Bank of America: Inovance Technology’s third-quarter revenue rises as margins come under pressure; BofA cuts price target to 70 yuan

Why did operating profit decline despite revenue and net profit growth?

In the third quarter of 2026, Inovance Technology’s revenue was 13.3 billion yuan, up 19% year on year and down 9% quarter on quarter, broadly in line with BofA’s expectations. Gross margin was 25.5%, down 2.1 percentage points year on year and 4.8 percentage points quarter on quarter, also below the bank’s forecast of 29.8%.
Adjusted operating profit was approximately 1.1 billion yuan, down 3% year on year and 47% quarter on quarter, and 32% below BofA’s forecast. Net profit for the same period was approximately 1.6 billion yuan, up 24% year on year and down 12% quarter on quarter, in line with the bank’s expectations. Fair-value gains on its investment in GaoKai Precision partly offset higher raw material costs and profitability pressure in the new energy vehicle components business.

Third-quarter general automation revenue was 4.9 billion yuan, up 26% year on year, outpacing the 7% growth of China’s factory automation market over the same period. AI-related capital expenditure drove demand in areas including 3C, semiconductors, servers, liquid cooling and optical modules.
According to MIR data, the company’s share of the AC servo market was 31%, up from 30% a year earlier but below the second quarter’s 37%. Its share of the low-voltage inverter market was 20.9%, up from 20% a year earlier. It ranked first in China in both categories.
Management expects general automation revenue to grow by about 20% in 2027, supported by AI demand, import substitution and overseas expansion. The company also expects further price increases for automation products.

Third-quarter revenue from new energy vehicle components was 6.1 billion yuan, up 14% year on year, and the business posted net profit of approximately 40 million yuan. Inovance Automotive recorded quarterly net profit of 41 million yuan, compared with a loss of 137 million yuan in the second quarter.
While profitability improved, the business’s gross margin fell 3.6 percentage points year on year to 10.8%. Rising raw material costs and impairment charges of approximately 200 million to 300 million yuan on some early low-priced projects with negative gross margins continued to weigh on profitability.
Management is exiting low-margin orders and gradually passing costs on to customers. It expects the business to remain profitable in 2027, supported by the implementation of price adjustment mechanisms, growth in higher-margin overseas business, and an improved product and project mix.

Citing higher raw material costs, weaker-than-expected profitability in new energy vehicle components and slower cost pass-through, BofA cut its earnings forecasts for 2026 through 2028 by 6%, 12% and 11%, respectively. The company maintained its target of year-on-year revenue and net profit growth of 10% to 30% in 2026.
BofA cut its price target to 70 yuan from 85 yuan and maintained its Buy rating, citing the company’s leading position in China’s import substitution trend. The target is the average of discounted cash flow and price-to-earnings valuations. The latter now uses 25 times forecast 2027 earnings, compared with 35 times forecast earnings for the second half of 2026 through the first half of 2027 previously, to reflect near-term earnings and margin pressure.