The TCL Group once again stood at a turning point in history.
On the evening of December 7, TCL Group announced a major asset restructuring, proposed to sell the smart terminal business and related supporting business, retaining semiconductor display and materials business, industrial finance and investment and venture capital business.
If in 2006, TCL Group carried out a profound self-reflection with “Eagle’s Rebirth”, led TCL out of the loss situation. So far, it has achieved the first troop of global colour TV sales and is entering the first decade of the 21st-century inflexion point, then today’s TCL Group is once again facing a choice.
It’s completely different from the background of “The Rebirth of the Eagle” that year. This historical turning point is the self-challenge that TCL Group has taken in order to increase its core competitiveness and bring greater value to investors.
Sometimes, subtraction is done to fly higher. The TCL Group, after restructuring, will focus on the development and growth of the semiconductor display and materials business with its resources as the core business of the Huaxing Optoelectronics semiconductor display industry, focusing on capital, talent and technology.
Behind reconstruction of the TCL Group, it revealed several positive signals: to become a technology group, to become a bigger and stronger semiconductor business, to enhance the global voice of Huaxing Optoelectronics, to maximize the value of investors and to optimize external equity investment.
The first signal: To become a technology group
To evaluate the restructuring of TCL Group, it is necessary to analyze the global vision and its existing industrial structure, and not simply interpret the pros and cons of its reorganization from the level of divestiture assets.
Far from saying, let’s look at the overall performance of the TCL Group in the past two years, which will help the market to make a fair and objective evaluation of TCL.
TCL Group’s current business covers television, mobile phones, refrigerators, washing machines, air conditioners, small appliances, semiconductor display and many other fields.
Since 2018, TCL Group’s colour TVs have leapt forward in the global market with an average N-speed growth rate.
The layman looks at the excitement and the insider looks at the doorway. The TCL Group, which has many auras above its head, is actually faced with confusion. One of the main reasons is that the diversified business structure has always brought trouble to the TCL Group.
Usually, most of the people think that TV is synonymous with TCL. Is TCL Group a traditional home appliance company or a semiconductor display technology company in the high-tech field? Should the secondary market valuation refer to the listed home appliance company or the display technology company? The trouble with this is that the company’s valuation level has been lower than the industry average for a long time.
In order to completely solve the confusion of this market cognition, it helps investors to make accurate analysis and judgment on TCL Group. After the sale of this major asset, TCL Group will focus on semiconductor display and materials business and industrial financial investment business.
TCL Group went to home appliance and became a technology group. This is the first step in the strategic transformation of the TCL Group. Therefore, dialectically, the restructuring of TCL Group is a normal business behaviour and strategic layout of an enterprise.
The second signal: Bigger and stronger semiconductor industry
In this reorganization, TCL Group’s label will no longer be a colour TV business, and instead, semiconductor will become its core.
After the completion of the restructuring, TCL Group will focus on the development and growth of semiconductor display and materials business with its resources as the core business of the Huaxing Optoelectronics semiconductor display industry, focusing on capital, talent and technology.
In the future, based on the Huaxing Optoelectronics Industry Platform, TCL Group will achieve product technology leadership in the semiconductor industry, establish global industry competitive advantages, enhance profitability through scale advantages, and find related business integration in the core, high-end and basic information electronic devices. And expand opportunities.
From the perspective of industrial development, the semiconductor display industry is a national key support industry, and it has a strategic core position in the electronic information industry. The high-end display products have broad market prospects, and Chinese enterprises are ushered in a new opportunity driven by technological innovation.
From the current structure of TCL Group, the industry attributes of semiconductor display and materials business and the efficient operation of Huaxing Optoelectronics will enhance the efficiency and effectiveness of the company’s asset operations. The retained industrial finance and investment and venture capital businesses can provide resources for the development of the semiconductor business. Safeguarding and contributing to stable investment returns is conducive to balancing the impact of market cycle performance fluctuations in the semiconductor display industry.
In terms of anti-risk, TCL Group will retain industrial finance and investment and venture capital business, which can effectively smooth the fluctuations caused by cyclical fluctuations in the semiconductor display industry.
The third signal: To enhance the global voice of Huaxing Optoelectronics
In the past, Huaxing Optoelectronics accounted for a relatively low revenue in TCL Group. The market was classified as a home appliance segment based on its revenue structure. At the same time, listed companies still have some loss-making businesses. The performance of Huaxing Optoelectronics cannot be truly reflected in corporate value.
Because the company’s original complex business structure and logic influence investors’ understanding and insight, the market cannot judge the reasonable value of the company.
In fact, Huaxing Optoelectronics has remained the top five in the world in recent years. From the perspective of global patents, TCL Group has a total of 55,523 patent applications worldwide and has obtained 7,714 patents for semiconductor display technology and materials, 10,212 overseas patent applications, and 9,802 PCT applications, ranking among the best in the industry.
The only “National Printing and Flexible Display Innovation Center” in the investment and operation industry dominates the development of new display materials such as domestic independent OLED and QLED.
