In terms of performance, Skyworth Group’s two major home-listing platforms suffered heavy losses.
Recently, Skyworth Digital released its interim results report for the 2017/18 fiscal year. Although its operating income increased by 5.9% year-on-year, its net profit loss was HK$192 million, a year-on-year decrease of 123%. In addition, Skyworth’s net profit for the period from January to September 2017 was only HK$48.91 million, which was close to 90% year-on-year.
In fact, Skyworth Digital’s TV sales were not satisfactory. During the period, turnover decreased by 6.5% year-on-year to HK$8.764 billion; overall sales volume was 7.354 million units, which was a decrease of 11% compared to the same period of 2016, including a year-on-year decline in the Mainland market. It reached 21%.
Interviewees pointed out that the concentration of color TV brands is not high, and the market share of the top few companies is not very different. In order to seize the market, the panel price decline may trigger companies to fight "price wars."
The reporter recently wrote a letter to the Skyworth Group on how to improve profitability and increase sales of color TV sets. However, as of press time, no relevant reply was received.
Net profit dropped sharply
The decline in the net profit of Skyworth Digital continues to expand. The 2016/17 financial year report shows that Skyworth's net profit was HK$1.31 billion, down 40% year-on-year. The recently disclosed 2017/18 fiscal year (April-September 2017) performance report showed that while operating income for the period This was a 5.9% increase from the same period of 2016, but net profit loss was HK$192 million, compared with a profit of HK$836 million in the same period of 2016, a decrease of 123%.
In addition to Skyworth Digital, Skyworth, another Skyworth Group listed company, has also fallen into the category of “increasing revenue but not increasing profitsâ€. From January to September 2017, its operating income increased 21% year-on-year to HK$5.144 billion, but its net profit was only HK$48.91 million, a drop of 87%.
As a two-platform strategic member of Skyworth Group, Skyworth Digital is mainly engaged in color TV business, and Skyworth Digital has been the focus of its development since the successful spin-off of Skyworth Digital in 2014. The reporter’s review of related announcements found that the sharp decline in net profit between the two companies is mainly due to high raw material procurement costs.
In the previous performance forecast, Skyworth Digital pointed out that raw material purchases, including supply shortages of panels and major electronic devices, and higher prices led to lower gross margins, and that the fierce competition in the Chinese TV market and rising production costs have led to an increase in the average selling price, resulting in customers Demand dropped.
Skyworth Digital also stated that the main reason for the drop in gross margin and the significant year-on-year decline in net profit in the first three quarters of 2017 was the increase in the prices of memory chips DDR3, EMMC Flash and NOR Flash in raw material purchases, which resulted in higher purchase costs.
Liu Buchen, a household appliances industry observer, told the “China Business†reporter that, overall, the decline in profitability of domestic color TV companies in 2017 was more common, including the fact that Hisense Electric, which had made better profits in the past, also experienced a sharp drop in net profit.
As for the reason, Liu Buchen analyzed: “The panel price that began in the first half of 2016 has risen sharply. This is the most special time in the history of panel development in China. The price increase rate and the length of the cycle are unprecedented. As a result, the raw material costs of color TVs have risen sharply; On the other hand, China's color TV prices have not risen, and the direct reason is that low-price competition by Internet brands has affected the pricing model of color TV companies, which has dragged down market prices. In addition, compared with other home appliances, the profit margin of color TV has been Lower."
In addition, Liu Buchen also pointed out that color TV companies are difficult to get rid of the shackles of raw material panels, because most color TV companies do not have layout related industries, and there is no brand right in the market, color TV prices are difficult to increase.
As for how to improve profitability, Skyworth Digital said in a related announcement that high raw material prices and costs have brought heavy pressure on gross margins. In addition to continuously optimizing product structure, the company has also launched a series of measures to strictly control costs and has accelerated its promotion. Product technology and quality, strengthening the promotion of new products and speeding up the switching speed of middle and high-end products.
