Morgan Stanley: June Panel Prices Stabilize; TV Panels May Turn Down from Q3; Maintain Equal-weight

Overview

This report, published by Morgan Stanley, updates the outlook for TFT-LCD panel prices in June 2026 and subsequent trends. The core view is that as the pre-restocking effect since the beginning of the year fades, panel order momentum is slowing. Despite good production discipline on the supply side, TV panel prices are expected to start trending down in Q3 2026, while IT panels will decline from Q4. Based on this, the firm believes the valuation attractiveness of panel stocks has decreased, especially as Taiwanese makers' valuations are at multi-year highs; therefore, it maintains an Equal-weight rating on TV panel-related stocks. Among Chinese manufacturers, BOE is preferred over TCL Tech due to its scale advantages and higher business concentration.

Core views

Price Outlook: TV Panels May Turn Down After Stabilization; IT Panels Relatively Stable In June, mainstream size (32", 43", 55", 65", 75") TV panel prices are expected to remain flat QoQ. Prices had risen by 1%, 2%, and 2% respectively in Jan-Mar, before stabilizing in Apr-May. The firm notes that early-year pre-restocking on the demand side is fading, leading to slower panel order momentum. On the supply side, although manufacturers maintain good production discipline, given strong H1 shipments, H2 shipments may fall below seasonal levels, further weakening manufacturers' bargaining power. Therefore, the base case assumes TV panel prices will trend down starting Q3 2026, though the decline will be limited due to supply-side discipline. On a quarterly average basis, Q2 2026 TV panel prices are expected to grow by low single-digit percentages QoQ. For IT panels, June monitor panel prices rose slightly by 0.2% QoQ, while notebook panel prices are expected to be flat QoQ. Overall, IT panel prices will remain relatively stable compared to TV panels over the coming quarters. Supply-Demand and Utilization: Structural Changes Support Supply Discipline Over the past decade, the average H1/H2 shipment ratio for TV panels was 49%/51%. In 2026, due to brand vendors stocking up ahead of major promotional events such as the Winter Olympics, World Cup, and China's "618" festival, shipments are expected to skew towards H1. While these events may not significantly boost total global demand, they do alter the quarterly shipment rhythm. Regarding capacity utilization, supported by strong TV panel shipments, industry utilization in Q2 2026 is expected to remain flat QoQ at 80-85%. In the medium to long term, the display industry is undergoing structural changes: Chinese panel makers' strategic focus has shifted from revenue growth to profitability, and reduced government subsidies have reinforced supply discipline. Additionally, consolidation measures such as LG Display selling its Guangzhou Gen 8.5 fab to TCL and Sharp closing its Gen 10 Sakai fab support a healthier supply backdrop. Stock Views: Valuations High; Relative Preference for BOE The firm believes this panel price hike cycle is ending, and the current risk-reward ratio lacks attractiveness, particularly for Taiwanese makers. 1. BOE (000725.SZ): Relative preference. Target price RMB 5.20 (based on 1.4x 2026e P/B). Rationale includes scale advantages, a more diversified application and technology revenue mix, and cheaper valuation relative to peer TCL Tech. Its industry position is solid, justifying a premium. 2. TCL Tech (000100.SZ): Equal-weight. Target price RMB 4.70 (based on 1.7x 2026e P/B). Currently trading at 1.7x, above the mid-cycle average of 1.4x since 2022; believes the stock has largely priced in the benefits of the panel price hike cycle. 3. AUO (2409.TW): Equal-weight. Target price NT$14.00 (based on 0.7x 2026e P/B). Current valuation of 1.4x is well above the mid-cycle average of 0.8x; believes positive dynamics are fully priced in. 4. Innolux (3481.TW): Equal-weight. Target price NT$19.50 (based on 0.7x 2026e P/B). Acquisition of Pioneer helps reduce commodity revenue share to 45-50%, but significant contribution from FOPLP business still requires time. 5. LG Display (034220.KS): Not turned bullish. Although OLED revenue contribution will improve earnings from H2 2025, weak end-market demand poses constraints. Current valuation of 1.1x is above the historical mid-cycle level of 0.5x. 6. Corning (GLW.N): Display business operates efficiently; FX-related price increases further support margins; Optical business resumes growth as carrier fiber deployment accelerates. 7. Novatek (3034.TW): Maintain Underweight view based on weak PC, smartphone, and auto demand plus gross margin pressure. However, its OLED DDI roadmap outperforms Korean competitors in performance and cost, helping gain share in Apple's iPhone supply chain.

Analysis framework

This report employs a typical analytical approach combining 'volume-price decomposition' with a 'supply-demand framework.' First, by tracking monthly panel price data (citing TrendForce/WitsView) and incorporating seasonal factors (e.g., sporting events, promotional nodes), it analyzes marginal changes on the demand side to identify the key turning point of 'fading pre-restocking.' Second, on the supply side, it focuses on manufacturers' 'production discipline' and capacity utilization, introducing industry structural changes (e.g., fab M&A, strategic pivots) as logical support for long-term supply constraints. Finally, at the valuation level, it uses P/B (Price-to-Book) valuation, comparing current multiples against historical mid-cycle averages to judge whether stock prices have overly reflected price hike expectations, thereby reaching conclusions on the risk-reward ratio. This logical chain—from short-term price tracking to medium/long-term structural analysis, followed by valuation verification—is a classic paradigm for cyclical hardware industry research.

