Report Interpretation

Overview

This earnings update compares BOE Technology and TCL Corp.’s 2Q26 results against expectations. Morgan Stanley finds that core profitability was weaker than expected at both companies and expects display demand momentum to run below normal seasonal patterns in 2H26 after earlier restocking, while favoring BOE relative to TCL.

Core views

Morgan Stanley’s central conclusion is that core-business profit fell short of expectations for both BOE and TCL in 2Q26. It expects display-business momentum to be below seasonal in 2H26 because restocking had already occurred in 1H26, driven by promotions ahead of sports events and elevated component costs. The report’s earnings-reaction summary says the thesis is unchanged for both companies, but identifies modest earnings shortfalls and expects modest downward revisions to next-12-month consensus EPS. For BOE, 2Q26 revenue was Rmb52.131bn, up 2% quarter on quarter and 3% year on year. This was broadly in line with Morgan Stanley’s Rmb51.541bn estimate and 12% above Rmb46.465bn consensus. The operational weakness was margin-led: gross margin declined 1.1 percentage points sequentially to 14.5%, below the firm’s 16.4% estimate, which Morgan Stanley attributes likely to pricing pressure in smartphone displays. Reported net profit reached Rmb3.540bn, up 107% quarter on quarter and 117% year on year, exceeding both the Rmb1.958bn Morgan Stanley estimate and Rmb2.019bn consensus; however, nonrecurring gains supported this outcome. Recurring net profit was only Rmb1.570bn, growing 9% sequentially and 69% year on year, supporting the report’s view that the underlying core business was weaker than headline profit implied. For TCL, 2Q26 revenue was Rmb45.209bn, up 4% quarter on quarter but down 1% year on year, 11% below both Morgan Stanley’s Rmb50.621bn estimate and Rmb50.921bn consensus. CSOT revenue was Rmb25.090bn, flat sequentially, while its net profit rose 11% sequentially to Rmb2.050bn; attributable profit to TCL shareholders was Rmb1.720bn, up 10%. Other businesses showed mixed operating signals: Moka revenue rose 7% sequentially to Rmb4.900bn, with its TV OEM shipments remaining globally ranked first, monitor OEM shipments up 7% year on year, and commercial-display shipments up 37% year on year in 1H26. TCL Zhonghuan revenue rose 19% sequentially and 6% year on year to Rmb7.766bn, but gross profit remained negative at Rmb817mn, worse than the negative Rmb566mn in 1Q26 and negative Rmb589mn in 2Q25. TCL’s consolidated gross margin improved 0.7 percentage points sequentially to 13.3%, broadly in line with Morgan Stanley’s 13.8% estimate. Net profit was Rmb2.252bn, up 45% sequentially and 159% year on year, broadly consistent with Rmb2.283bn consensus; recurring net profit was Rmb1.985bn, up 72% sequentially and 230% year on year. Nevertheless, the revenue miss and weaker-than-expected core operating result lead Morgan Stanley to view the quarter as a modest shortfall. Morgan Stanley maintains a relative preference for BOE over TCL, citing BOE’s scale advantage and faster progress in glass core substrates. Its valuation framework uses price-to-book multiples because it considers panel manufacturing cyclical. For TCL, the base case applies 1.7x 2026e P/B, within its five-year 1.1x–3.8x range, supported by estimated ROE of 8% in 2025 and 11% in 2026. For BOE, the target multiple is 2.5x 2026e P/B, supported by estimated ROE of 5–8% in 2026–28 versus an average 1.1x P/B in 2023–25 when ROE was 2–4%.

Analysis framework

Morgan Stanley compares each company’s revenue, margins and profit with its own estimates and consensus, separates recurring earnings from nonrecurring items, then connects results to display demand and inventory timing. It concludes with a relative BOE-versus-TCL preference and applies P/B valuation because it views panel makers as cyclical businesses whose returns on equity help support valuation multiples.

Methodology notes

• Industry AnalysisSupply-demand framework

  Display demand, restocking and capacity conditions

  The report links expected below-seasonal 2H26 momentum to inventory restocking already completed in 1H26, and identifies panel ASPs and capacity changes as drivers of industry conditions.

• Valuation methodsPB valuation

  Price-to-book valuation for cyclical panel makers

  Morgan Stanley uses 2026e P/B multiples for TCL and BOE, relating the selected multiples to historical valuation ranges and estimated ROE.

Asset mapping & comparison

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

• BOE Technology (000725.SZ)

  Preferred relative to TCL within Greater China display panels.

  Strengths

  Scale advantage and faster progress in glass core substrates.

  Weaknesses

  Core profitability was weaker than headline net profit suggested because nonrecurring gains supported reported earnings; gross margin missed estimates.

  Comparison

  Morgan Stanley prefers BOE over TCL.

  Risks

  Worse-than-expected industry-wide ASP, lower G10.5 fab yield, slower AMOLED ramp, or slower advanced-packaging progress.

• TCL Corp. (000100.SZ)

  Covered display-panel and diversified technology company; less preferred than BOE.

  Strengths

  CSOT profit improved sequentially; Moka TV OEM shipments remained globally ranked first; monitor and commercial-display shipments grew year on year.

  Weaknesses

  Revenue was 11% below Morgan Stanley and consensus estimates; TCL Zhonghuan gross profit remained negative.

  Comparison

  Morgan Stanley prefers BOE because of its scale advantage and faster glass-core-substrate progress.

  Risks

  Worse-than-expected industry-wide ASP, lower G10.5 fab yield, and further TFT-LCD capacity additions.

Key data

• BOE 2Q26 revenueRmb52,131mn+2% QoQ/+3% YoY; in line with Morgan Stanley’s Rmb51,541mn estimate and 12% above Rmb46,465mn consensus.
• BOE gross margin14.5%-1.1ppt QoQ; below Morgan Stanley’s 16.4% estimate, likely reflecting smartphone-display pricing pressure.
• BOE reported and recurring net profitRmb3,540mn; Rmb1,570mn recurringReported net profit was +107% QoQ/+117% YoY and exceeded estimates, but nonrecurring gains contributed; recurring profit was +9% QoQ/+69% YoY.
• TCL 2Q26 revenueRmb45,209mn+4% QoQ/-1% YoY; 11% below both Morgan Stanley’s Rmb50,621mn estimate and Rmb50,921mn consensus.
• TCL gross margin13.3%+0.7ppt QoQ; broadly in line with Morgan Stanley’s 13.8% estimate.
• TCL net profit and recurring net profitRmb2,252mn; Rmb1,985mn recurringNet profit was +45% QoQ/+159% YoY and broadly consistent with Rmb2,283mn consensus; recurring profit was +72% QoQ/+230% YoY.
• BOE valuation basis2.5x 2026e P/BSupported by estimated 5–8% ROE in 2026–28, versus 1.1x average P/B and 2–4% ROE in 2023–25.
• TCL valuation basis1.7x 2026e P/BWithin the five-year 1.1x–3.8x range; supported by estimated ROE of 8% in 2025 and 11% in 2026.

Impact & implications

The report leaves its underlying theses unchanged but sees the 2Q26 shortfalls and pre-restocked demand as reasons for modest reductions in 12-month consensus EPS expectations. It favors BOE relative to TCL on scale and glass-core-substrate progress, while retaining an In-Line industry view.

Risks

• For BOE, downside risks include worse-than-expected industry-wide panel ASPs, lower G10.5 fab yield, a slower AMOLED ramp and slower advanced-packaging progress.
• For TCL, downside risks include worse-than-expected industry-wide panel ASPs, lower G10.5 fab yield and additional TFT-LCD capacity additions.