LED in-depth report: small pitch is in the ascendant, and the future of Mini LED is here

1. Core investment logic

The growth of the demand side is the main reason to promote the development of the LED display industry. The development of the industry has always revolved around the key factor that LEDs need to replace other display methods. The emergence of small spacing has realized the replacement of indoor DLP and LCD splicing screens with LEDs. With the reduction of costs, small spacing has moved from the professional display field to the wider commercial display Domain penetration.

The core of the current growth of LED display still comes from the further penetration of small spacing, including the upgrading of initial products in the professional display field, the penetration of demand from provincial and municipal administrative units to districts and counties, and the new demand for emergency management platform construction. The commercial display market is still in its infancy. In the future, the growth of high-end demand in sub-sectors such as transportation advertising, commercial retail, movie theaters, and conference rooms will bring more than tens of billions of market space. Overseas, after the small pitch has entered a high-growth stage since 2018, the demand for commercial displays, sports, and leasing and other pan-commercial fields is relatively strong, and the overall demand for the global commercial LED display industry is considerable. As a small-pitch extension, Mini LED has achieved small-scale mass production. It will enter the home scene in the future, and the LED replacement space will be upgraded again. In the future, breakthroughs in the key technology of Micro LED will enable LED displays to enter the consumer electronics field.

Combined with the supply-side situation, the domestic LED industry chain has matured, global production capacity has shifted to mainland China, and the domestic market has a high degree of industry concentration. The coordinated development of the industry chain has continued to strengthen the global competitiveness of LED display manufacturers. As the technology is further updated and iterated, the supply of high-end products in the future will increasingly concentrate on leading manufacturers in the industry. The consolidation of scale advantages will further increase the market share of leading manufacturers.

Based on the above judgments on the industry, we comprehensively consider market opportunities and valuation risks in the selection of individual stock investment targets. The key recommended targets include Unilumin Technology (8.430, -0.03, -0.35%) (300232), AOTO Electronics (6.050, 0.09, 1.51%) (002587). It is recommended to pay attention to the targets including Leyard (6.660, 0.03, 0.45%) (300296), National Star Optoelectronics (13.360, -0.21, -1.55%) (002449), Mulinsen (16.440, -0.56, -3.29%) (002745), Jufei Optoelectronics (6.530, -0.11, -1.66%) (300303), Sanan Optoelectronics (27.220, 0.58, 2.18%) (600703), etc.

2. LED display: from small pitch to Mini, commercial display applications are expanding

The LED display demand side maintains a relatively high growth rate. On the one hand, it comes from the continued high penetration of the small pitch, and on the other hand, it comes from the new cycle brought about by the development of Mini LED technology. The small pitch started with professional displays, and the penetration rate continues to increase. As costs drop, commercial displays, mainly advertising, movies, and conference rooms, have become the most potential growth space. Mini LED will be mass-produced in 2018. With the increase in cost performance brought by backlight applications after heavy volume, Mini LED displays will also benefit and achieve large-scale mass production, driving LED displays into a new cycle of demand.

(1) Technological evolution, LED display from “outside” and “inside”

Since the LED display entered the application market, it has experienced a development process from single and double color display to full color display. In the single and dual-color era, the high-brightness characteristics of LEDs were mainly used for signal indication, including traffic signals, banking information release and other fields. It was not until 1993 that the blue LED chip with commercial application value was invented, making full-color screens possible. The real large-scale application of LED full-color screens occurred after 2000. At this time, the domestic LED industry formed a scale, and domestic display manufacturers have since made efforts in the domestic and overseas markets.

Early full-color screens were mainly used in large-scale outdoor advertisements, with large pixel pitch on the screen, which was only suitable for viewing from a distance. With the advancement of technology, the pixel pitch continues to shrink. After 2010, small-pitch LED displays have appeared, which has realized the expansion of LED displays from outdoor to indoor scenes. After 2016, the small-pitch has been widely recognized by the market, and the penetration rate has increased rapidly.

With technological breakthroughs, LED pixel pitch has been further reduced, and the emergence of Mini and Micro LEDs has added new development momentum to the industry. In 2018, Mini LEDs with a dot pitch of less than 1mm achieved small-scale mass production and began to be used in high-end notebook computers, gaming gaming monitor backlights and large indoor display screens in command centers, and are expected to enter the home application scene in the future. At present, advanced manufacturers have begun to deploy Micro LED, the chip size has been further reduced, and the display effect that can be achieved under the same area has been qualitatively improved. In January this year, Samsung launched a 75-inch 4K Micro LED display. It is expected that Micro LED will go in the future. Enter near-screen applications, used in consumer electronic products such as mobile phones, smart watches, AR/VR, etc.

