Key takeawayJPMorgan believes Lingyi iTech is improving profitability through a more favorable product mix in premium smartphone components. Thermal management and robotics could broaden its sources of growth, although pricing and foreign-exchange pressures will continue to affect profit realization.
Why did third-quarter results beat expectations?
- Lingyi iTech’s net profit for the third quarter of 2026 was RMB 1.15 billion, up 14% year over year and 17% above JPMorgan’s original forecast. The main reason was a rise in gross margin to 20.9%, an increase of 1.7 percentage points year over year and 4.0 percentage points quarter over quarter.
- JPMorgan attributed the gross margin improvement to a greater contribution from higher-margin smartphone thermal management and precision components, as well as improved operating efficiency. These factors offset continued foreign-exchange pressure.
How do premium smartphone projects drive profits?
- JPMorgan’s supply-chain research indicates that sales of iPhone Pro and Pro Max models grew more than 10% year over year in the second half of 2026. Company management also said it had secured additional foldable-screen orders for the fourth quarter of 2026 and the first quarter of 2027.
- The bank expects the thermal management and high-precision components Lingyi iTech supplies for these devices to have higher value per device and favorable margins. A greater share should help offset customer price cuts and foreign-exchange pressure and drive profit growth in the core business.
How far have the thermal management and robotics businesses progressed?
- The company has begun mass production of thermal management products for a major customer’s next-generation project, including manifolds, quick connectors and busbars, and has increased deliveries of cold plates for optical modules. JPMorgan expects capacity expansion and operational improvements to support market share growth in 2027.
- In robotics, revenue from data collection equipment is growing, and the company also provides components and assembly services. A domestic humanoid robot ODM project already secured provides a foundation for expansion in 2027, while potential orders from global robotics customers offer an additional growth opportunity.
Why are forecasts largely unchanged despite the profit beat?
- Balancing the stronger third-quarter gross margin against continued pricing and foreign-exchange pressures, JPMorgan has broadly maintained its earnings forecasts for 2026–2028. It expects adjusted net profit of RMB 3.035 billion, 4.591 billion and 5.725 billion, respectively.
- The forecast mix has changed: compared with its previous model, the bank has cut its revenue forecasts for 2026–2028 by 2%, 3% and 6%, respectively, while raising its gross margin forecasts for each year. The corresponding changes in net profit forecasts are approximately 0%, a decline of 1% and a decline of 1%, respectively.
- Cash flow improvement is lagging profit: the bank expects operating cash flow of RMB 3.622 billion in 2026, below RMB 4.433 billion in 2025. Free cash flow to the firm is forecast to fall from negative RMB 400 million in 2025 to negative RMB 1.173 billion in 2026, before turning positive at RMB 667 million in 2027.
- JPMorgan maintained its Overweight rating and its June 2027 price target of HK$11, based on a 12-month rolling forward price-to-earnings multiple of 15 times. Risks listed by the bank include weak downstream demand, intensifying competition, foreign-exchange and raw-material cost pressures, and customer concentration.
