusion. Skyworth's pressure can be imagined.
Analysts familiar with the color TV industry said that Skyworth's inventory management capabilities are worth discussing. Skyworth's panel is mainly supplied by LG. Both parties are also partners for many years. However, on the issue of the panel affecting the cost of 60%, the two parties obviously or communicate with each other. Insufficient, or Skyworth has made rash mistakes in hoarding raw materials.
In fact, for Skyworth, it may be more than just raw material procurement. The 'grabbing' in the OLED product line is more likely to make Skyworth a 'victim' in this field.
In 2017, the competition in the domestic color TV market actually reflects the selection of two different display technology routes for manufacturers: QLED and OLED. One representative is Skyworth bet OLED screen; One is a conservative and actually stable Hisense in the market push ULEAD TV and laser television.
The competition between the two different technical routes is, in the final analysis, the comparison of video display effects and costs. The ultimate success of the inexpensive and affordable products is inevitable. OLEDs do have advantages in display, better color gamut, black level, etc. The cost is high and the production capacity is limited. Currently, only one LG can mass-produce a large-screen OLED screen. The QLED technology essentially originates from the improvement of the original LCD display technology, so the cost is easy to control.
The difference in cost between the two affects the terminal market price.
Take the mainstream 55-inch A+ screen as an example. The lowest price of QLED market is 5,499 yuan, and the lowest price of OLED is 7,499 yuan.
Compared with the traditional LED screen, OLED is also more expensive. Or the current mainstream 55-inch screen as an example, its price is 1.3-2 times 4K high-definition LED screen. Ordinary consumers from the perspective of cost-effective tend to choose such Newly-listed products. OLED screens have encountered an embarrassment.
In the context of consumer upgrading and color TV market facing the industry reshuffle, Skyworth is rushing to rush the OLED, intending to occupy the middle and high-end head market and form its own high-end brand positioning. However, the consequences of ignoring price factors will inevitably be abandoned by the market.
Hisense is slightly more robust and has not followed up on QLEDs - although Hisense is a member of the Samsung QLED Alliance; there is no follow-up to OLED. Hisense's main push models in 2017 are ULEAD and laser TVs, with ULEAD leading the consumer upgrade, with laser TV impact High-end market.
The different strategies of the two companies have different effects and effects in the market. The financial report data shows that the retail and retail sales of Hisense TV in 2017 were 16.79% and 17.96% respectively; in the high-end market, the 2017 Hisense laser TV Accounted for 43.1% of sales in the TV market of 80 and above. Skyworth encountered both sales and profits.
It is very interesting that Hisense Electric also prepared OLED large-screen TVs this year. This will not only greatly enrich Hisense's high-end product line, but also more importantly the timing. The first is the sponsorship of the 2018 Football World Cup sponsor, followed by the OLED panel. The current price has fallen by more than 50% from two years ago, and the price difference between OLED panel price and LCD has shrunk to 2.5 times. With LG's OLED panel production line in China officially put into production, coupled with the increase in yield, OLED panel Overpriced adverse factors will tend to disappear. Hisense did not rush to take advantage of the development of high-end brand image formed by laser television in the past two years, but will form a huge challenge to Skyworth.
Radical credit sales: How long can Skyworth's account period be?
Skyworth's products have encountered bottlenecks since 2014. In the 2013/14 financial year, the company's sales growth rate dropped by 30 percentage points to 5%, and further fell to less than 2% in the next fiscal year.
In order to boost sales and defuse inventory, Skyworth seeks to increase the account period for downstream distributors.
The financial data clearly shows that the company’s accounts receivable account period is maintained at a level of approximately 4 months, which is much higher than that of its peers. Of the competitors, TCL and Sichuan Changhong have a maximum account period of 50 days; 26 days, far below Skyworth.