The driving force that runs through the development of LED displays comes from product replacement, and the core of product replacement comes from technological innovation. On the one hand, technological innovation allows new products to replace outdated and old products, and on the other hand, it replaces other original display products. With the emergence of full-color screens, LEDs are gradually replacing outdoor curtain-type light box billboards, while small spacing is quickly replacing indoor DLP and LCD splicing screens based on the advantages of seamless splicing, high color saturation, uniform picture, and low power consumption. The development of Mini LED and Micro LED technology may further realize the replacement of small and medium-sized LCD and OLED screens with LEDs.

Throughout the world, the main increase in the LED display market still comes from small-pitch products, and with the further reduction of dot pitch, high-end demand for HD/UHD has increasingly become the main source of increase.

(2) Small spacing and large space, the commercial display market is in the ascendant

Based on the advantages of small-pitch contrast DLP and LCD splicing screens, the applicable indoor scenarios are increasingly broadened. In the early days, although small-pitch LEDs had good display effects, the cost was relatively high. Therefore, they were first applied to professional display fields such as the military and security. These fields prioritize display technology and use effects over price, and are less cost-sensitive than the civilian market. . The benchmarking effect in the professional display field has promoted the increase in the penetration rate of small pitches, and the cost has decreased, and it has gradually entered commercial applications. Sports and stage rentals have become the first scenes to be used.

After recent years of development, the specific areas of small-pitch LED applications can be divided into five categories: professional display, commercial display, rental display, sports display and creative display. Among them, the demand for professional displays is concentrated in the defense, government, and public utilities sectors, while commercial displays, sports, and leasing are civilian business scenarios.

At present, small pitches have become the mainstream of LED displays, and the penetration rate in the professional display field is considerable. The high-end commercial display field has become the most potential market, including advertising, commercial retail, conference rooms, cinemas and other sub-sectors. Compared with professional display The small pitch has a short entry time, wide application scenarios, and large development space. As the cost drops, it can quickly form a scale.

3. The penetration continues, and the professional display boom continues

Professional display is the earliest application of small-pitch LEDs from outdoors to indoor applications, including military, security, traffic command, energy and other military and government-related sub-scenarios. Leyard, as the first company in China to mass-produce small-pitch LEDs, currently holds the first position in the global small-pitch display market. Since Leyard has launched small-pitch products in 2012, it mainly focuses on the professional display field. In terms of industry distribution of distance income, the military sector accounted for the largest proportion in 2012, reaching 36.4%, followed by government sectors including public security, justice, and public service units at all levels. Military and government agencies together accounted for more than 50% of small-space revenue in 2012, and then penetrated into enterprises and institutions. By 2015, these two agencies still accounted for more than one-third.

Information and intelligent display requirements are the fundamental reason for the first successful application of small-pitch LEDs in the professional display field. Small-pitch LEDs have wide viewing angles, high refresh rates, low power consumption, and seamless joints, which are compatible with public security, traffic command and other departments. The visual system upgrade and transformation requirements. In the future, the growth of the professional display field will come from the replacement of displays that have been put into use in the early days, and the trend of small-pitch LEDs infiltrating the lower-level administrative units in government-related fields. On the other hand, in order to adapt to the new social security and emergency rescue needs, the emergent emergency department’s demand for display is still in a rapid growth stage.

(1) Public security agencies

Take the public security field as an example. At present, DLP, LCD splicing and small-pitch LEDs are the main display screens for public security in various cities in China. In the future, small-pitch will continue to replace DLP and LCD. At the same time, the first-time small-pitch LEDs have also entered 3- 5-year product replacement period. According to calculations, from the province-level administrative area of ​​the country to the district and county-level administrative units, assuming that the public security command center of each administrative division is only equipped with a small-pitch LED screen, the market size of the public security command center alone can reach 3.6 billion yuan. The entire security field can also be subdivided into many branches such as public security, fire protection, traffic police, letters and visits, economic investigation, criminal investigation, and special police. The market scale of small-pitch LEDs in the security industry will far exceed the above estimates.

(2) Emergency management

In the institutional reform of the State Council in 2018, the emergency management department was established, which brought emergency management to a new level and became an important part of the national governance system and governance capabilities. According to the “Thirteenth Five-Year Plan for the Construction of the National Emergency Response System”, China has initially established a national emergency platform system, and plans to promote the State Council’s emergency platform and departments and provinces based on the results of the first phase of the national emergency platform system. Upgrade and transformation of the emergency platform. According to the overall plan of the State Council, the emergency platform will be deployed in 47 sub-provincial and above units. In addition, 240 medium-scale prefecture-level cities and more than 2,200 districts and counties will invest in emergency platform construction. According to the data of the Foresight Industry Research Institute, the national emergency platform went online in 2009, and China began the construction of the emergency platform system. The market size was only 140 million yuan at that time. As market demand advances, the scale in 2014 was close to 2 billion yuan. In 2018, it reached 9.09 billion yuan, with a compound growth rate of 40% in three years. It is forward-looking that the emergency platform market will exceed 10 billion yuan in 2019.

