Huaxi: Maintains "Buy" Rating for TCL ELECTRONICS (01070) and reaches strategic cooperation with Sony to enhance competitiveness.

Huaxi released a research report, stating that it maintains a "buy" rating for TCL ELECTRONICS (01070). TCL ELECTRONICS has reached a memorandum of understanding with Sony, planning to establish a joint venture company with TCL ELECTRONICS holding 51% and Sony holding 49%. The joint venture company will mainly take on Sony's home entertainment business. By reaching a strategic cooperation with Sony, it is advantageous for both parties to leverage business strategic complementarity and enhance TCL's overall competitiveness. Key points from Huaxi: Event Overview According to the company's announcement on January 20, TCL ELECTRONICS has reached a memorandum of understanding with Sony to establish a joint venture company, with TCL ELECTRONICS holding 51% and Sony holding 49%. The joint venture company will primarily take on Sony's home entertainment business and operate integrated business operations globally, including product research and development, design, manufacturing, sales, logistics, and customer service for products such as televisions, home audio, etc. At the same time, the joint venture company will empower products through the Sony and BRAVIA brands. Potential advantages of strategic cooperation with Sony The joint venture company will integrate Sony's advanced technology, brand value, and operational capabilities in the audiovisual field, as well as fully utilize TCL's advanced display technology, global scale advantages, complete industrial layout, cost efficiency, and supply chain advantages. By reaching a strategic cooperation with Sony, integrating the advantages of both parties, jointly creating business growth points, and enhancing TCL's overall competitiveness. Cooperation may help TCL penetrate the global high-end TV market According to data from Qunzhi Consultation, TCL's global TV shipment scale is estimated to reach 30.7 million units in 2025, with a brand market share of approximately 13.9%, while Sony's global TV shipments are 4.1 million units. If the joint venture company is established by 2027 and is smoothly put into operation, the combined market share of TCL and Sony is expected to reach 16.7%, further enhancing the brand's market share. In the TV field, TCL's main brand covers entry-level to high-end price segments, and its innovative sub-brand LeiNiao focuses on cost-effectiveness and the youthful market, while Sony focuses on the high-end market, especially deepening its presence in overseas high-end markets for many years. According to AVC data, in 2025, Sony's internal shipments accounted for 80% in the Asia-Pacific, North American, and Western European regions. This collaboration is expected to help boost TCL's market share and influence in key overseas regions, as well as facilitate TCL's expansion into overseas high-end markets. Previously, TCL released an earnings guidance with outstanding performance. TCL ELECTRONICS announced an earnings surprise forecast on January 18, with an estimated adjusted net profit attributable to shareholders in 2025 of HK$2.33-2.57 billion, a year-on-year growth of 45%-60%. The large-size display business maintained a leading position in the market and achieved significant results in the mid-to-high-end market. The Internet business maintained a high level of profitability, innovation business scale continued to expand, equity incentives boosted team morale, and drove performance improvement. Investment recommendations Based on the earnings forecast, the firm adjusted the company's profit forecast, expecting the company to achieve operating revenues of HK$117.1/132.9/149.2 billion in 2025-2027 and achieve net profit attributable to shareholders of HK$2.42/2.91/3.35 billion (compared to HK$2.35/2.82/3.23 billion in 2025-2027), corresponding to EPS of HK$0.96/1.16/1.33 (compared to HK$0.93/1.12/1.28 in 2025-2027) with a closing price of HK$12.50 on January 21, 2026 corresponding to a PE of 13/11/9 for 2025-2027, maintaining a "buy" rating. Risk warnings: Risks include uncertainty in international trade, market demand adjustment, intensified competition due to technological changes, and cooperation progress falling short of expectations.