Skyworth recorded shareholders’ profit of RMB747 million in 2019, up10.2% YoY, in line. Total revenue dropped 4.4% YoY to RMB37,277million, of which domestic TV sales decreased 16.8% YoY and overseas TVsales declined 19.2% YoY due to sharp ASP drop amid fierce competitionand decreased panel prices. Gross margin improved by 1.6 ppts YoY to20.5%, mainly due to gross margin improvement in set-top box sales.
Selling and distribution expenses to sales ratio was up 0.6 ppts YoY, due topromotions and implementation of new incentive system.
Expect still challenging TV market in 2020. The Company’smanufacturing and sales have been negatively impacted by the COVID-19outbreak in Jan.-Feb. The domestic spread of the virus has been containedbut it will still take time for TV sales to fully recover. However, we believethat low panel prices are good for the Company and new governmentpolicies may be a catalyst. On the other hand, the pandemic spreadingglobally is expected to negatively impact overseas market demand.
Upgrade investment rating to "Accumulate" but revise down targetprice to HK$2.08. New TP represents 7.0x 2020 PER, 5.9x 2021 PER and0.29x PBR, which is attractive in our view, given the Company’s competitiveproducts and high-quality assets. Main downside risks includeweaker-than-expected TV consumption market and more intensecompetition.