This data can also be more intuitively verified. Look at the receivables data at two points in time, after a year of change:
Another key piece of data is more detrimental to the observation of Skyworth’s financial status. Starting from the mid-year report of fiscal year 2015/16, Skyworth began to confirm the high amount of buyer's credit data on its book. On September 30 of that year, Skyworth loan receivables. The figure is 589 million yuan. By September 30, 2017, this figure has grown to 1.294 billion yuan.
The buyer’s credit is actually the account receivable pledge loan business provided by Skyworth Finance Group to its distributors. Accordingly, Skyworth expands sales revenue by increasing the leverage of its dealers in a disguised manner on the one hand. At the same time, The company financially confirms a substantial interest income of 8-10% per annum.
This is not a small financial risk for the company. From a cash flow point of view, providing distributors with credit for dealers is actually a result of Skyworth giving its own cash to dealers, encouraging dealers to increase financial leverage and expand sales. Under this model, once color TV sales fall further, downstream distributors cannot withstand debt repayment pressure. The end result is a sharp decline in Skyworth's performance.
The advantage of doing so is that Skyworth can transfer its own inventory to dealers, thereby reducing its own inventory level. However, the actual results are not ideal. From the inventory level, Skyworth's inventory turnover period is obviously extended, which indicates that Efforts to transfer inventory to distributors are basically ineffective. The inventory turnover period was substantially extended from 53 days on September 30, 2015 to 68 days on September 30, 2017.
In fact, expanding sales through the provision of buyer credit to dealers will only have a happy moment. In the long run, it will depend on product competitiveness and market demand. Sany Heavy Industry, 2011-2014, Zoomlion provides investors An excellent analytical model. The account period of accounts receivable of Sany Heavy Industry soared from less than 40 days before to 86 days at the end of 2014, but it also caused the inventory deposition of downstream distributors and the sharp decline in the operating efficiency of the company. The company's financial situation did not fundamentally improve until 2017.
Split product line and brand influence drop
Skyworth is a leading company in China's domestic color TV. According to the sales data announced by listed companies, in 2016, Skyworth ranks first in terms of domestic shipments of 9.94 million units, with a market share of nearly 20%.
However, one year later, the situation reversed. In 2017, Skyworth cumulative domestic sales of color TVs amounted to only 7.81 million units. According to preliminary estimates, its domestic market share dropped sharply by nearly 3 percentage points to 16.44%.
Behind the data, it reflects the decline of the company’s split product line and brand power.
In fiscal year 2016/17, Skyworth sold a total of 16.82 million color TV sets, a record high; sales of 15.82 million TV sets in 2017/18 were the second highest in history. Among them, the highest gross domestic product for 4K TVs was domestically Sales in the past two years have increased by 13% and 2% respectively year-on-year; overseas markets have achieved year-on-year growth of 57% and 15% respectively.
Sales volume is at a high point, but profits have dropped sharply for two consecutive years, indicating that the company has adopted a price and impulse sales strategy to rapidly occupy the market through the middle and low-end routes.
On the other hand, Skyworth is one of the domestic manufacturers of 'grabbing' OLED screens in order to occupy the high-end color TV market. As analyzed above, the price of OLED screens is obviously high, and the price/performance ratio is not ideal.
In order to stimulate sales, Skyworth had to make a big price war in March 2017, cutting its 55-inch OLED screen TV price by a massive 3,000 yuan, and cutting prices by more than 20%.
High-end product selection has greatly reduced prices. The original LED screen 4K high-definition TVs implement low-cost impulses. This makes it difficult for the outside world to ponder. In the end, does Skyworth want to take the high-end route or want to go the low-end route?
The fragmentation of the product line reflects the uncertainty of the management team and concerns about the market position. It is neither willing to give up high-end brands, nor is it willing to lose the opportunity for smart TV to penetrate the low-end market. This has led to Skyworth product design and marketing. The split on the final damage to the company's brand image.