A very important part of the construction of the emergency platform is the visual monitoring and command system to ensure timely response, rapid dispatch, and dynamic tracking when major accidents and disasters occur. The small-pitch LED display system is responding to technical requirements and has now entered administrative units at all levels. The construction of the emergency platform system is in full swing. According to forward-looking statistics, as of now, more than 30 units at the sub-provincial level and above have initially completed the construction of emergency platforms, while those in prefecture-level cities and districts and counties are still under construction. The small spacing of the penetration space also lies in the large number of prefecture-level cities and various The emergency platform of the county-level district is under construction.

According to simple calculations, if the public security command centers of administrative units at all levels are equipped with a small-pitch LED display, the market size can reach 3.6 billion yuan. At present, the small-pitch penetration is still concentrated in areas above the prefecture and city level, and the market space is larger. County-level public security agencies will be the main source of future growth. Emergency management, as a national key construction department after 2018, has a huge demand for display systems. It is calculated based on the number planned and constructed by the State Council. Even if emergency management departments at all levels are equipped with only one set of LED display systems, the market size is close to 3 billion yuan. From the public security command to the fields of firefighting, transportation, criminal investigation, etc., and from the emergency management departments at all levels to the emergency subdivision scenarios of other administrative agencies, enterprises and institutions, the overall market space of professional display is expected to exceed 10 billion.

4.. Smooth expansion and wider commercial display market space

Since the development of small-pitch LEDs, the dot pitch has been continuously reduced, achieving a technological breakthrough from P2.5 to P0.9. Comparing the structure of the sales volume of fine-pitch products in 2016 and 2017, the market share of P2.5 products has shrunk from 32% in 2016 to 14% in 2017, while the share of P1.5 and P1.2 products has increased rapidly, from 2016 in total. From 34% in 2017 to 53% in 2017. Technology-driven costs have continued to decline, products with better display effects in small pitches are quickly accepted by the market, and the market share of products with smaller pitches has rapidly increased.

With the further reduction of pixel pitch, LED products have entered more application fields, and the cost reduction has made small-pitch LEDs enter the commercial display field, becoming the main driving force for small-pitch LEDs to maintain high prosperity. According to data from Aowei Cloud Network, the scale of China’s mainland commercial display market has grown from 15.2 billion yuan in 2010 to 74.5 billion yuan in 2018, with a compound growth rate of 22.0%. It is expected that by 2020, it will exceed 100 billion yuan. In terms of categories, the year-on-year growth rate of LED small pitch in the commercial display market in 2018 reached 55.2%, which is still in the rapid development stage of low share and high growth rate. In contrast, the growth rate of LCD splicing screens is 13.5%, while DLP splicing The display screen dropped by 9.7% year-on-year, and the small spacing will continue to give full play to its alternative advantages and tap the vast space of the commercial display market. The current segmentation scenarios where manufacturers are accelerating their efforts include large traffic advertising displays such as airports and high-speed railway stations, commercial retail, movie theaters, and conference rooms.

(1) Big traffic advertisement

In terms of major transportation, major airports and railway stations at home and abroad have already put a large number of LED displays. From flight information displays to advertising screens of various specifications, LEDs have penetrated, and there are many wonderful cases of LED displays in major airports around the world. At present, the penetration rate of small-pitch LEDs in transportation hubs is not high. With the further decrease in cost, there is still a large space for small-pitch LEDs. Airports, railway stations, urban rail transit and other fields will continue to penetrate further.

Take domestic civil aviation airports as an example. As of the end of 2018, the total number of domestic civil aviation airports was 235, of which 37 had annual passenger throughput exceeding 10 million. As the cost of small-pitch LED screens decreased, large airports used LED screens to replace light boxes The increase in advertising willingness will bring about a market size of nearly 1 billion in the future, and considering the penetration of domestic LED display companies in the field of overseas traffic advertising, there will be more room for growth in global transportation hubs.

(2) Cinema market

Cinema display is another force in the commercial display market. As consumer groups have higher requirements for viewing experience, LEDs are expected to enter the cinema screen under the trend of high definition. LED has high color saturation, bright brightness, high contrast, long life, and low power consumption. Compared with the current mainstream Xenon lamp projection, the advantages are obvious. If the future cost drops to an acceptable range, the replacement space for the original projection equipment is the small pitch The incremental space of the LED. At present, Samsung’s Onyx LED products have been commercialized and have penetrated 16 countries and regions around the world. Among them, the Asia-Pacific region has the highest penetration rate. Mainland China was first introduced by Wanda Cinemas in 2018, and a total of 7 screens have been put into use.

