Key takeaway

The company is a global leader in TV and interactive flat panel display (IFPD) contract manufacturing. In 1H26, non-recurring factors such as foreign exchange losses caused by exchange-rate fluctuations and inventory impairment provisions weighed on net profit attributable to shareholders of the parent company, resulting in a YoY decline. However, the decline in net profit excluding non-recurring gains and losses narrowed significantly, while the fundamentals of the core business remained solid. The company continued to implement its dual-engine strategy of “proprietary brands + high-end manufacturing.” Its innovative proprietary-brand business delivered rapid growth, while the gross margin of its TV contract manufacturing business recovered significantly. Profitability is expected to recover as exchange-rate disruptions ease in 2H26, economies of scale from proprietary brands continue to materialize, and overseas demand for education and conference IFPDs remains strong.

Event

On August 24, 2026, KTC released its 2026 interim report. In 1H26, the company recorded revenue of RMB7.085bn (YoY +2.16%), net profit attributable to shareholders of the parent company of RMB315mn (YoY -18.08%), and a net margin of 4.44% (YoY -1.10 pcts). In 2Q26, it recorded revenue of RMB3.593bn (YoY -5.27%), net profit attributable to shareholders of the parent company of RMB159mn (YoY -5.98%), and a net margin of 4.44% (YoY -0.03 pcts).

Quick Take

I. Revenue analysis: Solid contract manufacturing base and rapid growth in innovative proprietary-brand categories By product category:

1) Smart interactive displays: Shipments increased by 13.88% YoY in 1H26, while revenue reached RMB2.068bn (YoY +3.69%), accounting for 29.19% of total revenue. Gross margin was 19.56% (YoY +1.24 pcts).

Interactive flat panel displays: According to RUNTO, global shipments of large-format interactive flat panel displays reached 1.307mn units in 1H26, up 9.4% YoY. Education interactive flat panel display shipments reached 753,000 units, up 12.0% YoY. Shipments of conference and other commercial interactive flat panel displays reached 554,000 units, up 5.9% YoY. According to DISCIEN, the company ranked first globally by interactive flat panel display shipments among manufacturing suppliers in 1H26. RUNTO data showed that Horion and Newline were the only traditional commercial display brands in China to achieve positive growth.

Professional displays: The company’s products include gaming monitors, professional commercial displays, medical displays, public information displays, and commercial display equipment. Medical display products from the company's subsidiary KTC Medical have expanded into over 30 provinces nationwide, covering more than 1,100 municipal- and county-level hospitals as well as township health centers, while AI-assisted medical image reading terminals continue to be deployed.

2) Innovative display business: Shipment volume increased by 48.05% YoY in 1H26, while revenue reached RMB1.044bn, up 16.33% YoY and accounting for 14.74% of total revenue. Gross margin was 19.02%, up 2.58 pcts YoY. The company increased R&D investment in this segment. R&D expense for the innovative display business grew by more than 50% YoY and accounted for approximately 32% of total R&D expense, up 10.37 pcts YoY.

The company has differentiated the positioning of its three proprietary brands, KTC, Horion, and FPD: KTC focuses on gaming monitors and portable smart displays. Its gross merchandise value across all online platforms in China exceeded RMB100mn during the 618 shopping festival, up 31% YoY, while its cross-border e-commerce operations cover North America, Europe, Southeast Asia, and other markets. DISCIEN data show that in 1H26, the company ranked first globally in portable smart display shipments among manufacturers and suppliers, while KTC ranked third in consumer-grade gaming monitor shipments in China. Horion focuses on the enterprise conferencing and commercial display markets. FPD focuses on home companion technologies, offering products such as smart beauty mirrors, smart photo frames, Google TVs, and VR devices, with a particular focus on expanding in Japan, Canada, and Europe. DISCIEN data show that Horion ranked third in interactive large-format display sales for conferencing applications in China in 1H26. As of 1H26, the innovative display business had expanded into 10 countries and regions across North America, East Asia, and Europe.

3) Smart TVs: Shipment volume decreased by 8.34% YoY in 1H26, while revenue reached RMB3.634bn and accounted for 51.30% of total revenue. Gross margin was 14.89%, up 3.01 pcts YoY, indicating a significant recovery in profitability.

According to RUNTO data, total shipments in the global TV contract manufacturing market, including the proprietary factories of Changhong, Konka, Skyworth, and Hisense, reached 53.268mn units in 1H26, up slightly by 0.3% from the same period in 2025. Production capacity remained highly concentrated in China, while industry concentration continued to increase. The company uses its “three modes, four engines, and one pillar” model as its core framework. It combines three shipment modes—CBU, SKD, and CKD—with four collaboration engines—JDM, ODM, OEM, and EMS—and exports its MTO model overseas, allowing it to flexibly meet the differentiated order requirements of global brand customers. The product mix continued to improve. The rising share of high-end Mini-LED and OLED TVs continued to drive gross margin growth.

4) Component sales business: Revenue reached RMB338mn, down 17.15% YoY, and accounted for 4.77% of total revenue. Leveraging its technology, supply chain, and global trade channels, the company sells components such as display panels, controller boards, light bars, and infrared touch frames overseas.

