TCL Communication's revenue jumped 13%

But potential loss looms in 1Q13.

According to Nomura, 2013 revenue grew 13% y-y, but recorded a net loss of HKD208mn due to product margin decline and rising R&D and sales expenses. 

Here's more:

Management guided for 25% y-y revenue growth and net profit turnaround in 2013, but indicated a potential loss in 1Q13 due to product transition; fundamental recovery is expected to start from 2Q13. We maintain our Neutral rating and TP of HKD2.40. 

Major positives. Stable smartphone sales in Europe: TCL stated that EMEA (Europe, Middle-East, and Africa) remains the largest region for its smartphone sales, comprising 42% of total smartphone shipments in 2012 due to its strong relation with operators and its well-known Alcatel brand. 

New products and team for China market: TCL indicated that it had reshuffled its China team in 2H12. Under the new team, TCL had developed a new product line-up for the China market; management  remains confident that the company will deliver strong growth. 

Major negatives. Gross margin declined to 15.6% in 4Q12 from 22.5% in 4Q11 due to margin pressure on its existing advanced feature phone product category and the lack of production scale for its smartphone category. 2012 SG&A to sales ratio increased by 4.2pp y-y due to rising marketing and R&D expenses.