According to data from the National Bureau of Statistics, the number of Chinese cinema (14.180, 0.07, 0.50%) cinema screens exceeded 60,000 in 2018. According to the “Regarding Accelerating the Construction of Cinemas and Promoting the Prosperity of the Film Market” issued by the State Film Administration in December 2018 Opinion”, by 2020, the total number of cinema screens will reach more than 80,000. Assuming that the overall penetration rate of small-pitch LED movie screens reaches 10%, as of 2020, the new market size of movie screens can reach 3 billion yuan, the stock market is 9 billion yuan, and a total market space of 12 billion yuan. The current DCI certification and the cost of LED screens are still the main difficulties for display companies to penetrate the cinema market. In the future, once the DCI certification is broken, LED screens will surpass existing technologies in terms of cost and quality, and the cinema market will rapidly penetrate and replace existing projection technologies.

(3) Meeting room

The original conference room display uses LCD LCD TVs. Due to technology and cost, it is difficult for LCD TVs to achieve specifications of more than 100 inches. LEDs can solve this pain point. At present, the conference room market has also entered the stage of rapid penetration of small-pitch LED screens, which have been successfully applied to large enterprises and institutions. According to data from Aowei Cloud Network, the number of meeting rooms in China has exceeded 20 million, and the world has reached 100 million. If large and medium-sized meeting rooms account for 5%, the penetration rate of LED small-pitch screens reaches 10%, and the price of each screen Maintained at a reasonable level, the domestic market will reach the tens of billions level, and the global scale will be even larger.

(4) Sports display

The application of LED display in the field of sports mainly includes the screen requirements of various sports events and stadiums. The sports display field is the scene where small-pitch LED screens were used earlier after the professional display field. Large-scale international and domestic sports events often need to be able to clearly, timely and accurately display the real situation of sports games. Small-pitch LED displays can be customized in all aspects such as specifications and brightness according to the requirements of the game. At the same time, with the development of LED technology, small-pitch LED displays The reliability of the LED is fully adaptable to outdoor use. In recent years, the suppliers of LED full-color screens for large-scale international competitions have frequently appeared in the shadow of Chinese manufacturers. As a major sports year in 2020, the Tokyo Olympics and the European Cup will increase the demand for display screens. In the future, from international and regional sports events to national and local sports events, it will be an important source of driving the growth of sports display.

According to the International Bureau of Statistics, as of the end of 2018, there were 661 sports venues in China, including 1 at the national level, 58 at the provincial level, 373 at the prefectural level, and 229 at the county level. The penetration rate has reached 10%. Only the domestic stadium market size of each administrative division is close to 50 million yuan. If it is extended to schools, social organizations and the global field, the market size will increase by orders of magnitude.

(5) Rental display

Rental display focuses on high-end demand, mainly for stage performances, large-scale exhibitions, industrial design and other scenes. LED screens can present more exquisite lighting and artistic effects to the stage, and bring a brand new visual experience to the audience. The scroll of Chinese painting presented by LED in the opening ceremony of the 2008 Beijing Olympic Games has become a shocking memory. With the development of the entertainment industry, the demand for LED displays is growing rapidly, and the rental display market began to show signs of hotness in 2016. Relevant statistics show that in 2017, the global LED stage market has reached 740 million US dollars, a year-on-year increase of 14%. It is expected to maintain a growth trend in the next few years, and the scale is expected to increase to 1 billion US dollars by 2020.

With the development of technology, world-class concerts, product launches, commercial auto shows, etc. in the high-end field have higher and higher requirements for the display picture quality. 4K and 8K high-definition display screens frequently appear in high-end rental application scenarios, and the rental field is often accompanied by With the need for personalized customization, LED display companies that can provide a full set of hardware equipment and control systems will gain strong market competitiveness in the rental field.

Advertising, cinemas, conference rooms, etc. are the main areas for LED to open up the commercial display market, and from a pan-commercial perspective, sports and leasing also belong to the scope of commercial display. According to simple calculations, in the domestic market, the market size of airport advertising screens alone has reached 900 million yuan, and the scale of theaters and conference rooms has exceeded 10 billion yuan. In terms of sports facilities, the scale of the domestic market for the renovation of sports venues at all levels has reached 40 million yuan, and there is more room for global sports events.

