The net profit growth rate of the first three quarters of the electronic market was down, and the annual report was pre-increased by 60%. Due to the slowdown of downstream terminal demand, the growth rate of revenue of the electronic sector declined to a certain extent, and fell below 20% in 2018Q1. Under the rising raw materials and price competition (especially the panel industry), the gross profit margin of the industry in the first three quarters fell by about 1.4pct year-on-year, which affected the company’s profit. The net profit of the electronic sector in the first three quarters of 2018 was basically the same as in previous years.
Sub-industry booms and focus on deterministic growth:
1) The growth rate of the LED industry is slowing down, and the performance of the display industry is beautiful: in the short-term supply of LED chips, the price is facing a certain downward pressure. Display companies have performed well, benefiting from the increase in the penetration rate of small-pitch displays and the price reduction of upstream chip factories. The industry companies have maintained a net profit of more than 35% in the first three quarters;
2) The price drop dragged panel companies profit: from the beginning of 2018 to the present, TV panel prices fell by 20%-30% overall, and panel price declines affected corporate profits. Samsung has started to close the 8.5-generation line this year. The impact on global supply and demand is about 1.2%-1.3%. Considering the peak season characteristics and stocking demand in the second half of the year, TV panel prices are expected to stop falling in the third quarter of 2019.
3) Chip localization is expected to be strong, policy-driven: In recent years, the import value of integrated circuits has exceeded 200 billion US dollars, and the ZTE incident has caused the Chinese society to pay attention to the localization of chips. It attaches great importance to the country and adds a large number of high-end talents and capital. With a large investment, the development of domestic integrated circuits will also enter a new stage;
4) PCB capacity release & technology upgrade, large-scale concentration increase: Under the domestic replacement & automation transformation & environmental verification, the market share of domestic PCB manufacturers is expected to be further concentrated. From the perspective of the construction needs of 5G, 5G will adopt the mode of “macro station + small station” network coverage. The base station architecture changes will bring the price and price of communication PCBs to rise, and domestic communication board manufacturers will continue to benefit from 5G promotion.
5) Passive devices grow steadily, focusing on automotive and other sub-applications: passive components listed companies’ performance forecasts are expected to rise to varying degrees. On the one hand, as a basic component, capacitors/inductors are widely used in consumer electronics and communication equipment. Industrial and various types of machinery and equipment are relatively less affected by a single industry; on the other hand, the technology of passive devices is slower than the chip, and the customer structure is relatively stable;
6) Consumer electronics companies are clearly differentiated, and the production of folding screens is on the verge: under the trend of decline in smartphone shipments, the overall market share of Samsung, Huawei, OPPO, vivo, Xiaomi and other brand manufacturers has further increased, and industry concentration has continued to increase; In addition, the strong rise of domestic brands, especially in high-end models have emerged. Looking forward to 2019, the sales driver of smart phones is mainly in the increase of penetration rate in emerging market countries and the replacement of stocks in mature market countries. The competition between downstream brands will also squeeze the profit of upstream component manufacturers to a certain extent. High-quality customers and component manufacturers with increased share.
Looking into the future, China’s electronic information manufacturing industry still faces many uncertainties such as the uncertainty of the development of external trade friction and the rise of labor costs. At the same time, the smart machine market has gradually saturated, and competition among upstream component manufacturers has intensified. Considering that as 5G communication approaches, related companies are expected to benefit.