By product category:

1) Overseas sales: Revenue reached RMB6.300bn, accounting for 88.92% of total revenue, with a gross margin of 16.22% (YoY +2.14 pcts);

2) Domestic sales: Revenue reached RMB785mn, accounting for 11.08% of total revenue, with a gross margin of 15.67% (YoY +4.64 pcts).

II. Profitability analysis: Non-recurring factors weighed on current-period profit, while profitability is expected to recover in 2H26

I. Gross margin: YoY improvement across all business segments

Gross margin was 16.16% in 1H26 (YoY +2.45 pcts). By product, gross margins for smart interactive displays, innovative display products, and smart TVs were 19.56% (YoY +1.24 pcts), 19.02% (YoY +2.58 pcts), and 14.89% (YoY +3.01 pcts), respectively. By region, gross margins from both overseas and domestic sales increased YoY. Gross margin was 16.15% in 2Q26 (YoY +2.15%). The optimized product mix in the TV business and increasing economies of scale for proprietary brands jointly drove the overall gross margin higher.

According to AVC Revo data, panel prices declined moderately in 3Q26. Meanwhile, proprietary brands and innovative product categories are expected to account for a larger share of revenue, supporting continued gross margin improvement.

II. Expenses: Higher R&D investment in proprietary brands, while foreign exchange volatility pushed up finance expense

The total expense ratio increased by 2.55 pcts YoY in 1H26. The selling expense, administrative expense, R&D expense, and finance expense ratios changed by +0.31/-0.05/+0.05/+2.24 pcts YoY, respectively. The total expense ratio increased by 2.91 pcts YoY in 2Q26. The selling expense, administrative expense, R&D expense, and finance expense ratios changed by +0.34/+0.36/+0.35/+1.87 pcts YoY, respectively. This was mainly attributable to: 1) increased marketing investment to expand proprietary brands in overseas markets; 2) the reallocation of R&D resources toward innovative proprietary brands; and 3) a substantial increase in foreign exchange losses.

III. Net profit: Profit excluding non-recurring items demonstrated the resilience of the core business, while headwinds are expected to ease in 2H26

In 1H26, net profit attributable to shareholders of the parent company was RMB315mn (YoY -18.08%), while net profit attributable to shareholders of the parent company excluding non-recurring gains and losses was RMB327mn (YoY -5.56%). In 2Q26, net profit attributable to shareholders of the parent company was RMB159mn (YoY -5.98%), while net profit attributable to shareholders of the parent company excluding non-recurring gains and losses was RMB165mn (YoY -1.47%). Net profit attributable to shareholders of the parent company declined due to foreign exchange losses and inventory impairment. Profit excluding non-recurring items decreased only slightly, indicating stable core operations. Looking ahead to 2H26, the impact of non-recurring gains and losses arising from exchange rates and inventory impairment is expected to ease. Increasing economies of scale for proprietary brands and strong overseas orders for interactive flat panels and TVs are expected to support a recovery in the company's profitability in 2H26.

Investment recommendation: Innovative products under proprietary brands continue to gain traction, overseas markets offer ample growth potential, and profitability is expected to recover in 2H26. Driven by its dual engines of high-end manufacturing and proprietary brands, the company is seeing a recovery in profitability in its TV contract manufacturing business. Its proprietary brand portfolio comprising KTC, Horion, and FPD continues to gain momentum, while innovative AI hardware unlocks medium- to long-term growth potential. We forecast net profit attributable to shareholders of the parent company of RMB744mn/RMB909mn/RMB1.057bn for 2026-2028, corresponding to EPS of RMB1.06/RMB1.29/RMB1.50. The current share price implies P/E ratios of 17.15x/14.04x/12.08x. We maintain our “Buy” rating.

Risks

1) Decline in market demand: The global TV market has entered a stage of stock-based competition. Developed countries and regions like Europe, the US, and Japan are showing signs of demand exhaustion. High inflation is also eroding consumers' real purchasing power, leading to sustained sluggish demand for TV shipments. According to data from Sigmaintell, global TV shipments in 2025 are estimated at 221 million units (YoY -0.7%). According to data from RUNTO Technology, China's TV shipments in 2025 totaled 32.895 million units (YoY -8.5%). Looking ahead, the TV market environment is unlikely to see fundamental changes.

2) Panel price rebound: The persistent decline in inventory levels at leading panel manufacturers, coupled with expanded production cuts, reinforced the balance between market supply and demand. According to data from AVC Revo, prices for TV panels of various sizes have stopped falling since October 2022 and have subsequently experienced modest increases. Compared to October 2022, the average prices for 75/65/55/50/43/32-inch TV panels increased by USD72/73/52/40/17/10 respectively as of June 2024.

3) RMB exchange rate fluctuations:Long-term exchange rate fluctuations can impact the business strategies of foreign trade enterprises. The USD exchange rate has been subject to significant short-term fluctuations. According to data from the China Foreign Exchange Trade System, the current spot exchange rate of USD to RMB is around 6.7.