The small-pitch LED display and the previous professional display market scale are estimated on the basis of tens of billions. Even if the market space of commercial displays is based on the above-mentioned relatively neutral calculation assumptions, only the domestic market can reach a market scale of tens of billions. Space, in the commercial application environment represented by large transportation venues, conference rooms, theaters, leases, and sports venues, small-pitch LED displays have already had clear cases and business models, and future penetration and expansion can be expected. And what we can see is that the competitiveness of domestic LED display manufacturers continues to improve. In the future, considering the expansion of global market demand, there will be more room for growth.

5. Speeding up expansion and establishing advantages in overseas markets

In 2018, the output value of LED displays in China reached 57.6 billion yuan, of which the output value of small spacing was 8.5 billion yuan, accounting for 14.7%, while the small spacing will still maintain a growth rate of more than 40%. Gaogong (Highgong LED) expects 2020 The output value of small-pitch LED reached 17.7 billion yuan.

The overseas demand cycle for small-pitch LEDs lags behind the domestic market for 1-2 years. The reason is that overseas markets have higher requirements for product stability and technological maturity. In the early stages of small-pitch development, the willingness to accept the overseas market is much lower than that of the domestic market , Demand growth started slowly. After recent years of development, the small-pitch technology has matured, and the growth of overseas demand has accelerated. According to LEDinside’s forecast, the global market for small-pitch LEDs will grow at a rate of 75.0% in 2018, and the global market will reach USD 1.14 billion. Comparing with the scale growth rate, the global small-pitch LED reached a high point in 2018, while the highest point of the domestic market growth rate was in 2017, which verified the time difference of about one year.

Small-pitch LEDs in overseas markets are the first to be applied in the commercial field, and advertising, sports and rental markets take the lead. In recent years, the demand for small-pitch LED display systems in high-end performing arts, cultural festivals, automobile exhibitions, industrial design, traffic advertising and other fields in overseas markets has grown rapidly. At the same time, the demand for brand retail stores, product launches, radio and television studios is also gradually increase. Overseas demand comes more from high-end products, and areas with potential for future development are also concentrated in commercial displays.

After years of development, domestic small-pitch LED companies have become globally competitive. Leyard and Unilumin Technology have become the top three companies in the global small-pitch market share. The demand from overseas markets, especially the demand for high-end commercial displays, is still transmitted to domestic manufacturers and supplied by domestic LED display companies. The overseas revenue of major manufacturers has increased year by year, which on the one hand verifies the recognition of products in overseas markets, and on the other hand, the improvement of global competitiveness. As overseas demand for fine pitches accelerates from 2018, it will continue to maintain a high growth rate in the future. The market position of domestic manufacturers determines that they will gain more room for overseas growth.

(1) Mini LED is ready to go, Micro space is unlimited

Mini LEDs have achieved small-scale mass production. At present, Mini backlights will be the first to achieve large-scale commercial use driven by terminal manufacturers. The increase in shipments will reduce the cost of Mini LEDs and help Mini RGB achieve mass production. At present, the entire industry chain has the conditions for technology, production capacity, and yield. It will achieve high volume in the short term, and Mini LED has become a new cycle of LED display development. Micro LED will enter the field of consumer electronics such as mobile phones and wearable devices in the future. The market space is broader. It is still in the stage of technology reserve. The layout of advanced manufacturers is accelerating the arrival of the Micro LED era.

a. Mini LED: mass production is realized, development enters the fast lane

With the advancement of technology research and development, LED chips have evolved to smaller sizes, and Mini LED and Micro LED were born. Mini LED, as the transition stage of the development of small-pitch to Micro LED, inherits the advantages of seamless splicing, wide color gamut, low power consumption and long life of traditional small-pitch LEDs, while also having better protection and higher definition , To become the next generation technology of LED display.

The large-scale application of Mini LED is mainly in two directions, one is RGB direct display, using Mini LED can achieve a smaller size and higher resolution display solution, the other is using Mini LED as a backlight solution for TV, Computer monitors, etc. Mini backlight products have been shipped in small batches this year, mainly focusing on LED packaging manufacturers and TV terminal manufacturers. Compared with Mini RGB, the consumer market facing backlight is broader. In June of this year, Apple WWDC launched Pro Display XDR, a 32-inch 6K display similar to Mini backlight. The attempts of influential terminal brand manufacturers will effectively drive the industry chain Layout, Mini backlight is expected to achieve large-scale mass production in the short term.

Mini RGB was mass-produced in 2018, and the commercially available dot pitch has reached 0.9mm. P0.7 products have also been launched this year. From the perspective of the time course, after Mini backlight enters mass production, the scale effect will realize the overall cost of Mini LED Decrease, thereby boosting Mini RGB into the large-scale commercial stage.

