Morgan Stanley: StarPower’s growth struggles to offset cost pressures as Morgan Stanley cuts rating and price target

Why hasn’t revenue growth improved profits?

In the third quarter of 2026, StarPower’s revenue was 1.157 billion yuan, up 9.7% year over year; gross margin was 18.2%, below 24.5% a year earlier, and net profit attributable to shareholders fell from 106 million yuan to 30 million yuan.
Morgan Stanley expects the favorable pricing trend for discrete power devices to continue into the first half of 2027, but StarPower’s cost pressures to limit the profit improvement from price increases. The bank forecasts an average gross margin of about 21% for 2026–2028, below the approximately 34% recorded in 2021–2025.

Since 2021, the company has shifted from a fabless to a fab-lite model to retain flexibility when capacity is tight, but fixed costs have risen as a result. Depreciation reached 434 million yuan in 2025, twice the level of 2024; in the first three quarters of 2026, depreciation rose by a further 124 million yuan year over year.
Foundry costs are also rising: the company’s partner raised foundry prices for mature processes starting in July 2026. Morgan Stanley expects tight capacity to sustain this trend of price increases.

Silicon carbide (SiC) device prices fell sharply in 2023–2025, narrowing the cost gap with IGBTs and driving their expansion beyond electric vehicles into industrial energy storage, photovoltaic inverters and household appliances. Morgan Stanley believes this could suppress demand and pricing power in StarPower’s existing IGBT and intelligent power module businesses.
Substitution also creates opportunities for new products: as of January 2026, more than 2 million Gree air conditioners used StarPower SiC chips. The bank believes the company’s existing SiC portfolio and its ability to adjust its production mix to customer needs can mitigate some of the impact of substitution.

Management expects industrial microcontrollers (MCUs) to make a meaningful revenue contribution in 2027, followed by automotive MCUs in 2028. The company plans to launch its first DrMOS product in the first half of 2027, while its SST SiC products are at the small-volume shipment stage. Morgan Stanley believes these businesses will take time to meaningfully offset pressure on the core business.
After factoring in third-quarter results, lower gross margins and slower revenue contributions from new products, Morgan Stanley cut its earnings per share forecasts for 2026–2028 by 43%, 32% and 35%, respectively; the revised forecasts are 30%, 19% and 13% below market consensus, respectively.
The bank downgraded the stock from Equal-weight to Underweight and cut its price target from 110 yuan to 50 yuan. In addition to the lower earnings forecasts, the medium-term growth rate assumption in its valuation model was reduced from 18% to 12%, reflecting competition from SiC for IGBTs and intelligent power modules.