Displaying the business "ballast," innovating the business "catalyst," the offensive and defensive strategy of TCL ELECTRONICS (01070)

In 2025, TCL ELECTRONICS (01070.HK) achieved a milestone in its operations: its revenue surpassed the one hundred billion Hong Kong dollar mark for the first time, reaching 114.58 billion Hong Kong dollars, a year-on-year increase of 15.4%; the adjusted net profit attributable to shareholders increased significantly by 56.5% to 25.1 billion Hong Kong dollars. This report not only marks the company's successful crossing of the size threshold, but also signifies a shift in its growth momentum from the "quantity" of extensive expansion to the "quality" leap driven by the value restructuring brought about by the upgrade of its TV business product structure, the growth of its photovoltaic business, and the high-quality monetization of its internet business, achieving a core transformation from scale expansion to value enhancement. The "big screen + Mini LED" strategic advantage continues to pay off, consolidating global influence As TCL ELECTRONICS' core pillar business, the TV business continued to grow in 2025 amidst the reshaping of the industry's competitive landscape, not only maintaining a high growth trend but also further consolidating its global market influence. According to Omdia data, the global TV market saw a slight decline of 0.1% in 2025, with Samsung and TCL being the only two brands globally to exceed an annual shipment of over 30 million units. This not only marked the first time a Chinese TV brand has reached an annual shipment scale of 30 million units, but also strengthened TCL ELECTRONICS' position as the second largest in the world. More notably, while Samsung retained its top position with a shipment of 36.92 million units, its year-on-year growth was only 0.6%, while TCL achieved a growth rate of 5.6%, showing a clear trend of catching up. While Samsung retained its crown with 36.92 million units shipped, its increase of only 0.6% compared to the previous year, TCL achieved a significant growth of 5.6%, showing clear potential to surpass. (Source: Omdia) TCL ELECTRONICS' steadily climbing global market share is driven by the continued realization of its "big screen + Mini LED" strategic advantage, resonating with the global television industry's structural upgrades and further amplifying its competitive barriers. According to TCL ELECTRONICS' financial reports, in 2025, the global TV shipments were approximately 209 million units, highlighting a trend of structural upgrades in the industry, focusing on larger sizes and higher-end products. The shipment of 65 inches and above large-sized TVs increased by 5.3% year-on-year, while the penetration rate of Mini LED TVs doubled from 3.1% in 2024 to 6.1%. With leading brands from Japan and South Korea ramping up their efforts, Mini LED technology has become the mainstream choice in the high-end TV market. According to Omdia's predictions, by 2029, the global shipment volume is expected to exceed 17 million units, showing ample room for industry growth. In line with this industry trend, TCL ELECTRONICS' strategy of focusing on large-sized displays in the high-end segment has shown results. In 2025, the company's large-sized display business achieved revenues of 64.708 billion Hong Kong dollars, an increase of 7.7% year-on-year; gross profit reached 10.896 billion Hong Kong dollars, a significant increase of 17.2% year-on-year, with a gross profit margin increased by 1.3 percentage points to 16.8%. Profitability significantly improved, reflecting the value enhancement brought about by the upgrade of product structure. In the emerging market segment, the company continues to promote the dual-track strategy of developing offline channels in synergy with e-commerce platforms, with impressive results. In 2025, TCL TV revenue in emerging markets grew by 19.8% year-on-year, with shipments of 65 inches and above, and 75 inches and above TVs increasing significantly by 53.7% and 76.3% respectively, reflecting the accelerating trend towards larger screens. The market influence continues to expand, with retail sales rankings first in Australia, the Philippines, and Argentina, second in Brazil, Saudi Arabia, Pakistan, and Myanmar, and third in Thailand, Vietnam, and South Korea. TCL's solid performance in the TV business is supported by a solid global manufacturing network. The company has established production bases in Vietnam, Mexico, Brazil, Poland, and Pakistan, with an annual capacity exceeding 30 million units. This global manufacturing layout allows for flexible adjustment of the supply chain based on different market trade environments, effectively avoiding trade barriers, and serving as a key "moat" for the company to navigate global trade frictions and ensure stable business development. Strong cooperation: Joint venture with Sony, enhancing capabilities and brand elevation Of particular note, on March 31, TCL ELECTRONICS announced that the company had signed a legally binding strategic cooperation agreement with Sony in the field of home entertainment, representing a substantial progress following the signing of a memorandum of understanding between the two parties in January 2026. According to the agreement, the two parties will establish a joint venture through a phased integration process. Sony will initially establish a wholly-owned subsidiary to take over its entire home entertainment business. Subsequently, TCL will acquire a 51% controlling stake in the new joint venture company through subscription of shares in the subsidiary, while Sony will hold a 49% stake. The new company will operate Sony's home entertainment business globally, encompassing the development, design, manufacturing, sales, and service of a full range of products including consumer TVs (BRAVIA), B2B display devices, projectors, and home audio systems. As part of the transaction, Sony will transfer 100% of the equity of its important manufacturing subsidiary, Sony