From the perspective of the layout of upstream, midstream and downstream manufacturers in the industry chain, Mini LED has successfully equipped the technology, capacity, and yield conditions, and will soon enter the fast lane of development, and will become a new blue ocean market for LED displays.

In terms of market size, the global and Chinese Mini LED growth rate is still in the early high-speed stage and will maintain high-speed growth. According to Gaogong LED’s forecast, the scale of my country’s Mini LED application market is only 300 million yuan in 2018 and is expected to reach 2.2 billion yuan in 2020.

b. Micro LED: Leading technology, pointing to the field of consumer electronics

Compared with Mini LED, Micro LED has a smaller chip size and a denser dot pitch. In the future, it will enter the field of small-size displays such as wearables, mobile phones, and computers, or become an alternative to the current popular OLED display technology. At present, the world’s leading manufacturers of technology such as Samsung and Sony have shown Micro LED products as exhibits. According to LEDinside’s estimates, the commercialization of Micro LED will be realized before the TV field, and then enter wearable devices, displays, mobile phones, AR/VR, etc. In the field of consumer electronics, the future growth space is expected to exceed Mini LED.

At present, Micro LED is still subject to technical limitations such as miniature chips and massive transfers, and has not been able to achieve mass production. It is still in the technology reserve stage. However, since this year, domestic and foreign advanced manufacturers are accelerating the deployment of Micro LED. Micro LED will become another new cycle of LED display development after Mini LED, and from small pitch to Mini to Micro, the process of the new cycle from appearing to becoming mainstream is accelerating due to the development of technology.

6. The LED industry chain concentration is good for leading expansion

The development of the domestic LED industry chain is relatively mature, and the market concentration is relatively high, and it is gradually increasing from downstream to upstream. In the downstream display field, the advantages of leading manufacturers are becoming more and more obvious. The market share of high-end demand is concentrated on the leaders. The cooperation of the whole industry chain makes LED display manufacturers have global competitiveness. With new technology capacity expansion plans, they will maintain higher income in the future. Growth rate.

(1) The domestic supply chain is concentrated, and the scale advantage is becoming more obvious

The LED industry chain is divided into upstream chips, midstream packaging and downstream applications. At present, my country’s LED industry is relatively mature on a global scale. The entire industry has strong competitiveness and a high market share globally, and the domestic market has a high degree of concentration, which has increased from downstream to upstream.

According to the data of Gaogong LED, the total output value of my country’s LED industry in 2018 was 728.7 billion yuan, with a compound growth rate of 24.4% in the past 10 years. It is a high-growth industry in terms of growth rate. In terms of output value distribution, the main contribution of the LED industry chain comes from the downstream application industry. In 2018, LED application output value accounted for 84.2%. In the past 10 years, the output value of the LED application industry has increased from 70% to 84%, and the industry share far exceeds the scale of upstream chips and midstream packaging.

In 2018, the output value of my country’s LED industry chain showed that upstream chips accounted for 2.6%, packaging accounted for 13.2%, and downstream applications accounted for more than 80%. In 2018, my country’s LED application output value was 613.6 billion yuan, 10 times the output value of 60 billion yuan in 2009, and the CAGR in the past 10 years was 25.3%.

Since 2009, the state has given strong financial subsidies to the LED industry, resulting in overcapacity and continuous decline in chip prices. After several years of adjustments in the competition pattern, the current upstream chip industry is highly concentrated, with market shares concentrated in Sanan Optoelectronics and HC Semitek ( 9.430, 0.01, 0.11%) and other leading companies, in 2018, the domestic LED chip industry CR3 reached 71%.

From the perspective of global market share, China’s LED chip output value currently accounts for nearly 40% of the global market.

The midstream packaging industry has also experienced an upstream development model, with a gradual increase in industry concentration and a global shift in the industry. At present, China’s packaging companies account for more than 50% of the global output value, reaching 58.3% in 2017.

The domestic industry competition pattern has formed a situation of “one super, many strong”. From the perspective of domestic LED packaging listed companies in 2018, the top six manufacturers’ annual LED packaging business revenue in 2018 all exceeded 1.5 billion yuan, of which Mulinsen is the largest, close to Twice the second largest National Star Optoelectronics. From the perspective of LED display applications, according to LEDinside statistics, in 2018, China’s display LED packaging manufacturers ranked first in revenue, followed by Mulinsen and Dongshan Precision (26.200, -0.97, -3.57%).

The trend of the downstream application industry is basically the same as the overall trend of the LED industry, and the growth rate is slightly higher than that of the overall industry. Gaogong LED predicts that from 2017 to 2020, the CAGR of LED applications in mainland China will be about 18.8%; by 2020, the output value of LED downstream applications will reach 890 billion yuan.

