18 October 2018
Skyworth Digital is planning to cooperate with Tencent Holdings to explore the video and gaming market. Photo:
Skyworth Digital is planning to cooperate with Tencent Holdings to explore the video and gaming market. Photo:

How Skyworth Digital is leveraging its smart TV business

Skyworth Digital Holdings (00751.HK) lost no time getting into the meat of its earnings announcement last week — improving profitability, a growing overseas market and increased revenue from its smart TV business.

Revenue rose 1.7 percent to HK$40.1 billion (US$5.16 billion) from the year before.

TV sales surged 10 percent to 9.46 million units in the domestic market and soared 35 percent to 3.72 million units overseas.

However, earnings growth lagged that of sales due to lower average sales prices.

An analysis by Nomura shows profit per unit was 32 percent thanks to falling screen costs and increased automation.

Also, Skyworth’s overseas TV business returned to profit, helped by lower costs and a stronger product mix.

This segment reported a profit of HK$120 million in fiscal 2014 compared with a loss of HK$14 million in the previous year.

Foreign markets accounted for 14 percent of total revenue.

Africa contributed 24 percent of overseas revenue, up 16 percentage points from a year earlier.

The company plans to expand overseas, although the gross profit margin in that market is only 13.5 percent, lower than the 22 percent in the domestic market.

Skyworth has an annual sales target of 15 million units for the next fiscal year — 10 million units in domestic sales and the rest overseas, up 5.7 percent and 35 percent, respectively, from the previous year.

The company is optimistic about the growth potential of its overseas market, with Japanese home appliance brands losing some ground.

Skyworth is likely to hit its target of 10 million units in overseas sales in the next three years, or 8 percent of the global market, according to Nomura.

Skyworth’s earnings announcement received mixed reactions from the market.

Barclays analysts said the company may not be able to sustain its gross profit margin despite its impressive earnings. The stock price already reflects this positive development.

JP Morgan said the company will capture demand in the next three years given conventional TV still dominates more than half of the domestic market.

As of late May, Skyworth Digital had 7.6 million users, with daily active users hitting three million.

The company will rely on advertising for revenue while reaching out to third parties for its video, games and online shopping services.

It is planning to cooperate with Tencent Holdings (00700.HK) to explore the video and gaming market.

Skyworth expects the sector to generate 80 million yuan of revenue this year.

The net profit margin could top 50 percent, according to Barclays.

Normura forecasts the smart TV content business to deliver higher earnings per share by up to HK$1.

This article appeared in the Hong Kong Economic Journal on June 24.

Translation by Julie Zhu

[Chinese version中文版]

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Department of Investment Analysis at HKEJ

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