Judging from the sales volume, sales of domestic color TVs fell by 16% year-on-year in the 2017/18 fiscal year, which also explains the ineffectiveness of its low-price impulse strategy. Due to the lack of market-affecting products in the long term, sales and profit growth have driven the industry. Under the pressure of many competitors, Skyworth’s brand position is declining and its product competitiveness is declining.
However, Skyworth seems to have insufficient understanding of product competitiveness. In FY 2016, the major decision the company made was to operate the Internet and build a content service platform as its core. It was an all-round revolving around content services. It should be said that this strategy is not large. Problems, but clearly tactical problems, excessive pursuit of light asset management model eventually led to Skyworth step by step startling.
Skyworth is undergoing a strategic transformation, developing into an intelligent ecosystem, and striving to transform itself from a hardware seller into a content service provider. As a result, Skyworth used its OEM, ODM asset-light model to develop its own hardware business in the past two years. In simple terms, Skyworth hopes to push its positioning to the upstream of the supply chain. Under this model, Skyworth stands in the upstream of the industrial chain to design and sell products, and in the middle, it is handed over to OEMs to complete the work. Processing fee.
But this decision, for Skyworth, may be to lift a rock and hit one's own feet.
For Skyworth, the advantage of the OEM model is to save capital expenditure on equipment. However, under this model, Skyworth had to hand over part of its profit (ie, processing fees) to the downstream industry and commerce. Brand owners with strong market influence, You can use this influence to obtain sufficient compensation from downstream sales, so that you can concentrate on product design and quality control.
The typical company adopting the OEM model is Apple. With this model, Apple firmly controls the upstream of the supply chain and ensures that its products always maintain a gross profit margin of about 40%.
However, Skyworth apparently overestimated its own brand. The company currently does not have absolute market leadership in color TV product quality control, design, etc.
Siu Chi (002429.SZ), which provides OEM services for Skyworth, charges about 11% of the OEM cost (gross profit margin) to compensate for the artificial expenses and the depreciation charges for equipment, plant and other fixed assets, and to obtain profits.
Due to the lack of strong brand influence, the product quality is not so completely reliable and the pricing capability is insufficient. This part of the processing fees that Skyworth pays to the downstream commercial and industrial parties cannot obtain full compensation for terminal sales. Jingdong Mall's consumer evaluation of Skyworth TV Many evaluations point to the quality of the company's products, but the system is stuck. This fundamentally damages the image of Skyworth and indirectly affects profitability.
From the financial data, in the first half of 2017/18 fiscal year, the gross margin of Skyworth products dropped to the lowest level in the last 6 years, 15.76%; Net profit rate even dropped to -0.86%, the lowest point in 15 years.
The data and the facts all point out that in the absence of strong brand leadership, the path to the upstream of the supply chain has not only led to the expansion of the company's scale and earnings, but has ultimately led to a decline in the company's profitability.
Lack of moat content service ecosystem
In the development of the home Internet (living room economy), TVs have become the best traffic portals in this area due to their advantages of large screens and rich content. In the past two years, the struggle for TV terminals has also become a hot topic in the capital market. , Tencent has a stake in Skyworth's cool open; Tencent, Jingdong shares TCL's Thunderbird Technology, are the same logic.
In this sense, Skyworth’s current OEM model, including the low-end and mid- to low-end lines, reflects the intention of the company's content strategy to some extent. The low-end sales strategy may mean more color TV sales, and a higher market. Occupancy rate, so that it will take the lead in the future battle for home Internet.
In order to build its own content service ecosystem, the key measures taken by Skyworth, in addition to R&D and vigorously promoting the use of cool open systems, have also strengthened cooperation with Internet giants such as Tencent and Baidu.
Cool open system is a smart TV unified operation platform developed by Skyworth, a subsidiary of Skyworth based on Android. Through this system, consumers can conveniently control the TV screen, such as playing movies and playing music. , education and other operations.
