Nomura Orient International Securities: Sinocera: Third-quarter revenue rises but profit falls quarter on quarter; Nomura cuts earnings forecasts and upgrades rating

Why did profit not grow in step with revenue?

In the first three quarters of 2026, Sinocera reported revenue of 4.079 billion yuan, up 24.2% year on year and broadly in line with Nomura Orient International Securities’ expectations; net profit was 545 million yuan, up 11.4% year on year but below the firm’s forecast.
Third-quarter revenue was 1.566 billion yuan, up 38.7% year on year and 8.1% quarter on quarter; net profit was 183 million yuan, up 15.8% year on year but down 17.2% quarter on quarter. Gross margin was 36.8% in the same period, down 0.1 percentage points year on year and 1.5 percentage points quarter on quarter.
The firm attributed the pressure on earnings to higher raw-material costs in some businesses, as well as increased administrative expenses and foreign-exchange losses associated with equity incentives and the acquisition of Australia’s SDI. The administrative expense ratio rose 3.8 percentage points year on year in the third quarter, while the financial expense ratio rose 1.3 percentage points.

Some capacity expansion for MLCC dielectric powders used in AI servers and automobiles has been completed, with volume shipments expected in the fourth quarter of 2026. The company began as a producer of powders for electronic ceramics, and Nomura Orient International Securities is optimistic about its shift toward high-end dielectric powders and an improved product mix.
Spherical silica powder and multilayer ceramic substrates for data centers remain in the customer validation stage; ceramic substrates for thermoelectric coolers have begun small-volume sales. The firm believes that, once validated and commercialized, these products could provide additional sources of revenue growth.

Nomura Orient International Securities maintained its revenue forecasts for 2026 through 2028 at 5.664 billion yuan, 6.751 billion yuan and 7.657 billion yuan, respectively. However, citing weak demand in some traditional businesses, higher raw-material prices and expenses above expectations, it cut its net profit forecasts for the same years by 14%, 2% and 2%, respectively, to 766 million yuan, 1.128 billion yuan and 1.371 billion yuan.
The firm lowered its target price from 70 yuan to 56 yuan while upgrading its rating from Neutral to Buy; the target implies 38.0% upside from the closing price of 40.59 yuan on 27 October 2026.
The target price is based on forecast 2027 earnings per share of 1.13 yuan and a target price-to-earnings ratio of 50 times. The target multiple was reduced from 60 times but remains above the 2027 peer average of 30.2 times; the firm believes the shift toward high-end powders, an improved product mix and the long-term potential of AI-related businesses support the premium. Downstream demand, the pace at which new products scale up and raw-material prices will affect this assessment.