Skyworth Digital announced that it will continue to reform the company's supply chain system to cope with the key raw material supply and price changes during the peak season; in addition to forecasting an increase in the order price in the future, it will lay out the product transformation of the operator's market ahead of schedule and actively respond to market demand for R&D and adjustment of products. High-margin, converged products; implementation of foreign exchange risk aversion strategies.
"In the long run, the outlook for set-top boxes is not good. In the future, the function of set-top boxes will be integrated into televisions, and the market opportunities for independent set-top boxes will become smaller and smaller." Liu Buchen analyzed.
Color TV decline is still hard to break
It is worth noting that as one of the main business of Skyworth Group, the performance of color TV is not optimistic. The interim report shows that the sales volume of Skyworth Digital's color TV products decreased from HK$9.376 billion in the same period of 2016 to HK$8.764 billion, which was a year-on-year decline of 6.5% and TV sales volume was 7.354 million units, compared to 8.219 million units in the same period of 2016 , down 11%.
Specifically, Skyworth Digital’s sales of TV sets in the Chinese mainland market totaled 3.499 million units, a year-on-year decrease of 21%; sales in the overseas market amounted to 3.855 million units, a slight increase of 1% year-on-year, and turnover reached HK$5.82 billion, an increase from the same period last year. 29%, and the proportion of total turnover in overseas markets reached 76.7%.
“In the first three quarters of 2017, the sales volume of the domestic color TV market has dropped by 10%. Among the major domestic brands, the decline rate of Skyworth Digital is relatively large.†Peng Xiandong, general manager of China Blackcom Research Center, told the reporter that apart from the market situation, In addition, Skyworth Digital is in an adjustment phase in 2017's internal structure and development strategy.
It should be noted that while rising sales in overseas markets, it also has a certain impact on the gross margin of Skyworth Digital. During the period, the overall gross profit margin of Skyworth Digital was only 15.8%, which was a decrease of 4.8 percentage points from the same period in 2016. Skyworth Digital pointed out in its report that the turnover of overseas markets accounted for 4.4 percentage points more than that of the same period of last year. Due to the lower gross margin of overseas markets, the increase in its proportion of sales directly affected the overall gross profit margin.
In this regard, Liu Buchen pointed out that China's color TV companies generally have low gross margins in overseas markets. The main purpose for these companies to enter overseas markets is to occupy the market, so the price of color TV products is not high.
Overall, sales of the domestic color TV industry since 2017 are not satisfactory. According to AVC's omni-channel push total data, the retail volume of China's color TV market in the third quarter of 2017 was 10.41 million units, down 12.9% year-on-year. Ove Cloud Network predicts that the retail volume of the color TV market in 2017 will be 47.78 million units, down 6.1% year-on-year.
Ovid Cloud Network pointed out that the change in the domestic color TV market scale has a significant negative correlation with the change in the average price. The high panel prices and the increase in the average price of color TVs are the main factors affecting the decline in the size of the TV market.
It is worth mentioning that the current panel price is in the down channel. "China Times" recently reported that the latest panel quotes showed that in late November, the large-size TV panel quoted performance was lower than expected, 50-inch, 55-inch panel prices fell 2.5% and 1.1%.
As the maximum cost of raw materials for TVs, the panel prices will undoubtedly bring many benefits to the development of color TV companies. Skyworth Group stated that by entering the fourth quarter of 2017, the prices of large-sized panels will decline, and the price of LCD TV panels will decline, which will help the profitability of TV brands such as Skyworth rebound. Liu Weizhi, chief executive of Skyworth Group, believes that the entire color TV industry will enter a more healthy and healthy track, and the situation in 2018 will be greatly eased and improved.
“Color TV brand concentration is not high, and the market share of the top few brands is not very different. After the cost falls, TV companies may adopt price cut strategies to seize the market.†Peng Xiandong also pointed out that the prices of other color TV raw materials are still rising.
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