EMCS Company, in Malaysia to TCL. Additionally, discussions are ongoing regarding the transfer of ownership of another Chinese manufacturing entity under Sony, Shanghai SOG Magnifying Images. In terms of valuation, the overall enterprise value of the business involved in this transaction (excluding Shanghai SOG Magnifying Images) is estimated to be approximately 102.8 billion Japanese yen (about 5.2 billion Hong Kong dollars). Based on this valuation, TCL is expected to pay approximately 75.4 billion Japanese yen (about 3.8 billion Hong Kong dollars) as consideration, with a preliminary estimate of the transaction price and pre-tax profit of the home entertainment business from 24Q2 to 25Q1, resulting in a PE ratio of approximately 4.7 times for the transaction. For TCL ELECTRONICS and Sony, this cooperation is undoubtedly a win-win situation. Firstly, TCL ELECTRONICS' accumulation in advanced display technology, global scale advantages, upstream and downstream layout of the industrial chain, and efficient manufacturing capabilities will help optimize the production and manufacturing costs of Sony TVs and enhance the operational quality of Sony TVs globally. Secondly, Sony and the BRAVIA brand are positioned as high-end, with a strong international influence, complementing the TCL brand and combining their respective channel strengths to drive further development of both companies' TV businesses. Lastly, Sony has a deep sales network in Japan, the Middle East, and Southeast Asia, and with the joint venture, TCL ELECTRONICS will experience more proactive growth in markets like Japan and Southeast Asia. Internet business: High-profit "cash cow", synergies evident If the display business is the "ballast stone" that withstands industry cyclic fluctuations for TCL ELECTRONICS, then the internet business plays the role of the "cash cow", continuously supplying cash flow to the display business. In 2025, the company's internet business maintained excellent profit quality, achieving revenue of 3.11 billion Hong Kong dollars, with a high gross profit margin of 56.4%, providing a stable and abundant cash flow for innovation research and global expansion. Benefitting from years of global development, TCL ELECTRONICS' AI and Internet business have formed a coordinated development pattern in domestic and international markets. In the international market, the company continues to deepen its strategic synergy with core partners such as Google, Roku, and Netflix, with flagship models being the first to join Google Gemini, significantly improving the AI interactive experience. At the same time, TCL Channel, a content aggregation application, was comprehensively upgraded with a doubling of premium content, driving a significant increase of 150.0% in daily usage hours per user. By the end of 2025, TCL Channel had accumulated over 45.7 million global users, with enhanced content appeal and commercialization capabilities, further consolidating the company's leading position in the global home internet field. In the domestic market, the company focuses on AI-enabled content production and interaction upgrades through its proprietary OTT intelligent terminal operation platform: optimizing the AI experience on TV screens to increase user stickiness and actively building an independent copyright "content factory" in areas such as children's content with AI-driven content production at scale. Through self-developed tools to enhance the efficiency of AI animation creation and the successful launch of the AI hardware Amby Uni. Through continued optimization of its business structure, the company has further solidified its leading position in the global home internet field. Photovoltaic business: Leading high-growth, speeding up global expansion Supported by a solid financial flow, TCL ELECTRONICS' innovative business is becoming the core growth engine driving the company's future development, as well as the "core catalyst" for its future valuation space. In 2025, the revenue of this segment reached 35.628 billion Hong Kong dollars, a substantial year-on-year increase of 31.9%, with a steadily increasing revenue contribution ratio, facilitating the company's successful transition to a diversified and synergistic development model. Among the innovative businesses, the photovoltaic business has shown the most remarkable performance, becoming the company's new area of scalable growth. In 2025, the photovoltaic business achieved revenue of 21.063 billion Hong Kong dollars, a significant increase of 63.6% year-on-year. In the highly competitive distributed photovoltaic market in China, the company achieved rapid breakthroughs by adopting a "relatively light asset" model and financial empowerment strategy. In 2025, TCL's photovoltaic business added 8.0GW of newly installed capacity in China, with over 340 new commercial projects, over 2500 dealer channels, and deepening market penetration. Of note, the company has initiated its global expansion in the photovoltaic business, focusing on the European market, and promoting the integrated deployment of "solar-plus-storage" systems, laying the foundation to seize the global energy transition dividends. Currently, with the global energy crisis continuing to escalate, traditional energy prices remaining high, and the prices of photovoltaic components and energy storage systems declining steadily: the price of photovoltaic components decreased from 0.35 euros/W in 2022 to 0.18-0.22 euros/W by 2026, while the price of energy storage systems decreased from 0.6 euros/Wh to 0.3-0.4 euros/Wh, shortening the investment payback period to 5-7 years. The "solar-plus-storage" system has become an important choice for European households to reduce energy costs. According to the International Energy Agency (IEA) "Renewables 2025" report, benefiting from utility-scale expansions in Germany, Spain, Italy, Poland, and other countries, the global new renewable energy installation from 2025 to 2030 is expected to reach 4600 GW, with