In 2018, display screens accounted for 16% of the downstream application market scale. There are mainly 6 domestic display screen manufacturers. Leyard and Unilumin Technologies have a large market share and are the industry leaders. Absen (10.730, 0.04, 0.37) %), Lianjian Optoelectronics (3.530, 0.03, 0.86%) (rights protection), Alto Electronics, and Lehman Optoelectronics (8.700, -0.09, -1.02%) followed by market share. Leading manufacturers also have a relatively high share of the global market. Leyard and Unilumin Technologies have become the top three companies in the world with small pitch shares.

On the whole, the LED industry has experienced a process of transferring production capacity to mainland China, and domestic manufacturers currently account for a relatively high proportion of the global market. At the same time, the concentration of the domestic market has gradually increased. From application to chip manufacturing, the higher the concentration of upstream industries, the greater the market share of leading manufacturers in various links. Benefiting from the advantages of scale, the status of leading manufacturers has been consolidated in the development of the industry. In the future, the advantages of leading mainland manufacturers will be more obvious in both domestic and global markets.

(2) Global competitiveness has improved, and the head effect of the LED display sector has deepened

At present, the global competitiveness of domestic LED display companies is gradually deepening, and leading companies with a relatively stable market position have been developed. From traditional display to small pitch, the future growth space comes from the relatively high-end commercial display demand. Based on the head advantage, market supply is increasingly concentrated on leading manufacturers. The domestic LED industry chain is mature and the upstream and downstream achieve good linkage, which provides a unique industrial environment for display manufacturers to achieve technological iteration and production support. Therefore, the head effect of the display panel will continue to deepen.

1. Technology iteration, high-end supply is concentrated on the leader

Although the concentration of the domestic LED display market is lower than that of the upstream and midstream, with the development of technology, the supply is increasingly concentrated to the head manufacturers. The market share of the top six LED display listed companies reached 30.2% in 2017. Among them, Leyard and Unilumin Technology have prominent market shares, reaching 14.0% and 7.2% respectively. Compared with traditional LED displays, the technology and channel barriers of small-pitch products are relatively high, especially in the early stage of development, which are high-end positioning. Only relatively large manufacturers can gain market share. Therefore, the industry concentration is higher than that of traditional LED displays. The total market share of major manufacturers exceeds 60%, while the market share of the top 3 manufacturers in the overall LED display market was only 24.8% in 2017. Among them, the top two manufacturers in the small pitch market, Leyard and Unilumin, have more than half of the market share in the first quarter of 2018, reaching 58.1%.

Judging from the current layout of display manufacturers in Mini LED, the future supply will still be concentrated in the head manufacturers, because manufacturers with a leading market share have the technical and financial strength. The development trend from traditional LED display to small pitch will penetrate from dedicated display to commercial display in small pitch, and the development of small pitch to Mini LED will be further consolidated, and market concentration will further increase in the future.

2. Supported by the industry chain, LED displays have accumulated global competitiveness

The vast majority of global manufacturers capable of producing and selling small-pitch LEDs are concentrated in mainland China. Leyard ranks first in the world’s small-pitch LED market share, Unilumin Technology’s global market share is the top three, and the domestic market share is second only to Leyard. From the perspective of industrial chain support, domestic LED packaging output value accounts for more than half of the world’s total, while upstream companies such as Sanan Optoelectronics and HC Semitek provide a large number of high-quality and competitively priced chips to achieve economies of scale for domestic LED display manufacturers and enhance the global Competitiveness provides industry chain support.

According to LEDinside statistics, China accounted for 48.8% of the global small-pitch LED display market in 2018, and China accounted for about 80% of the entire Asia. Overseas LED display companies basically only have Daktronics large-scale production and sales of small-pitch LED products, but the cost is much higher than that of mainland Chinese companies. Compared with overseas companies, domestic small-pitch LED companies have more obvious competitive advantages in terms of growth rate and profitability.

Judging from the ranking of manufacturers in the global market, LEDinside has made revenue statistics of the top eight LED display manufacturers. Except for Daktronics ranking third, the top eight manufacturers in 2018 are all Chinese manufacturers, and the top eight manufacturers occupy 50.2 % Of the market share, LEDinside estimates that this proportion will further increase to 53.4% ​​in 2019. Considering only small-pitch LED display manufacturers, it is consistent with the domestic market trend and has a higher concentration than LED display manufacturers. TrendForce recently issued a 2019 global small-pitch LED display manufacturer’s revenue ranking data. The top six manufacturers have all From China, Samsung Electronics will be ranked seventh, and the top three will account for 49.5%, and the top seven will account for 66.4%. It can be seen that, after years of development, domestic LED display manufacturers have established themselves in the first echelon globally, especially the strength of the small pitch is sufficient to give play to their advantages in the commercial display market.