In China, Xiaomi began to lay out the indoor operating system. The company, which is about to land in Hong Kong, has established an integrated control of mobile phones, TVs, and millet boxes, as well as Xiaomi’s air conditioners and speakers through its MINU system. Public data show that as of 2017 In June, Xiaomi's MINU system had 280 million users worldwide.
Cool open system and MINU system are not much different in nature. Since there is no mobile phone, tablet computer and other services, Skyworth can only cure this system as a TV remote control.
Skyworth, who completely relied on TV screens and later switched to this field, appeared to be very thin on user data. As of the end of March this year, the total number of activated smart TVs was 28.35 million, which is one-tenth of the number of Xiaomi users.
Compared with Skyworth, Xiaomi also has an advantage in content. In the past few years, Xiaomi has invested in iQiyi, Youku Tudou and other content providers to expand its video library.
Different from millet's initiative, Skyworth is using a large screen advantage to attract video parties into shares. Before that, Tencent and Baidu have jointly invested RMB 1 billion and 300 million in Coocaa.
However, under this strategy, Skyworth actually degenerates into a channel for content parties or internet video giants. Skyworth has no other advantage besides the big screen. To a certain extent, Internet giants have high stakes in shares, but for their own videos, Sports and other resource acquisition channels do not represent how deep the moat of this system is.
There are facts to support. From the perspective of content, leading domestic TV brands, such as Hisense, TCL, Konka, etc., have also achieved some form of cooperation with Iqiyi, Tencent video, QQ music, etc. , It is not unusually innovative, it is classified according to movies, TV dramas, games, e-commerce, etc., but there are differences in names.
From the consumer's point of view, since the TV and system of others have been changed, they are all watching iQiyi or Tencent video, listening to QQ music, why would they use cool open system to buy Skyworth TV?
From an ecological construction perspective, LeTV, Hisense, Haier, Konka, and TCL are all competitors. On the system side, Hisense is pushing VIDDA and TCL is pushing Thunderbird Technology.
The core of the ecosystem lies in the number of users. This is the cornerstone of future profitability. Looking at the number of users, the total number of global activations of Hisense Smart TVs is 30.78 million units, and the daily live capacity is 11 million units, which is ahead of Skyworth. From a valuation point of view, Ray Bird Technology's valuation is close to 3 billion, which is close to Tencent's valuation when it shares Coocaa Cool.
CoolCool CEO Wang Zhiguo said earlier that CoolComm will have more than 100 million users by 2020. Using the current 28 million smart TV terminal users to measure this data, the goal of 1 billion is still a bit far.
In fact, if there is no continuous sales of terminal sales, the bottleneck of growth in the number of members is completely visible. The ecosystem of Skyworth Structure is not so beautiful in the future.
Not so good may have overseas markets. Skyworth's competitors are not idle: TCL's overseas business grows rapidly in 2017'; Hisense acquires Toshiba Image Solutions Inc. (Toshiba TVS) 95% for a total consideration of 2.4 billion yuan. After the equity, Toshiba gained 40 years of brand use rights, its goal is overseas sales and high-end market.
Poor performance has forced Skyworth, an established TV maker, to do its best. According to China Metal Research, Skyworth is currently interested in injecting its group's new energy vehicle business to improve its performance. This seemingly self-help measure is also facing a difficult situation - production. Nanjing Jinlong Electric Bus Co., Ltd. Performance is not satisfactory. Due to the subsidy decline, the new energy automotive business generally faced great challenges in the first half of this year. For competitive needs, it also requires huge investment in R&D and market development. This will increase in the short term. The risk and uncertainty of profitability. It should be noted that the domestic leader in new energy vehicles BYD (002594.SZ) performance in the first quarter of this year fell sharply by 80% year-on-year.
In the latest trading day, Skyworth Digital closed at HK$3.65 with a total market value of HK$11 billion. Compared with June 2015, the market value fell by more than 50%. The major sales and sales debacle was the main cause.