solar energy accounting for nearly 80%, indicating a vast market growth potential. Against this backdrop, leveraging the synergies between the SunPower brand influence and global operational channel resources, TCL ELECTRONICS' photovoltaic business is poised for accelerated growth and is set to become a core support for the company's long-term growth. AI and smart connectivity: Technology leading, ecosystem deepening Amidst the AI technology wave, TCL ELECTRONICS continues to deepen its focus on intelligent connectivity and smart home fields, achieving steady growth in related business segments. In 2025, this business segment reached a revenue of 1.92 billion Hong Kong dollars, a year-on-year increase of 13.7%. Thunderbird Innovation, a company incubated by TCL, performed outstandingly in the AR/XR sector, leading the industry development with technological breakthroughs and product innovations. Public data shows that TCL ELECTRONICS' AI/AR glasses reached a 32% market share in China in 2025, firmly holding the top spot in the industry. In the increasingly competitive online market for AR glasses in China, Thunderbird Innovation's sales share reached 35.4%, maintaining the top rank in all channels for four consecutive years, establishing a solid market leading position. In product innovation, in October 2025, the company launched the world's first HDR glasses, Thunderbird Air 4, featuring seven core technology highlights, driving ongoing technological innovation in the industry. Furthermore, at the CES 2025 exhibition, TCL introduced the world's first split smart home companion, Siasun Robot&Automation TCL AiMe, integrating AI technology, IoT control, and home companion functions, showcasing the company's upgraded ecosystem layout from "smart connectivity" to "intelligent companionship". As the smart home ecosystem matures, such innovative products are poised to become the core components of future smart homes, further unlocking growth potential. In conclusion, TCL ELECTRONICS has built a clear matrix of innovative businesses, with the "photovoltaic business as the main driver of scalable growth and the AI and smart connectivity business as the forefront of technological breakthroughs," forming the dual pillars of growth for the company. This not only effectively hedges against the cyclical fluctuations in the display hardware industry but also rapidly converts innovative technologies into market advantages through global channel and brand synergy, providing a core logic for the long-term revaluation of the company. Transformation to quality-led growth: From crossing scales to leading values, continuous shareholder returns Looking back at 2025, TCL ELECTRONICS not only achieved the transition from a revenue scale of hundreds of billions to trillions but also transformed from relying on a single TV business to a dual-wheel drive of "display business + innovation business." In the wave of AI and globalization in the industry, this long-established household appliance giant is showcasing the power of Chinese manufacturing transformation to the world through technological innovation and local operations on a global scale, driving the company's transformation from "scale expansion" to "value leadership". The ultimate embodiment of high-quality development is the tangible return to shareholders' value. Thanks to years of sustained high-speed growth, TCL ELECTRONICS has consistently maintained a high dividend payout policy, with a payout ratio long-term around 50%. In 2025, the company's board of directors recommended a final dividend of 49.8 Hong Kong cents per share, with a payout ratio reaching 50% of the adjusted net profit attributable to shareholders, a significant increase of 56.6% year-on-year, continuing the high dividend tradition since 2017, demonstrating the company's long-term commitment to sharing the fruits of development with shareholders. In terms of cash flow, as of the end of 2025, the company had cash and cash equivalents of 13.522 billion Hong Kong dollars, a 54.2% year-on-year increase. The ample cash reserves not only ensure the sustainability of high dividends but also provide sufficient "ammunition" for future strategic acquisitions, technological research and development, and business expansion, further enhancing the company's operational stability. Regarding profitability and shareholder return capabilities, the company's return on equity (ROE) has shown a strong performance, with an ROE of 13.8% in 2025, a significant improvement from 4.1% in 2022. This further showcases the optimization of the company's operating quality from a profitability perspective, validating its high investment value in both growth and value dimensions. Currently, TCL ELECTRONICS has established a clear "offense and defense" operating structure: on the offensive side, the core TV business continues to consolidate its global position, while the innovative business is rapidly expanding, constituting a dual-engine for the company's future growth and valuation uplift; on the defensive side, as of the closing on April 24, TCL ELECTRONICS' valuation has been significantly lower than the industry average. Its rolling price-to-earnings ratio (TTM) is 13.8 times, whereas the median price-to-earnings ratio of the Hong Kong consumer electronics sector is 30.1 times, indicating a significant discount. Additionally, with abundant cash flow, a high dividend payout policy, and a solid safety margin, the company provides a strong foundation for investment portfolios. In the future, with the continued deepening of high-endization in the display business, the accelerated global layout of innovative businesses, and the progress in the establishment of the joint venture company with Sony, TCL ELECTRONICS is poised to achieve a dual upgrade in brand value and market position, continuously realizing its long-term growth potential, and becoming a benchmark enterprise in the global consumer electronics field for "dual improvement in quality and efficiency."