Tianma Profits Roll On in Q2

Published August 27, 2019

The display industry has been plagued by oversupply, in both LCD and OLED, and panel maker margins have suffered as a result. Tianma beat the trend and reported solid operating results in Q2 on the basis of its exceptionally high area ASPs and steady shipments.

Tianma reported net income of CNY 354 million (US$52 million) on revenues of CNY 7.7 billion ($1.12 billion). While these figures were down from a year ago, by 3% and 27%, respectively, Tianma’s performance looks better than nearly all its competitors. As shown in the second chart here, Tianma actually managed to increase its gross margin, operating margin, and EBITDA margin compared to a year ago, but its net margin suffered because of increased interest expense and other non-operating expenses.

Tianma Income Statement Highlights, 2Q 2017 to 2Q 2019

Source: DSCC Quarterly Display Supply Chain Health Report

Tianma Financial Margins, 2Q 2017 to 2Q 2019

Source: DSCC Quarterly Display Supply Chain Health Report

Tianma shipped slightly fewer, but on average slightly larger, panels in Q2 2019 compared to a year ago. Tianma unit shipments of 61.1 million represented a 5% decline Y/Y, but area shipments of 498,000 square meters represented a 3% increase from Q2 2018. Apart from an unusually strong Q4 2018, Tianma shipments have been steady in the 60-millions for more than a year.

Tianma Unit Shipments, 2Q 2017 to 2Q 2019

Source: DSCC Quarterly Display Supply Chain Health Report

The larger average screen sizes translated to higher average panel prices. Tianma’s panels averaged $18.40 in Q2 2019, up 2% Y/Y, although the average area price declined 6% Y/Y to $2256. With its focus on small panels for smartphones and automotive and a specialization in LTPS panels, Tianma’s area price is dramatically higher than other companies in the industry. For comparison, Tianma’s price per square meter is nearly five times as high as LGD’s $456, and more than eight times as high as Innolux’s $279.

Similarly, Tianma’s average price substantially outpaces its competitors in the small / medium panel space. Innolux sells about the same number of small & medium panels (59.7 million in Q2 2019) but at an average price less than half as much: $7.86 per panel compared to $18.40.

Unlike some of its competitors, Tianma continues to generate strong cash flow from operations, recording CNY 390 million ($57 million) in Q2 and marking the eighth consecutive quarter of positive cash flow from operations. Substantial spending on expansions, though, with CNY 1.27 billion ($186 million) in capital expenditures resulted in negative free cash flow of CNY 880 million ($129 million). Tianma took on an additional CNY 3.26 billion (US$442 million) in debt during the quarter, and its debt / equity ratio increased to 92%.

We expect that capex for Tianma will be reduced in the second half of the year, and the company may return to positive free cash flow. Tianma has been expanding its first flexible OLED line at the Gen 6 fab in Wuhan, which now has capacity of 22,500 substrates per month. Phase 2 of Wuhan is scheduled to start mass production in Q4 of 2020, so spending should quiet down for a few quarters.

While its larger competitors, especially those in Korea and Taiwan, have struggled with the oversupply of the industry, Tianma has carved itself a profitable niche making high-end panels for phones and autos. Far from the caricature of Chinese panel makers as low-cost, heavily subsidized, low-technology players, Tianma sells its panels at a premium to competitors, and consistently makes money doing it.

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Written by

Bob O'Brien