Key takeaway

TCL Tech has passed the peak capex cycle for its semiconductor display business. The LCD competitive landscape has shifted from a "scale war" to a "value war," with industry earnings stability materially improving. The T9 medium-sized panel fab is now ramping to full capacity with efficiency gains, while natural depreciation decline and minority interest buyback are set to unlock earnings upside for attributable net profit. The TZE has bottomed out, with a clear multi-dimensional loss-reduction path for 2026. At the same time, its strategic early positioning in printed OLED and the emerging glass-substrate segment pave the way for long-term upside. The current SOTP-based valuation offers a substantial safety buffer. With sustained earnings delivery from the display business and an increasingly visible loss-narrowing trajectory in the solar PV segment, the company's valuation is poised for both recovery and re-rating.

Thesis

TCL Technology is a world-class player in both semiconductor displays and solar PV. TCL CSOT, as the group's most critical operating bedrock and earnings driver, delivered operating revenue of RMB 105.238bn and net profit of RMB 8.008 bn in 2025, while TZE contributed operating revenue of RMB 29.05bn. As the panel cycle weakens, the solar PV segment reaches a trough, and emerging ventures establish a foothold in advanced packaging, TCL Tech finds itself at a pivotal window where three major turning points overlap.

TCL CSOT has passed the peak of its capex cycle, and the stage is now set for an earnings delivery cycle to unfold. The LCD competitive structure is now characterized by a duopoly of Chinese mainland players. Alongside the large-screen TV trend that effectively absorbs incremental capacity, the large-size panel business is shifting from cyclical swings to a phase of both cash-flow generation and profit realization. Furthermore, as CSOT's depreciation expense enters a declining trajectory and the company continues to buy back minority interests in profitable facilities, the visibility and upside potential of earnings growth is likely to surpass market expectations. We project that by 2030, TCL CSOT will achieve revenue of RMB 170 bn and net profit of RMB 25 bn or more.

The TZE has bottomed out, with a clear multi-dimensional loss-reduction path for 2026 TZE reported a narrower net loss in 2Q26 compared to the previous quarter. The company is pursuing a four-pronged loss-mitigation strategy encompassing cost optimization, integration, technological upgrades to BC high-efficiency production lines, and a resilient semiconductor materials business as a foundational stabilizer. As a result, the PV segment's drag on group-wide earnings and valuation is diminishing sequentially each quarter.

Its foray into the emerging glass-substrate advanced packaging segment paves the way for significant long-term growth potential. The company is rapidly advancing into the glass-substrate sector, deploying a coordinated "CSOT + Toppcb + Chip Wealth" platform to capture core opportunities in next-gen advanced packaging, including AI chip packaging and co-packaged optics (CPO). This initiative opens up an entirely new growth trajectory.

Investment recommendation: On a SOTP basis, we estimate the company's fair market cap at RMB185–220bn, implying a per-share value of RMB 8.9–10.6. Our DCF-based absolute valuation, meanwhile, points to an equity value of RMB296.3bn, or RMB14.24 per share. There is substantial downside protection at current levels. We forecast the company's net profit attributable to shareholders of the parent company to be RMB7.542bn/11.901bn/14.054bn respectively for 2026-2028, implying EPS of RMB0.36/0.57/0.68 and PE of 13.05x/8.27x/7.00x based on the current stock price. We initiate coverage on the company with a "Buy" rating.

Risks

(1) End-user demand falls short of expectations: For example, sluggish demand in the TV and IT sectors causing panel price drops will affect CSOT's profitability;

(2) Slower PV sector consolidation: A protracted capacity-clearing process in the solar PV industry could stall TZE loss-narrowing trajectory, weighing on group-level results;

(3) FX fluctuations and overseas trade barriers: The company's overseas revenue accounts for over 36%, so FX fluctuations and trade policy changes may affect its profitability;

(4) Mass production progress of printed OLED technology falls short of expectations: The yield ramp-up of the T8 production line may be slower than expected, affecting medium- and long-term growth expectations;

(5) Macroeconomic fluctuations: Uncertainties in global economic recovery may affect end consumption and investment demand.