Where did the third quarter fall short?

  • Third-quarter revenue in 2026 was 19.035 billion yuan, down 8% year on year and up 29% quarter on quarter. It was 8% below Citi’s forecast and 12% below the Bloomberg consensus.
  • Profit fell more sharply: gross margin was 16.2%, down 2.5 percentage points year on year; net profit was 843 million yuan, down 50% year on year and below Citi’s forecast and the Bloomberg consensus by 65% and 63%, respectively.
  • Management attributed the weak performance to continued increases in memory prices suppressing demand for smartphones and PCs, delayed launches of key foldable-screen models, and the renminbi’s appreciation against the US dollar. Revenue from structural components, functional modules and assembly declined; some foldable-screen production and revenue recognition were postponed to later periods.

What could drive improvement over the next two quarters?

  • Management said a major customer’s foldable-screen phone launched in October and would generate significant incremental business in the fourth quarter of 2026; exchange-rate effects could also ease. The company said it had prepared the capacity needed for 2026–2027, completed its yield ramp-up and could flexibly increase deliveries.
  • Management expects the spring peak season in the first quarter of 2027, the lower base in the same period of 2026 and easing exchange-rate pressure to support healthy year-on-year growth in results.

How far have the server and new businesses progressed?

  • Management said three factories at the Songshan Lake server manufacturing base are operating, have passed a North American customer’s qualification process, secured volume orders and entered large-scale production. The company expects its financial performance in the final two months of 2026 to begin reflecting the business’s growth potential.
  • The first TGV glass-substrate production line in Changsha has been installed and is undergoing final commissioning. The pilot line is designed to produce 300 pieces per month, with process certification planned for completion in 2026; capacity expansion in 2027 will depend on customer demand.
  • In embodied intelligence, the company said it is the exclusive supplier of head modules for a North American customer. It plans to ramp up volumes from December 2026, with capacity reaching market expectations in the first quarter of 2027.

Why did Citi cut its earnings forecasts and target prices?

  • Citi cut its net profit forecasts for 2026, 2027 and 2028 by 40%, 24% and 23%, respectively, to approximately 2.7 billion, 5.4 billion and 7 billion yuan. The revisions mainly reflect lower margin forecasts and increased R&D spending as new businesses ramp up.
  • For 2027, for example, Citi cut its revenue forecast by only 1%, but lowered its gross profit forecast by 8% and raised its operating expense forecast by 10%, widening the reduction in its net profit forecast to 24%.
  • Citi maintained its Neutral rating on the A-shares and Buy rating on the H-shares, while cutting its A-share target price from 40 yuan to 30 yuan and its H-share target price from 31 Hong Kong dollars to 20 Hong Kong dollars. The new targets are based on 30 times and 17 times forecast earnings per share for 2027, respectively, with the H-share valuation multiple at a 45% discount to the A-share multiple.