SKYWORTH DIGITAL(000810)：DRIVEN BY THE UPTREND IN BOTH CORE AND EMERGING BUSINESSES

机构：中信证券
研究员：HUANG Yayuan/XU Tao/WEI Pengcheng/LIANG Nan

　　Core views:
　　Skyworth Digital is the sector leader in set-top box (STB) and broadband access in China, and has completed the diversified business expansion in virtual reality (VR) and on-board displays. With the rapid promotion of high definition (HD)/Ultra HD (UHD), accelerated penetration of double gigabyte and expansion of overseas markets, the Company's STB and broadband segments are embracing development opportunities. In the VR business, the Company has been deeply engaged in to-business (2B) services in the fields of healthcare and education, and also recently launched its first consumer-grade product, showing high growth potential. In the on-board display business, Skyworth Digital has become a designated supplier of a number of car manufacturers and expects gradual increase in the output of relevant products. We are optimistic about the rapid expansion of the Company's businesses, and assign 19x 2023E PE to derive a target price of Rmb20. We initiate coverage with a “BUY” rating.
　　Abstract:
　　Skyworth Digital: Deeply engaged in STB with rapid growth in diversified areas. Skyworth started off with digital STB and has developed into a well-established leader in this sector. After listing, the Company has been actively expanding its business scope in diversified areas. So far, it has built a presence in a number of emerging businesses, such as broadband access, VR/augmented reality (AR) and on-board electronics, and has achieved rapid growth. In 1H22, Skyworth Digital post operating revenue of Rmb6.24bn (up by 36.4% YoY) and attributable net profit (ANP) of Rmb490mn (up by 72.9% YoY).
　　STB business: Enjoys a world-leading market share thanks to HD/UHD trend and overseas expansion. With the continuous promotion of China's HD/UHD support policies, the demand for upgrading STB equipment has been rising. Taking China Mobile as an example, its procurement of smart STB has increased from 20mn in 2018 to 35.7mn in 2021-2022. As the sector leader, Skyworth Digital is well-poised to fully benefit from the sector β. In addition, its overseas expansion has been going smoothly with continuously rising exposures in overseas markets, such as Europe and Latin America. Besides, its high earnings growth is mainly driven by robust demand in Europe, Latin America and Africa, etc. in 1H22.
　　Broadband business: Rising procurement share in China and rapid expansion overseas. With the continuously upgrading and capacity ramp-up of broadband network equipment around the world, the global access network market is likely to post sustained growth. According to the data from Omdia, the global market size of passive optical network (PON) equipment for access network will increase from US$8.2bn in 2020 to US$16.3bn in 2027. By generating synergies with the STB business, which has a relatively higher level of customer overlapping with the broadband business, and leveraging the Company’s technical advantages, Skyworth Digital's broadband business has been enlisted as the first-tier supplier for centralized procurement of operators. It is likely to reuse its channel advantages of the STB business to achieve rapid expansion overseas.
　　VR business: Continuous iteration and innovation of products on both 2B and 2C sides. Due to the rising demand for telemedicine and digital education, VR devices have broad prospects on the 2B services, such as medical care and education. Skyworth Digital has been deeply engaged in the 2B VR field with an extensive product portfolio and has achieved close cooperation with downstream customers, which gives it a preemptive advantage to benefit from the exponential demand growth on the 2B side going forward. Meanwhile, it recently launched Pancakexr, the first consumer-grade 6 degree of freedom, or 6DoF, short-focus VR all-in-one machine with sector-leading performance, which is likely to expand the to-customer (2C) market for the Company. We are optimistic about Skyworth Digital's two-way coverage on both 2B and 2C sides and expect rosy growth prospects.
　　On-board display business: Driven by technical synergies. With the ramp-up of smart car shipment, coupled with the multi-screening of smart cockpits, both the shipment and prices of on-board displays have entered an uptrend. Skyworth Digital’s on-board business boasts multiple technical advantages, including narrow bezel, ultra-thin, fully bonded, all black, high color gamut, high contrast and high brightness, etc., leveraging the technical synergies in professional displays, and has become a designated supplier for multiple manufacturers in a short period with shipment reaching 300k units in 2021. We are optimistic about the rapid development of its on-board display business going forward.
　　Potential risks: Double gigabyte, HD/UHD and other relevant policies missing expectations; VR and automotive electronics and other new business expansion falling short of expectations; intensified market competition; the impact of domestic and international Covid flare-ups exceeding expectations; fluctuations in exchange rates, geopolitical tensions and other factors weighing on the Company's overseas business.
　　Investment recommendation: As the sector leader in the field of STB and broadband access, Skyworth Digital's STB and broadband segments are likely to develop rapidly under the promotion of rapid advancement of HD/UHD, the accelerated penetration of double gigabyte and the expansion of overseas markets. In addition, the Company launched the first consumer-grade 6DoF short-focus VR all-in-one product, showing great growth headroom going forward. Skyworth Digital's on-board display business is developing rapidly and has already entered cooperation with multiple car manufacturers. We forecast its 2022E/23E/24E ANP to be Rmb0.947bn/1.189bn/1.494bn (up by 124.6%/25.4%/25.7% YoY). We assign 19x 2023E PE to derive a target price of Rmb20 and initiate coverage with a “BUY” rating.