3. Manufacturers’ production capacity continues to expand, laying a foundation for future scale growth

From the perspective of the revenue of the six major display manufacturers only LED displays, thanks to the fact that small pitches have become mainstream in 2016, the sales revenue of the six manufacturers has increased year by year, and the increase in Leyard and Unilumin Technology is the most prominent . In terms of revenue growth rate, the growth rate of top manufacturers is also higher than that of other manufacturers. Among them, Unilumin Technology successfully occupied the market quickly with a distribution model, with the highest growth rate in 2017-2018. Manufacturers with a relatively low market share became rising stars in the first half of this year, and their revenue growth surpassed that of head manufacturers, achieving a growth of more than 35%, thanks to their efforts in smaller pitch displays.

While the demand for small pitches is growing rapidly, the revenue growth of LED display manufacturers is accompanied by capacity expansion. Considering the operating income growth and capital expenditure of four LED display manufacturers from 2016 to the first half of 2019, the combined operating income maintained a high growth rate of more than 20%, and the total annual capital expenditure remained above 450 million. Except for a slight decline in 2018, capital expenditures have maintained growth. Driven by the commercial display market and Mini/Micro LEDs, the year-on-year growth of capital expenditures rebounded in 2019.

Since 2019, LED display manufacturers have actively deployed Mini LED production capacity. It is expected that the newly added Mini LEDs in the next 2-3 years will gradually reach the planned production capacity, and the production scale of major manufacturers will further expand. The demand for Mini LED is promising, and the expansion of production capacity will lay the foundation for manufacturers to achieve revenue growth and market share increase.

4. Investment advice and recommended target

The driving force for the development of LED displays comes from the growth trend of small pitch in the commercial display market and the new demand expansion cycle brought about by the heavy volume of Mini LEDs. In the short term, the development momentum of each segment of the commercial display market is strong. In the medium term, Mini LED achieves large-scale commercial use, while the long-term development lies in the mature Micro LED technology entering the consumer electronics field. The concentration of the industry chain has increased and the scale advantages of leading manufacturers have become prominent. With the trend of demand evolving to high-end, we recommend leading manufacturers in the industry and those with advantages in high-end products.

(1) Industry investment suggestions

On the whole, the growth on the demand side is the main reason for the LED display to enter the upward cycle. The development of the industry has always revolved around demand substitution, and the emergence of small spacing has brought revolutionary changes, realizing that LEDs move from outdoor to indoor. With the cost reduction, the professional display field penetrates into the wider commercial display field.

At present, the demand for small spacing is still in the stage of rapid development, and the penetration rate in the professional display field is relatively high. The future growth will come from the intensive period of initial product launches and the infiltration of provincial and municipal administrative units to the district and county levels. The market is still in its infancy. In the future, high-end demand growth in traffic advertising, commercial retail, movie theaters, meeting rooms and other sub-fields will bring a market space of 100 billion yuan. At the same time, the small-pitch overseas market has entered a period of rapid growth, and the overall demand for the global commercial LED display industry is considerable. At the same time as the development of small pitch, Mini LED has achieved small-scale mass production, and will enter the home scene in the future. The mass production of Mini backlight will promote cost reduction, and Mini RGB will also increase in volume. The commercial display market is superimposed on the new technology cycle of Mini/Micro LED. The development trend of LED display in the short, medium and long term is summarized as follows:

In light of the supply-side situation, the domestic LED industry chain has matured, global production capacity has shifted to mainland China, and the industry concentration in the domestic market has gradually increased from downstream to upstream. The coordinated development of the industrial chain has continued to strengthen the competitiveness of domestic LED display manufacturers. With the further update and iteration of technology, the supply of high-end products in the future will be more and more concentrated in the leading manufacturers in the industry. The consolidation of scale advantages enables leading manufacturers to achieve a further increase in market share while increasing demand. On the other hand, the capacity expansion plan of leading manufacturers will boost the growth of revenue scale. Therefore, we suggest paying attention to leading LED display manufacturers and those with advantages in high-end demand.

(2) Recommended subject

Based on comprehensive analysis, we mainly recommend Unilumin Technology (300232), a leading LED display manufacturer, and Alto Electronics (002587), a manufacturer with advantages in high-end display needs. It is recommended to pay attention to Leyard (300296), National Star Optoelectronics (002449), Jufei Optoelectronics (300303), Ruifeng Optoelectronics (8.340, 0.34, 4.25%) (300241), Hongli Zhihui (12.480, 0.21, 1.71%) (300219), Sanan Optoelectronics (600703), HC Semitek (300708), etc.

(Report source: Huajin Securities)


Post time: Sep-02-2020

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