Photovoltaic profits are under pressure; semiconductor silicon wafers become TCL Zhonghuan's long-term growth engine

Overview

This report is UBS's earnings review of TCL Zhonghuan. The core view is that in the near term, photovoltaic wafers and modules still face earnings pressure from oversupply, price competition, and weak demand, so UBS sharply lowered its 2026 earnings forecast. Over the medium and long term, semiconductor silicon wafer expansion, domestic substitution trends, and synergies from the DAS Solar acquisition could become important drivers for valuation and profit recovery.

Core views

UBS maintained a Buy rating, stating that current valuation already reflects overly pessimistic expectations for the photovoltaic business, but has not fully captured the upside potential of the semiconductor business. UBS estimates the 2027 P/E multiple at about 17x and expects the compound annual EPS growth rate of 2027-2029 to be 38%.

Analysis framework

The report starts from segment-level profit analysis and evaluates wafer, module, and semiconductor silicon wafer shipment, unit loss, revenue growth, market share, and gross margin growth prospects separately, then derives a target price using the DCF method.

Methodology notes

• Valuation methodDCF

  Discounted cash flow valuation

  UBS states that the target price is based on the DCF method and uses a WACC of 7.8%; the target price was lowered from Rmb11.00 to Rmb10.60.

• Rating frameworkForecast Stock Return

  Forecast stock return

  UBS adds the forecast stock price increase and dividend yield to estimate the 12-month forecast stock return; in this report, the forecast stock price increase is 18.7%, dividend yield is 0.0%, and forecast stock return is 18.7%.

• Business analysisSegment Profitability and Share Analysis

  Segmenting profit drivers by photovoltaics, modules, and semiconductor silicon wafers

  The report separately discusses unit losses for photovoltaic wafers and modules and 2026 shipment expectations, as well as semiconductor silicon wafer revenue growth, market share, and gross margin compound growth.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• TCL Zhonghuan 002129.SZ

  Core covered asset

  Strengths

  One of the world's leading photovoltaic silicon wafer manufacturers, with advantages in yield, unit energy consumption, and raw material usage; the semiconductor silicon wafer business is in a domestic leading position.

  Weaknesses

  Solar silicon wafers and modules remain under near-term pressure from oversupply, weak demand, and price competition, with unit-level losses still appearing in 1Q26.

  Comparison

  UBS believes the company still maintains a cost advantage versus lower-end wafer manufacturers and that current valuation does not yet fully reflect the upside in semiconductor business.

  Risks

  Global photovoltaic demand below expectations, intensified price competition, and further industry capacity expansion leading to further supply-demand deterioration.

• DAS Solar

  Source of M&A synergy

  Strengths

  Can provide TCL Zhonghuan with support in cell technology, capacity, and global sales channels, improving vertical integration capability.

  Weaknesses

  Synergies require time to materialize and may not fully offset module margin pressure in the near term.

  Comparison

  Compared with standalone wafer operations, DAS Solar synergy helps extend improvement into module margin recovery and integrated value-chain positioning.

  Risks

  Stronger competition in the module market, weaker-than-expected demand recovery, or less-than-expected integration outcomes.

Key data

• 12-month ratingBuyUBS maintains a Buy rating on TCL Zhonghuan.
• Target priceRmb10.60The previous target price was Rmb11.00.
• Current priceRmb8.93Price date is 8 May 2026.
• Expected stock upside18.7%Forecast dividend yield is 0.0%; forecast stock return is 18.7%.
• 1Q26 wafer shipments25GWUBS estimates unit losses of Rmb0.04/W.
• 1Q26 module shipments2.9GWUBS estimates unit losses of Rmb0.10/W, including impairment losses.
• 2026 wafer shipment forecast120GWMargin pressure in the solar business is expected to continue through 2026.
• 2026 module shipment forecast19-21GWThe module business is expected to benefit from DAS Solar synergies in technology, capacity, and channels.
• Semiconductor silicon wafer 1Q26 revenueRmb1.44bnUp 8.5% year-on-year, but still near break-even due to ongoing competition.
• Semiconductor silicon wafer 2026 growth forecastRevenue growth of 15%-20%, market share about 8%UBS expects domestic market share to rise from about 7% in 2025 to about 8% in 2026, while keeping the top domestic position.
• 2027 valuation17x 2027E P/EUBS expects EPS compound growth of 38% for 2027-2029.

Impact & implications

For investors, the short-term focus is whether photovoltaic supply-demand continues to deteriorate and whether wafer and module losses expand. The long-term investment logic shifts to domestic substitution, share gains in semiconductor wafers, and vertical integration improvements after the DAS Solar acquisition. If semiconductor business growth materializes, the current valuation may underestimate the company’s long-term profit resilience.

Risks

• Global photovoltaic demand is weaker than expected.
• Price competition is more intense than expected.
• Ongoing expansion of solar wafer and module capacity further worsens supply-demand balance.
• Although semiconductor silicon wafer revenues are growing, short-term profit contribution is limited; if competition intensifies, profit release may be delayed.

What to watch

• Whether the 2026 targets of 120GW wafer shipments and 19-21GW module shipments are achieved.
• Whether unit losses in photovoltaic wafers continue to widen or narrow from 1Q26's Rmb0.04/W.
• The pace of improvement in module unit losses and module profitability from DAS Solar acquisition synergies.
• Whether semiconductor silicon wafer achieves 15%-20% revenue growth in 2026 and around an 8% domestic market share.
• Changes in industry capacity expansion, price competition, and global photovoltaic demand.