Methodology notes

• Industry/Sector Analysis FrameworkSupply-demand framework

  Supply-Demand Framework

  The report judges panel price trends by analyzing the balance of power between the demand side (restocking cycles, promotional events) and the supply side (manufacturer production discipline, utilization rates, industry consolidation). This is the core logic of cyclical industry analysis.

• Valuation MethodologyPB valuation

  P/B Valuation

  The report uses Price-to-Book (P/B) as the primary valuation metric, comparing current multiples with 'mid-cycle average multiples.' For strongly cyclical industries, P/B reflects asset value and cycle positioning better than P/E, avoiding P/E distortion during earnings troughs or misleadingly low P/E during peaks.

• Cycle and Sentiment FrameworkSentiment Inflection Point Analysis

  Sentiment Inflection Point Analysis

  The report identifies 'fading early-year restocking' and 'downward price trend in Q3' as potential inflection points in sentiment. By observing slowing order momentum and weakening bargaining power, it anticipates the industry transitioning from an upcycle to a downturn or consolidation phase.

• Company Fundamentals and Financial FrameworkOperating/Financial Leverage Analysis

  Scale Advantage and Business Concentration

  When comparing BOE and TCL, the report emphasizes 'scale advantage' and 'display business concentration' as competitive edges. This implies operating leverage logic: larger scale and purer core business often entail stronger cost control and risk resilience amid industry volatility.

Asset mapping & comparison

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

• BOE A (000725.SZ)

  Relative Preference

  Strengths

  Scale advantage, diversified application and technology revenue mix, high display business concentration, cheaper valuation vs. TCL

  Comparison

  Better than TCL Tech

  Risks

  Panel price decline exceeds expectations

• TCL Tech (000100.SZ)

  Equal-weight

  Weaknesses

  Valuation at 1.7x P/B, above historical mid-cycle average; price hike positives largely priced in

  Comparison

  Worse than BOE

  Risks

  Valuation correction risk

• AUO (2409.TW)

  Equal-weight

  Weaknesses

  Current valuation of 1.4x P/B far exceeds mid-cycle avg of 0.8x; unattractive risk-reward ratio

  Comparison

  Higher valuation than Innolux

  Risks

  Overall valuation correction for Taiwan panel stocks

• Innolux (3481.TW)

  Equal-weight

  Strengths

  Acquisition of Pioneer helps optimize revenue structure

  Weaknesses

  Current valuation of 1.9x P/B is high; FOPLP business contribution takes time

  Risks

  Slow progress in emerging businesses

• LG Display (034220.KS)

  Not Bullish

  Strengths

  OLED revenue contribution to improve earnings

  Weaknesses

  Weak end-market demand; valuation of 1.1x above historical mid-cycle 0.5x

  Risks

  Continued weakness in end-market demand

• Novatek (3034.TW)

  Underweight

  Strengths

  OLED DDI superior to Korean peers in performance/cost; potential to gain Apple supply chain share

  Weaknesses

  Weak PC/mobile/auto demand; gross margin pressure; lack of new growth drivers

  Risks

  Persistent downstream demand slump

Key data

• Jun TV Panel Price QoQFlatMainstream sizes 32"-75"
• Jun Monitor Panel Price QoQ+0.2%Slight increase
• Jun Notebook Panel Price QoQFlatStable
• Q2 2026 Utilization Rate80-85%Flat QoQ, good supply discipline
• BOE Target Price/ValuationRMB 5.20 / 1.4x 2026e P/BRelative preference; valuation above mid-cycle avg of 1.2x
• TCL Tech Target Price/ValuationRMB 4.70 / 1.7x 2026e P/BValuation above mid-cycle avg of 1.4x; positives priced in
• AUO Target Price/ValuationNT$14.00 / 0.7x 2026e P/BCurrent valuation 1.4x, well above mid-cycle avg of 0.8x
• Innolux Target Price/ValuationNT$19.50 / 0.7x 2026e P/BCurrent valuation 1.9x, above mid-cycle avg of 0.5x

Impact & implications

For investors, the report signals that the investment window for the panel industry may be closing. As stock prices have already reflected current price hike positives and prices face downward pressure over the next two quarters, the risk-reward ratio for chasing highs is low. Particularly with Taiwanese panel stock valuations significantly above historical medians, the firm advises caution. In contrast, mainland China leader BOE is viewed as a more defensive choice due to its scale and diversification advantages. Furthermore, the report lowers market expectations for the emerging narrative of 'glass substrates in advanced packaging,' noting that commercial contributions will remain limited in 2026-2027, and investors should not rely excessively on this concept as a short-term catalyst.

Risks

• End-market demand stronger than expected: If end-market demand for key applications beats expectations, panel shipments could be stronger, reducing downward price pressure.
• Stricter output controls: If major panel makers collectively adjust utilization to extremely low levels, price pressure could be alleviated despite weak demand.
• Non-commodity display business progress faster than expected: If non-standard product businesses proceed smoothly, panel makers may deliver better financial results.

What to watch

• Whether Q3 2026 TV panel prices decline as expected
• Whether panel maker capacity utilization remains in the 80-85% range
• Commercialization progress and actual contribution timeline of glass substrates in advanced packaging