Skyworth recorded shareholders’ profit of RMB391 million in 1H2020,up 116.0% YoY. The increase was mainly contributed from one-off VATrefund and disposal of a subsidiary. Total revenue dropped 7.3% YoY toRMB15,979 million, of which domestic TV sales decreased 22.3% YoY andoverseas TV sales rose 3.5% YoY. Gross margin narrowed by 0.4 ppts YoYto 19.3%, mainly due to price competition and higher proportion of onlinesales.
Expect still challenging TV market in 2H2020. The Company’smanufacturing and sales network in China has fully recovered as theCOVID-19 pandemic has been well contained. However, marketcompetition has not been eased as new participants keep entering theindustry. We expect the Company’s domestic TV sales volume to recover in2H2020 but expect thin operating profit. TV sales overseas are expected toremain solid with stable margin. Nevertheless, TV smart system-basedservices is expected to increase rapidly and achieve fast profit growth.
Maintain investment rating as "Accumulate" and revise up target priceto HK$3.00. New TP represents 8.7x 2020 PER and 11.9x 2021 PER. TheCompany proposed share buyback and the spinoff of Coocaa has beenapproved by the Hong Kong Stock Exchange. We expect the Company’shigh-quality assets to support valuation. Main downside risks include weakTV consumption market and the spreading of the COVID-19 pandemicoverseas.