It should be said that TCL Group concentrates its advantages after reorganization. In order to grasp the opportunities of the rapid development of semiconductor display industry and technology upgrade, the company needs to concentrate resources, continue to enhance the competitive advantage and industry status of Huaxing Optoelectronics and lay out the core links of upstream and downstream industry chains. As well as related businesses, it is the first opportunity for the next round of industry competition, which is driven by technology and controlled by key industry chains.
At present, Huaxing Optoelectronics’ new production line has brought capacity expansion, product mix has been continuously improved, the market position has been continuously improved, and advanced technologies and processes have been continuously upgraded and iterated, thus building a sustainable competitiveness centred on forward-looking technology.
The fourth signal: To maximize the value of investors
As a listed company, TCL Group’s diversified industrial structure, many projects with development prospects have not been correctly interpreted by the outside world.
In the internal management of the company, the smart terminal business has a large scale of revenue, but the gross profit margin is low; the semiconductor display products account for a small scale of the company’s revenue, but the gross profit margin is high and contributes most of the company’s profits.
Moreover, the semiconductor display business is capital-intensive, with high capital demand and high technical requirements. It is very different from the business model of the intelligent terminal business, and the corresponding internal management system is completely different.
The existing management system restricts the resources investment and support of TCL Group in the field of semiconductor display and materials with Huaxing Optoelectronics as the core and is also not conducive to the efficiency of resource utilization and resource integration.
In this trading scheme, TCL Home Appliance Group, TCL Electronics, Kone Electronics and other equity value assessment pricing methods are using the income method-Cash Flow discount method (DCF), the underlying asset 4.76 billion yuan valuation is 1.6 times the net assets, listed companies will realize the restructuring income of about 1.658 billion yuan in the immediate period after the completion of the transaction.
The financial indicators have improved overall. The company’s asset-liability ratio fell from 66.22% before the transaction in 2017 to 61.52%. The net profit margin will be greatly increased from 3.17% to 10.5% and the return on net assets will be raised from 10.86%. 11.93%.
Due to the restructuring, there is no change in equity. After the restructuring, the company’s earnings per share will be significantly increased from 0.22 yuan in 2017 to 0.36 yuan.
This round of restructuring will help promote the strategic transformation of TCL Group’s business, optimize asset structure, enhance comprehensive competitiveness and corporate value. What’s important is that after reorganization and optimization, investors can maximize their value.
The fifth signal: Optimizing external equity investment
According to this restructuring plan, the company management and strategic investors with Li Dongsheng as the core set up TCL Holdings to receive TCL Group’s consumer electronics, home appliances and other terminal businesses and related supporting services, including TCL Industries, for a consideration of 4.76 billion yuan. Equity, 100% equity of Huizhou Home Appliances, 100% equity of Hefei Home Appliances, 55% equity of Cool Friends Technology, 100% equity of Guest Music, 100% equity of TCL Industrial Park, 36% equity of Chuang Dongzhi and TCL Gold through wholly-owned subsidiary Control the indirect holding of the 75.00% stake in Simple Exchange and the 1.50% stake in Cool Friends Technology indirectly held by TCL Lighting.
At the same time, TCL Holdings will undertake more than 50,000 employees of the restructuring business and 15 billion interest-bearing liabilities in accordance with the principle of “human debt with assets”. Based on the competitive advantage of the terminal business, it will coordinate resources with strategic investment partners to enhance core competitiveness. Improve operational efficiency.
It is not difficult to see that this restructuring is not to transfer quality assets but to optimize the industrial structure and increase the core advantages of the semiconductor business, but also to reduce a lot of debt and employees. For the light-loaded TCL Group, its advantages will be more prominent.
The restructuring plan shows that the sources of funds for this transaction include: self-raised funds of the listed company management team and external funds of strategic investors, including strategic investors including Suning Tesco, CITIC Industry Fund, CITIC Capital, Huizhou State-owned Assets Management Company, etc, with good performance ability.
After the reconstruction, TCL Group will continue to retain industrial financial services. It mainly provides financial services for member companies, improves the efficiency of capital use, reduces financial costs, and uses surplus capital to generate income.
Especially in terms of equity investment, TCL Group’s investment and venture capital business is engaged in improving the prospective investment in the semiconductor display and materials industry ecological chain, while also taking into account the venture capital investment with stable income, and has successfully invested in Nanjing, Ningde era, A group of star technology companies such as Duntai, Cambrian, and Shangtang.
It should be said that equity investment has brought great returns to TCL Group. The total revenue of the two businesses in the past two years was 900 million yuan and 1.2 billion yuan respectively, and it is expected to continue to grow in the next few years.
In addition, TCL holds a 4.99% stake in Shanghai Bank (601229.SH), a 19.07% stake in 712 (603712.SH) and a 20.08% stake in Fantasia Holdings (01777.HK), which is simply calculated. The three investments contributed more than 800 million to the company in 2017 and it is expected that these projects will contribute to consistently stable profits.
One of the objectives of TCL Group’s restructuring is that it has weaker assets associated with its core business. TCL Group will reorganize, divest or merge and sell in the right time at the right time to maximize the value of shareholders, and concentrate on developing core semiconductors. Under the guidance of the main business, the efficiency of resource allocation can be further optimized.